Is The Publishing Industry Eating Itself?

We hear much about how the publishing industry is changing, and it is often attributed to the growing emphasis on digital content, eReaders, tablets, and so on. The economy, a factor in every business, has hit this industry like many others and, with customers tightening their wallets, lowering prices is a common way many businesses try to increase sales.

After the last article, The Future of Reading, I thought more about the way books are sold in brick and mortar stores, and an observation I made while working in that end of the business led to the title of this article. In a very specific way, the process by which books are being sold appeared to me to Vikshipsbe undermining its own foundation. It began when I saw new books arrive in retail stores, only to be ‘returned’ after a short while (unsold), but then magically reappear as ‘salebooks’. The thoughts below are ones I believe anyone would have, especially an author, if you spent time looking at the bookseller business, at least the huge retail chain way of selling. These thoughts may not apply to independent bookstores, I am sure they have unique pressures all their own, but they may be something everyone should think about in an industry undergoing change.

When a new hardback book appears, especially by a popular author, the cover price is commonly in the mid-$20.00 range, though it can be in the mid-$30s . What many people may not know is that the big retail booksellers purchase books from the publisher at 55% off the cover price, a fairly standard industry discount. On a $25 book, the major retail booksellers likely spend $11.25, giving them a substantial margin to play with (Walmart may even demand a higher discount.) Booksellers say they need this margin to be able to compete, with often means a book is stickered with a 20-30% discount the moment it arrives in the store (but not always.) With every other store presumably doing the same thing, it appears to be merely a marketing ploy to influence customers, but that’s business. However, the discounted price still leaves a 20-25% profit for the bookstore. The sticker comes off soon enough, at which point the bookseller is making the full 55% profit.

Such a huge wholesale discount may explain why a book is priced at $25-$30 to begin with, since that increases the publishers 45% share. Booksellers do have powerful sway in forcing the 55% discount. If, for example, a publisher only gives a 30% discount to the bookseller, the book in question will probably never show up on the bookstore shelves. The store might order it for a customer but, shelf space is reserved for books with a higher profit margin…so you can imagine the pressure on publishers. Books with the higher profit margin get into the stores, others probably won’t, and smaller publishers unable to offer the 55% discount are out of luck, as are their authors.

Using the pricing example above, after a book is sold to a bookseller, the publisher’s $11.25 goes to cover their costs, which include the initial printing costs (often less than $5.00) and marketing and promotional expenses (sometimes charged against the author’s royalty.) The author’s share eventually comes from whatever is left. An author’s agent may also get 15%, but I’m of the opinion that a good agent is worth every dime. Still, it isn’t hard to see that of the original $25 price, the authors share may only be a few dollars, if that, all contingent on whether the hardback is sold—which is where more strangeness comes in.

In the last few years, the economy and the advent of digital publishing have seriously affected the old-school publishing industry. Many magazines disappeared virtually overnight. Money is tight and customers certainly feel the pinch, whether it is $25 for a hardback or even $14 for a trade paperback. There have been half-price and used bookstores for years, but now, in the major bookstore there may be an entire section of the store that has books at far cheaper prices, brand new popular titles that in many cases were on the shelves at full price just a few weeks before? Enter—the Salebook section!

Books arrive at bookstores every week, sometimes daily. At the same time, books currently in the store must be shipped out to make room for the new arrivals. What isn’t selling has to be returned to the publisher, usually sooner rather than later, to meet return policies, clear shelf space, or just free up tied up cash. Many of the books on the shelves are standard titles, classics for example, that are always there, leaving perhaps only 25% of the existing shelf space for new books to come and go. The return policy is a critical fact of life for any book that makes it to the bookstore, after all, the store does not want to get stuck eating the cost of an unsold book. Every month or two, retail bookstores will scan every book in the store and, based on sales, timing, or other factors, any book might be selected to be ‘voided’, returned to the warehouse or back to the publisher for credit. The return policy is a vestige of the great depression, or so I’ve read, intended to keep the booksellers in business to sell the publishers product. However you look at it, the publisher and bookseller are hooked together between the customer and the author. Even with this symbiotic relationship, what publisher wants get stuck with a supply of returned, unsold books?

The following example is drawn from experience with a hard back book by a very successful author, one I read myself, which made this instance a memorable one (nevermind who, I’m not telling.) In this case, when the new hardback book first arrived in the store, perhaps 10 copies, all were priced in the average $25 range. After a month or two, of the six copies remaining on the shelf, five were ‘voided’ and returned. Within a few weeks, the softcover version of the book arrived in the store, priced in the $14 range, which was about average.

A few weeks later, 5 hardback copies, still looking brand new and untouched, arrived back in the store—only now priced at $7.95 as a ‘salebook’. If the store bought the book initially at 55% off the cover price, was the store now selling it at a loss? Eh, highly unlikely. And yet, here were brand new hardback’s for about half the cost of what the recent softcover was selling for—and there was still one hardback on the shelf at the full $25 price! I was acutely aware that a customer who was not told about the lower price in the salebook section might not be a happy camper, but a customer who learned this fact certainly would be! So what was driving this apparent undercutting of the last hardback on the shelf, not to mention the new $14 soft cover books that had just come out?

The impression I had after seeing this happen many times and ‘asking around’ as an author, is that the publisher definitely wanted the bookseller to sell all books, including these ‘returns’ that could be reclassified as ‘salebooks’. And, the bookseller was happy to unload these back-again brand new books if they could reacquire them at a hugely discounted rate. In short, send the book back to the publisher (or at least give him a list of what’s coming back), the publishers cut a deal for some low price ($3-$6) if the bookseller will keep the book, and the bookstore gets the book back at a hugely discounted price, but one where the bookseller can still make a 20-50% profit. A point worth remembering is that the cost of the materials to make the physical book likely sets a bottom line fixed price; any lower and the publisher may not even recover the cost of materials. If you are an author, I encourage you to check for yourself and compare the published price (above the barcode) in these discount sections with the sale price. Then, see if there is still one on the shelf at full price. Some softcover books, originally with a $14.95 cover price, appear in the ‘salebook’ section at $3.00.

What is this doing to the industry itself if booksellers cultivate a salebook business by swinging new books into this highly-discounted state? One major bookseller recently opened a store selling only ‘salebooks’…and where does anyone think these books come from?

When Amazon first came on to the scene, people quickly realized that, if they are willing to wait a few days, they could get a book at a greatly reduced price. The current state of the publisher/big-bookseller industry…perhaps without even realizing it…is creating a similar culture. Customers are learning that if they just wait, and the wait is getting much shorter, the expensive $25 book will eventually be in the discount book section at $7.95…or less! It seems self-defeating for publishers to sell excess books back to booksellers at hugely discounted rates, knowing that the bookseller is silently training their customers not to buy the book when it comes new from the publisher.

As is happening now, publishers are turning down smaller market books and less-known authors in favor of big names or hot topic books they think will sell. The publishers, trying to survive, are looking for higher profits and less returns, which is fair enough from that perspective. The reality is that this also reduces the variety and volume of books, meaning there are fewer books to fill up the shelves and less variety for readers to choose from. With less new books coming from the publishers, shelves begin to thin out, which is something booksellers definitely do not want. The only option is to remove shelving, convert it to other products (notice the toys and junk now in bookstores,) or…(wait for it)…fill the space with salebooks at big discounts. But these books immediately undercut the sales of new books, the lifeblood of the publishing industry. It is a downward spiral for the old way of doing things.

From an author’s perspective, I’ve wondered whether a book that is sent back to the publisher as ‘unsold’, ever generates any profit for the author himself. If the publisher threw it away, it certainly would not, but if the publisher sells it back to the bookseller after labeling it as ‘returned/unsold’, and sells it for a price that covers their cost and a little profit, what is the author making from that deal? It seemed to me at the time that booksellers were supporting their business with the creative works of authors who don’t know what is happening with their books. To be clear, I do not know what the full arrangement is that lets bookstores end up with a brand new book to sell at a fire sale price…I am only making an observation and asking questions that I think both authors and publishers should think about. But if books are rapidly turned around and resold as discounted salebooks, and customers quit buying new books because they’ve learned it will be $6.95 in a few months, where is the motivation to the author trying to write and survive. Clearly, many authors will begin to write and sell directly to their customers, something that is definitely happening with digital publishing. And, authors who have been dropped or rejected by the big publishers and hence, the big retail stores, will have to work out book signing events and distribution through local or independent book stores…which I think is good for both.

I once read that Frank Herbert, author of Dune, explained the underlying premise of his book as, “He who can destroy a thing, controls it.” The person who can destroy it, or at least turn it off, is really in control. So who controls the publishing industry? Is it all based on who owns the printing press and who does the selling…just the paper and ink? I suspect not. The customer is after the content, the story, the information, the idea, making the most valuable commodity in the publishing business the mind of the author. The entire industry is nothing without authors and their ideas. Booksellers and publishers who have tried to control access from the writer to the reader, run the risk of eating themselves alive by continuing selling and pricing strategies that ultimately diminish the value in the very books they need to sell to survive. Fortunately, as digital publishing expands, authors are realizing that they can do it all for themselves, meaning authors who take control can survive and prosper, regardless of the industry. As soon as independent printers and independent bookstores realize they can work directly with an author to print a real book, publishing will go back to being about creating a product that pays for itself—and sells itself.