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The Realities of Distribution

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For many publishers, getting distribution is the hardest part of the process. You have the idea, you can control editing and production, but when it comes to distribution, you are at the mercy of companies that specialize in sales, warehousing, fulfillment, and accounts receivable. Will they take you on or won’t they? Will your books make it into bookstores or not?

As Kathy Welton’s article in this issue shows, there are options for most publishers. Ideally you could find your company courted by one of the big three, Publishers Group West, National Book Network, or Independent Publishers Group. On the other hand, many publishers, in their enthusiasm–or desperation–to get distribution, sign up with distributors that have tenuous backgrounds and shaky financials. These publishers are so eager to sell books that they don’t do the rudimentary research to determine whether the distributor they’re enamored with is solvent. Too many ignore warning signals they should have heeded.

Over the past years (OK, decades), we’ve seen many well-known, respected distributors go bankrupt–Kampmann & Company in the ’80s, Atrium in the ’90s, and now Login Publishers Consortium (LPC) in the early 2000s–after having provided a valuable service to their publishers and, indeed, to the industry. Many less well-known distributors lived briefer lives only to flare out in a blaze of ignominy. Current rumors allege that others may follow.

 

The Initial Distribution Decision

What is a publisher to do? Is there any way to avoid this situation? How much control can you have? To try to answer these questions, let’s take a step back. Let’s ask, first, if a publisher really needs a distributor, or if a distributor is indeed the best approach to today’s industry.

It’s commonplace today to say, without hesitation, that yes, a distributor is absolutely essential for accessing the trade bookstore market. After all, Ingram, America’s largest wholesaler, won’t talk to publishers if they publish fewer than 10 books a year. Barnes & Noble won’t let a publisher see their buyers unless it has five new books at a time in any one category. Independent bookstores don’t want a lot of accounts with small publishers so they buy primarily from the larger publishers, distributors, or through their wholesaler of choice. So it’s true that, if you’re a smaller, independent publisher, it helps to have a distributor to get you in the door and sell your books.

But this analysis skips the threshold questions:

 

  1. Can you find a distributor–any distributor?
  2. Is that distributor effective and financially secure?
  3. Can you make distribution work financially from your standpoint?
  4. What do you do if your distributor gets into trouble?

Let’s take these questions one at a time.

 

Can you find a distributor?

If you have an ongoing program and do substantial business, you may well be able to use the services of one of the big three (PGW, NBN, IPG). At times, given a special book or unusual circumstances, one of the big three might even take on a one-book publisher.

If you don’t fit into these categories, you’ll have to find a smaller distributor. They too exist. Bookworld Services, Partners, Small Press Distribution (for literary or alternative houses), and now Biblio, a division of NBN, offer services to small publishers. In fact, the latter two offer better financial terms to publishers than the larger distributors do–although they don’t offer all of the services.

So in many cases, with a strong book, you can find some kind of distribution. One word of caution though: Find that distributor before you print your book, not after. Why? Because if you don’t find a distributor first, you’ll be left with a lot of inventory sitting in your warehouse with no place to sell it and no way to recover the costs of your paper, printing, and binding. If you find a distributor first, you’ll probably have some advanced sales, some ongoing sales, and, at least over a defined period of time, some cash flow.

 

s that distributor effective and financially secure?

This is where things begin to get tricky. What works for some publishers doesn’t work for others. And what works in certain times can turn ugly and become destructive at others.

Most distributors are private companies, so getting authoritative financial records and information on them is practically impossible. Almost all companies can be checked through Dun & Bradstreet (www.dnb.com) but the accuracy of these figures may be suspect. On the other hand, many companies in most other industries rely on D&B as at least one source of their credit information. Maybe you should too.

By going to D&B as I wrote this article, I found out (for free) that Bookworld Services, Inc., in Sarasota, does about $3.6 million of business with approximately 30 employees at their Florida facility. I also learned that National Book Network does about $10.8 million with 80 employees at their office in Lanham, Maryland. I could have checked other distributors as well. Are these figures accurate? Maybe, maybe not, but this is more than I knew yesterday.

In addition to sales figures, you can get a variety of other information. Checking on Independent Publishers Group under their Chicago Review Press imprimatur (CRP will publish the revised edition of my book Publishing For Profit this summer), I found that D&B will sell me a Comprehensive Report for $117.50, a Business Information Report for $99.50, a Payment Analysis Report for $69, a Credit Scoring Report for $54.50, a Business Background Report for $35, and a Supplier Evaluation Report for $103.50.

If I were going to put my book into the hands of any distributor, it would certainly be worth $350 or so to me to get the comprehensive, payment analysis, credit scoring, and supplier evaluation reports. I know money is tight, but some money is better spent than saved.

 

Essential Q&A

How else can you check the financial condition of a distributor? Talk to their clients. And not just one or two! What you want to know is:

  • Are they being paid on time and the full amount due? If so, great. If not, why not?
  • If payments are slipping past their due dates, is this a short-term problem or a long-term problem? Slow payment is probably the #1 sign that your distributor is having trouble. If it happens for more than a month or so, start looking for alternatives.
  • Are books lost or damaged in the warehouse more often than they used to be, with write-offs being taken by the distributor, so that publishers aren’t getting full compensation?
  • Are credits being taken that are suspect?

In addition, talk to the bookstore managers and wholesalers. How do they feel about this company? Are they satisfied with its service? If there are problems, what kind of problems are they?

At the same time, ask for information about the distributor from the Better Business Bureau in the city where it is located and from the Consumer Protection Agency or Attorney General’s Office of your state. Are complaints on file? If so, are they recent? What are they about? Were they resolved to the complainant’s satisfaction? If not, why not?

By seeking and getting this information up front, you can avoid some problems later on. Knowledge is power. Learn as much as you can about this company that you will entrust with your livelihood.

 

Does distribution make sense for your company financially?

It’s getting harder and harder to make a profit using a distributor. Why? Because the discounts they give to wholesalers and bookstores are going up, and the distributors’ fees are high, often as much as 30% of the net dollars it receives.

Worse, promotional fees, receiving fees, storage fees, and other such fees can quickly take the total cost to you from 30% to 50%. And there aren’t many publishers that can take that kind of a financial hit, subtract their cost of goods and overheads, and remain profitable.

Publishers should begin to think about alternatives to distributors, because costs won’t go down and there will be significant pressure to keep retail prices low.

One financial safeguard you might want to build into your contract with a distributor involves arranging to use an outside warehouse to store most of your inventory and giving the distributor only that amount of inventory that it needs to fill orders. The distributor will like that arrangement since it means taking up less room in its warehouse, but the important point for you is that most of your stock won’t be tied up in the event of a bankruptcy.

 

If Your Distributor Does File for Bankruptcy, What Should You Do?

 

  • Get yourself an attorney who’s skilled in bankruptcy proceedings.

 

    This is an intricate process. You need a good lawyer to guide you through it. Think about finding fellow clients to share the legal fees and filing under a joint umbrella. Be sure to file your claim for any accounts receivable. And read “Distribution Contracts: Steps to Take to Protect Your Inventory” by Lloyd Rich in this issue to understand why other secured creditors will probably come before you in terms of getting paid and what you can do about that going forward.

 

  • Try as hard as possible to remove any inventory you have in the distribution warehouse.

 

    Unfortunately, you’ll probably have trouble moving your inventory, even though it is on consignment and the distributor is only the agent for you. It will be tied up until the bankruptcy court adjudicates the matter–perhaps for a very long time.

 

  • Let the major account buyers (Ingram, Baker & Taylor, Barnes & Noble, Borders, and others) know that you have books if they need them

 

    , but that the accounts will have to either prepay the orders or set you up as a vendor in their system. Unfortunately, most major accounts won’t start doing business directly with a publisher or with a publisher’s new distributor unless the distributor in bankruptcy sends a release stating that the publisher is now free to pursue its sales through another method or company.

 

  • Find a new distributor as fast as possible.

This poses problems because you are still technically under exclusive contract with the troubled distributor and will need a letter of release from that company before another one can take you on. But beginning the process immediately will allow you to make a transition quickly when you’re free to do so. Bear in mind that you’ll have to work out who takes returns on the books in the market. Since the new distributor won’t want to take back unlimited returns and get inundated with credit memos on a new publisher, minimally you’ll have to guarantee to reimburse it for those returns.

 

 

  • Focus your attention on special sales and nontraditional sales.

 

    While these markets may not pay off immediately, they won’t interfere with the regular book-trade accounts and can significantly expand your sales base. Be careful, though. Some segments of this market (the mass merchants, for instance) have their own risks, especially of returns and damaged goods.

 

  • Try to work closely with Unique and Quality Books in reaching the library market.

 

    Again, this won’t solve your problem, but it will help sell your books to libraries, which always pay their bills.

 

  • Don’t panic.

 

    Others have gone down this road before you. Talk to them about how they got through the crunch. Did they find creative ways to finance themselves during the bankruptcy period? How did they get their inventory? What percentage of their receivables did they recover? While your circumstances are sure to differ somewhat, the reassurance of others will help you weather the storm.

And remember this… The real key to avoiding trouble with distributors is to do your research up front, before you ink a deal. Don’t be tempted by a quick fix for getting your books into bookstores.

Tom Woll, President of Cross River Publishing Consultants in Katonah, New York, has more than 25 years of senior-level publishing management experience at firms both large and small. These companies include John Wiley & Sons, where he was VP & General Manager of the Professional & Trade Division, and Rodale Press, Storey Communications, and Beaufort Books, where he served as Publisher at all. Woll chaired AAP’s Smaller Publishers’ Group, and is on the Advisory Board of the Small Press Center. He is an Adjunct Professor of Publishing at NYU’s School of Continuing and Professional Studies.

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