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Board Member Memo: Demystifying Returns

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by Janice Schnell, Ingram Content Group –

Publishers are artists. It might sound odd to use that term, but every day publishers bring new ideas and experiences to the world through written words. This is a true art form. Of course, in addition to being artists, publishers must be savvy business people. As a publisher, you have to be informed about the business aspects of your trade.

Some of the business questions I receive from both seasoned and novice publishers involve returns. Not a glamorous topic, but one that it’s very important to understand when you want to succeed in the world of publishing. I hope what follows will inform and clear away some of the haze surrounding the practice of returns.

What Returns Do

Basically, the return provision allows booksellers to purchase inventory and, after a period of time, return it to the publisher if the inventory has not sold and they feel it will not sell.

Return options give stores flexibility so they can keep inventory current, maximize value from shelf space, and have the books their customers want. In a world where consumers want everything now, booksellers need agility in terms of stocking strategy to remain relevant. In other words, when book retailers have the option to send books back, they free up room; they free up money for something new; and they keep the doors open.

Most booksellers rely on a talented buying team whose job it is to balance anticipated demand with available funds to get the most bang for their buck when ordering, but this is not a perfect science.

Where Returns Go

Booksellers return books to the “vendor of record,” which means any supplier that a retailer has an ordering relationship with, whether it’s a publisher or a distributor or a wholesaler. A publisher whose books are available to a retailer through any of these relationships could see returns come through any of these channels, since retailers are not required to return books to the vendor they purchased them from.

For example, a retailer might buy 50 copies of a title from a publisher. After six months the retailer might have 25 copies left and decide to return them. When the title is also available to the retailer from a wholesaler, the retailer might find it easier to return it through the wholesaler in a larger shipment containing other returns.

The wholesaler would then either return the books to its inventory or return them to the publisher, depending on its sell-through and inventory policies.

How the Financials Work

When returns go to the publisher, regardless of whether retailers or wholesalers send them, the publisher must reimburse its trading partner for the inventory. Because the risk is evident when selling a title as returnable, publishers typically set up reserve accounts for returns.

A reserve account for a title, consisting of a designated percentage of the funds from its sales, is put aside exclusively to pay for any future returns. The most important takeaway from my advice is probably this: If you are selling your books as returnable, it is wise to have a reserve account in place.

Reselling Returns

Returned books have usually been touched by a lot of hands, having started out in a box from the printer headed to a warehouse, gone on to a retailer directly or through a wholesaler, and then gone back to a warehouse or wholesaler.

Throughout those journeys, books are often damaged. Damage does not always mean you cannot sell the books, but you probably won’t be able to put them back into inventory. You can work with a remainders company to sell the “hurts” at a discount, or you can sell them yourself through your Website. And you can also donate gently damaged books to literacy groups or other charitable organizations.

Selling Books Nonreturnable

You can sell a title as nonreturnable. That said, if you are counting on sales through brick-and-mortar stores, you will likely encounter resistance. Most physical bookstores require a standard trade discount and buy only titles that are returnable. As a result, most wholesalers and distributors require that titles be returnable; otherwise they will not purchase inventory.

Sometimes publishers decide to make a title nonreturnable at some point after publication. This entails notifying retailers as well as notifying wholesalers and distributors, who are required to notify their retail partners, and giving the retailers a window of time to return their inventory. As a result, it is possible that returns will continue even after a title goes out of print or becomes nonreturnable for any other reason.

Minimizing Returns

A primary factor in the success of a new title is marketing. Putting a title into retail space is not going to generate sales if its likely readers are not aware of the book.

By taking advantage of relatively new technology, some publishers now launch books using print-on-demand for hundreds or perhaps dozens of copies instead of ordering thousands of copies printed by offset.

Potential partners for print-on-demand include CreateSpace, which has a print-on-demand program that makes books available on Amazon sites domestically and internationally with no physical inventory on hand, and Ingram’s Lightning Source, which has a print-on-demand wholesale distribution program that lets publishers make their titles available to Ingram and Baker & Taylor, the two largest U.S. wholesalers, as well as to Amazon and Barnes & Noble. Lightning Source also has wholesale distribution programs that reach the United Kingdom, Germany, Australia, and Brazil.

If you are focused only on generating online sales, and not planning to sell through physical stores, you can set titles up at Lightning Source as nonreturnable.

Both Lightning Source and CreateSpace offer options for color, black-and-white, softcover, and hardcover manufacturing.

Print-on-demand helps Amazon and Lightning Source because it lets them show titles as available without the necessity for investing in physical inventory and warehouse space. And the technology helps publishers, both because returns from online sales are typically lower, and because startup costs are lower too, with no investment in speculative printing.

There are other ways of minimizing returns (for specifics, see the three-part IBPA Roundtable that began with “Controlling Returns: Yes, We Can” in our May 2010 issue and continued in the June and July issues).

And pursuing three of the broad goals you probably always pursue will help: get outstanding content; process it professionally; and market it well.

Janice Schnell is a content acquisition account executive for Ingram Content Group whose book publishing expertise includes knowledge of offset and print-on-demand book manufacturing and distribution and digital content solutions for publishers. A member of the IBPA board, she can be reached at janice.schnell@ingramcontent.com.

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