“Gone today, here tomorrow.”

Alfred A. Knopf on the phenomenon of returns in the book industry

Should Returns Be Eliminated?

We all know the high cost of returns for publishers and retailers alike. We often wonder if the book publishing industry would be better off without returns and if returns could somehow be reduced to zero. The answer to both of these questions is no.
It’s only because books are returnable that so many books make it to the shelves of retail stores. In many ways, bookstores serve as automatic distribution for publishers. While not every book finds distribution, far more books are distributed than can be effectively displayed and marketed. This sets up a system of winners and losers, just like the lottery. If a publisher produces a book with high sales potential, it becomes a winner, gains more distribution, and gets reordered. If a publisher puts out a book that does not sell, it is returned. If books were nonreturnable, very few books would ever be put into stores. This would really be the end of book publishing as it is today — a business that allows entry to many who have a good idea. Another consideration is that book retailers cannot afford to mark down books that don’t sell. This is because book retail is a low-margin, high-labor business with a very low average unit sale. So, for many reasons, returns are here to stay in the book industry. It’s my view that returns should be considered a marketing cost. That is, the cost of getting distribution to see if the book is going to sell. Publishers need to make a fundamental shift in their attitudes about returns. Returns are a necessary part of book publishing, and successful publishers can and should manage their returns.

Is the Publishing Industry the Only Industry that Allows Returns?

You often hear the lament that “book publishing is the only industry that allows returns.” This is simply not true. Here are just a few of the many other industries that permit returns:

• CDs/Tapes
• Clothing/Fashion
• Toys & Games
• Bread/Bakery Goods

While it’s true that in many of these other cases there is a limit to the number of returns, and that in most cases, you need to use your credit to trade for other goods, this is also the way it is done most often in book publishing. The fact is that most industries have trade allowances of some sort. Book publishing is not unique in this way.Who Should Pay? A Snapshot of the Profitability of Each ChannelIf publishers are thinking about setting up a nonreturnable discount schedule that assumes bookstores and wholesalers can absorb the cost of returns, it might be interesting to take a look at who makes what percentage of the money in book publishing:
Authors            8-10%

Publishers              7-10%

Retail Bookstores            5-7%

Wholesalers/Distributors            2-3%

This clearly shows that book retailers and wholesalers are in the worst position to absorb unsold books. Authors aren’t going to do it, so that leaves the publisher to absorb this cost.

How Does “Ease of Entry” in Publishing Compare to Other Industries?

A wonderful aspect of book publishing is that there are so few barriers to entry to becoming a book publisher. Start-up costs are a few thousand dollars for computer equipment, distribution can be found easily through major wholesalers, and production costs are usually less than $20,000 per book. This means that someone with a wonderful idea can self-publish a book and get it into distribution for very little money, but with quite a bit of effort. Let’s look at some other creative endeavors:

So I look at book publishing as offering a very level playing field where someone with a great idea and publishing expertise can thrive, even if they don’t have millions of dollars.

Developing Quality Control Measures

The purpose of this article is to show book publishers how they can take responsibility for unsold books returned from retailers. My basic premise is that while some returns are inevitable because of the inexact nature of book distribution, the rate of return is a result of the publisher’s expertise in selecting, editing, and marketing the books. Thus, the returns percentage becomes a measure of quality control of a publishing program. I will offer some simple statistical tools that can be used by management to monitor the returns rate for select product lines and key customers and customer types. I will also offer a simple way to improve research on their title acquisitions. Publishers must learn to be responsible for their decision-making and account management. They need to improve both if they are to reduce the returns rate for their company. The returns rate is a direct measure of the quality of a publishing program and key account management can and should be managed.

Ways Publishers Can Reduce Their Returns

The question is: how can returns be reduced from their current levels? I believe there are three major reasons for returns, two of which are within the publisher’s control:
1. Poorly published books. This includes inadequate research into the size of the market, ignorance of competitive books, poorly written and edited books, and poor marketing. The result is either a book that should not have been published because there was no market, a book that was published that was not as good as established books on the same topic, or a book that never received any exposure.
2. Poor key account management. A publishing firm’s sales reps should be on the side of the customers with whom they place books. They should understand their needs, and only sell them books that they can sell, in the quantities that they can sell. Not every book should go into every account. Study your accounts and take a proactive approach to selling. Don’t oversell, and don’t sell every account every title. Study their buying patterns and work out a sales plan that makes sense for them. They won’t have the time to do it themselves.
3. The nature of trade book distribution creates returns. Books are sent to stores without much knowledge of the demographics of that store. While Barnes & Noble and Borders “model” some stores using statistical methods, this is very far from a science. So until the book retailers themselves are able to figure this out, which won’t be easy because every area has changing demographics, returns are something book publishers have to accept.

How to Improve Title Selection

The first and most important way for publishers to improve the quality of their publishing programs is to be more selective with the books they publish. Intuition does not work. As former PMA Board Member Tom Woll points out in his book Publishing for Profit (Fisher Books, 1998), the first and most important aspect of managing the returns process is to publish books that are unique and have a sizable market. You need to research the market and other titles being offered on the subject you are considering. In the past, this has been fairly difficult. You would have to go to a bookstore and see what they had on their shelves, or check the subject guide for Books in Print. But information on the most important factor was missing — sales. Now, there’s a way to get sales information — the Internet.

Using the Internet to Do Research

The best way to use the Internet to do competitive research is to look at amazon.com‘s bestseller lists and sales rankings for each title. To do this, you use their book search engine to list all books on the subject you’re researching. You can also do a search by subject, in which they will list the top 25-50 books in that category.
For example, a prospective author approaches you with a book on breast cancer. They convince you that this is an important and unique book. You wonder how well books on breast cancer sell, and which are the best-selling titles. In the past, you had to rely on what some key buyers might tell you. Now, you can use the power of the Internet. This is how.
Log on to amazon.com. Search for books using the keyword “breast cancer.” You will find about 700 titles listed. Some of these are multiple editions (paperback, hardcover, audio), and some are essays and poetry about breast cancer, so you would need to count the number of books that are directly competitive with the book you are considering for publication.
Next, you browse by subject and find the top 50 selling titles on breast cancer, and download this list. One important bit of information this gives you is sales rank. Also, by reading the descriptions of the top-selling titles, you can get a good idea of what consumers are looking for. Download the descriptions to the top-selling books and make a grid that shows page count, publication year, price, and major features.
Finally, you make a visit to your local superstore, where you find 11 breast cancer titles on the shelf. This gives you a good idea of how easy or difficult it will be to get your proposed book into distribution, and which features your book will need in order to compete with the best-selling books in the category.
There’s no excuse not to spend two or three hours of research on any book you propose to publish. If you want to go ahead and publish the book, you will at least know what you are up against so that you can have realistic expectations.

How to Analyze Product Line Sales

Another way to improve the quality of your publishing program is to analyze sales by subject category. Table A below shows one way to do this.
Because many people have a hard time with statistics and analyzing numbers, I’ve developed a measure called “The Returns Index.” This is the same tool used to analyze the cost of living index between different cities. The premise is simple. You take an average for the total product line. Then you look at individual subject areas. 100 is always average. Lower than 100 means that the returns for this category are lower than average, and higher than 100 means the returns for this subject category are higher than average. A returns index of 200 is double the average, and 50 is half the average. (The way this is done is to divide the category returns percentage by the total returns percentage, then multiply this by 100). Examples are shown below in the chart.

Table A

Table A shows which categories are contributing the most to overall returns. There are many reasons for a category to have a higher than average returns rate. You might have expanded too rapidly and published several poor sellers, or you might have over-distributed some titles to some accounts. The point is that the high rate shows that the quality of your publishing program has been hurt by either poor publishing decisions or poor account management.
Do this same analysis for each book in each product line, and rank the books according to the overall returns. Try to understand why some books have a high returns rate. What assumptions did you make when you contracted these books? Did something change, or were your assumptions incorrect? How can you avoid these mistakes in the future?

Analyzing Sales by Customer Type (Distribution Channel) & Key Customers

Assuming that you are making better publishing decisions, you still need to pay attention to your account management. There are two important ways to look at your customer base: customer type (distribution channel) and key customers.

How to Manage Distribution Channels

The first way to view returns is by customer type. Table B below shows how you can look at sales and returns by customer type and compare each distribution channel for efficiency. To make it easier to understand, a measure has again been used called an “index.” Here it is the returns rate for each customer type divided by the overall returns rate. An index of 100 means this distribution channel is exactly average. Numbers higher than 100 indicate a higher than normal returns rate. In this example, College/University Bookstores have an index of 152, or 52% higher than average, while Library Wholesalers have an index of 49, or about half the normal rate.
This information can be used in a number of ways. First, look at where the majority of your returns are coming from. What can you do to better manage this channel? Do you have policies that encourage customers of this type to load up on your products, then return them? If so, you might want to take a hard look at your profitability for this channel, and rethink your policies.Table B

Managing Key Customers

If you rank your customers by dollar amount returned and look at how much each customer represents of your total book returns, and run a cumulative column, you will probably find that your top 50 customers account for 99% of your returns.Table C

Look at the customers who have a returns index of higher than 100 and analyze how you have been managing these accounts. Be more selective with the quantities and titles you offer each of them. Study each of these customers’ buying and returns patterns by title and category so you can steer them clear of particular product lines, or have them increase other product lines they do well with.
As obvious as this seems, many publishers do not have an account management plan for their key customers. Here are some suggestions:

• A sales plan should be developed for each key account for new title distribution.

This plan should be based on historical sales of similar titles and categories.

• Not every book should be sold to every account, and large initial orders are not always the best strategy for optimizing sales. If an account is weak on sales of cooking titles, only suggest the top cookbooks each season, and conservative quantities of those.
• Closely monitor the sales of the new titles.
• If something starts to move, go back to the account and get a reorder. An account is more likely to reorder if they have a reasonable initial quantity than if they were overloaded.
• A system should be set up where returns are monitored quarterly. Potential problems can be spotted early in the year with appropriate action taken. This should be done with the emphasis on account management and working with the buyers more effectively. Often buyers are too quick to pull the trigger, and a phone call can help them hold off a bit. Perhaps a marketing program could even be developed to move the books.

Recommendations

Based on the information in this article, here are some basic recommendations for publishers who would like to reduce returns:

• 1. Put more time and effort into researching each title before it is published. Look up sales of similar titles on amazon.com where they list the sales rank of every title. Do focus groups and customer surveys. Perhaps set up peer reviewers. Get statistics from the Internet on the size of the market. By eliminating some of the questionable products by using this process, the returns rate would drop several percentage points.
• 2. Reassess your categories. A high returns percentage either means there is no market for that type of book, or you don’t have the necessary expertise to publish that type of book successfully, while other publishing companies do. You can’t be all things to all people.
• 3. Don’t forget another important consideration, timing. Getting books out on hot topics before the competition, and while the topic is still hot, is crucial. It’s also important that seasonal books, such as gardening titles, be shipped early in the season for maximum sales. Fall releases are also apt to come back, sometimes without even being put on display, if they are not in the stores by early September.

Summary

In thinking about how to reduce returns, it occurs to me that the real question is quality control of two important aspects of book publishing: the quality of each season’s publications list, and the quality of key account management. The returns index truly does indicate internal factors that can be controlled by every publisher. While the external factors cannot be controlled, they can at least be recognized and taken into account as part of the publishing and key account management strategies.
No industry operates in a perfect environment. Every industry has its challenges and problems. The book industry has many fewer problems than most other industries. Publishers don’t have foreign competition like car makers, publishers don’t have discount wars on the same product like office supply makers and burger companies, publishers don’t have wars for competent staff like software makers. Publishers have it pretty easy in comparison, but can fail to deal with the few very solvable problems they are faced with.
There is no quick fix to reducing the returns rate. The distribution system as it exists now is not going to change rapidly. A commitment to quality control in the publishing program through more research into each title proposal, and to better account management, will require time and discipline. The extra profits and reduced aggravation, however, make this investment worthwhile.
The bottom line is this. If you have a high returns percentage, you are doing a poor job in selecting, publishing, and marketing your books. If your returns percentage is low, you are doing a good job.

Sidebar

A Returns Fable

Once upon a time, a book publisher got really fed up with not only the returns of books that he didn’t think should be returned, but also the number of out-of-stocks on key backlist titles. He turned to his marketing director and said: “I want you to come up with a report that allows our salespeople to go into any store and get the orders they want without having to deal with the buyer on a title-by-title basis. The result I’m looking for is to double sales and eliminate returns in our key retail accounts. You have six months. See you then.”
Well, at first, the problem seemed overwhelming, but the marketing director decided to look at the problem from the retailer’s point of view. So he came up with this plan, called QUIC&#153:
1. The company would guarantee each retailer a 4.0 turn* on inventory and give them a 45% discount and free freight. The minimum order would be 10 books.
2. The salesperson would control backlist using a computer printout that showed previous sales and gave a suggested order that took into account: inventory turn, sales rank by category for that class of trade, sales rank by region for that category, and seasonal sales fluctuations (especially for gardening books).
3. The salesperson and buyer would review the suggested order for new titles. This suggested order would be based on the accounts sales histories for that category of book.
QUIC&#153 was launched at the next sales conference. Most sales reps did not like QUIC&#153 at first because it meant they had to work harder and couldn’t get those big orders of new products they had come to rely on. After a few months, though, the sales reps would not visit an account without their QUIC&#153 reports. And the result was somewhat short of what the book publisher had demanded. At the end of the first year of using this program, sales increased 70%, and while returns did not disappear, they did get into the 7-10% range, down from about 20%.
As you might have guessed, this isn’t really a fictional story, but what happened at HPBooks while Howard Fisher, ex-PMA President, was vice-president at HP, and I was the director of marketing there. QUIC&#153 fell into disuse when Price/Stern/Sloan purchased HPBooks, but this shows that intelligent account management can reduce returns to a manageable level.

*Inventory “turn” is the number of times a retailer “turns over” his books on an annual basis. For example, if they stock 50 books a 4.0 turn would mean that they sell 200 copies a year.

Michael Taylor started his career in book retail by working for the Brentanos bookstore chain. He managed the Brentanos on Fifth Avenue in New York and was regional manager in several areas. Taylor worked for Waldenbooks as the trade paperback backlist buyer from 1979-1981. His publishing career started with HPBooks in 1981 where he worked until 1987. He has spent the last 12 years working in direct marketing and educational publishing. He is currently a book publishing consultant and can be reached at mstaylor9@aol.com.This article is from thePMA Newsletterfor April, 1999, and is reprinted with permission of Publishers Marketing Association.