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Are Returns Really So Bad?

We hear a lot about returnability as the BIG PROBLEM in publishing. Everyone hates returns, including me. But a little analysis shows that returns are not publishing’s big problem.

Richard Curtis has a great post on the BEA session Stupid Things Your Publisher does, during which Bob Miller speaks about returns as one of the two things driving the death spiral of the industry (the other being unearned advances). Miller’s Harper Studio is trying to pioneer nonreturnable sales (and has cut a deal with Borders) but the bookstore members of the panel were beating him up for not offering a sufficient discount for non-returnability.

Let’s start that acknowledging that returns are wasteful, from an environmental perspective. You are printing books, shipping them back and forth and then pulping them. It’s painfully wasteful. But is it really wasteful compared to most printed media? Half the pages in magazines are ads that are barely glanced at. Is this any less wasteful? Every newspaper is thrown away every day. This is way more wasteful, by any measure.

Keep in mind that all this printing and shipping has a real business purpose – to allow bookstores to stock more books than they could otherwise afford to do, and in particular to take a risk on lesser known books and authors. This is a good thing. These books go on the shelves, which makes it a form of advertising, which is different than waste.

Now how much does returnability really cost? Let’s assume that the number of books sold by the bookstores is the same no matter what. In other words, when they buy non-returnable they will magically sell the same number as they would have if they bought returnable and returned the unsold books. I’ll come back to this assumption.

According to reports, Miller is offering an additional 8% discount for non-returnability. For a $25 hardcover that’s an extra $2 off. By my math, if a book is returned, the most it costs is about $2.75. This assumes that the book is returned unsalable and just trashed (while in fact the book is often resold). So the return rate would have to be 72% for the Harper Studio deal to break even. (Again this assumes the same level of net sales.) At a more typical 30% return rate, the additional discount for non-returnability should be at most 3-4%.

So this must mean is that the 8% discount that Harper Studio is offering is based on the assumption that the bookstores will buy more books from them than they would on a returnable model (after deducting returns).  This might even be the case, if Borders orders Harper Studio titles aggressively and promotes them aggressively (which they are motivated to do as the books are nonreturnable).

Harper Studio might be right and this might be a great strategy for them. Or Borders may order only the amount they are sure to sell, meaning fewer sales than in the returnable model. In which case it’ll turn out to be a terrible strategy for them. (And note that the booksellers in the panel did not think the discount was enough for it to make sense for them.)

But here’s the key thing to realize. Harper Studio’s non-returnability approach is aimed at gaining competitive advantage relative to other publishers. The greater sales of their titles will be at the expense other publishers’ titles. This isn’t a bad thing. If it works it’s actually pretty clever (although it’ll be quickly copied). But it’s not an industry solution. All publishers’ books can’t be more promoted. Non-returnability won’t sell more books overall. In fact, bookstores will carry less stock overall (since the cost of carrying stock will be higher).  So overall sales may be lower in physical stores (ceding more territory to online sellers). Bookstores will be more cautious in their buying, and the most publishers will save will be 3-4%, but probably less. If they are discounting by an additional 8% then this will be a net transfer of income from publishes to bookstores (who nevertheless don’t seem to want it, probably because they fear overbuying). 

Note also that if booksellers overbuy and can’t sell the books, then the result is waste transfered from the publisher’s books to the sellers. This doesn’t solve any problem (there already is a mechanism for selling remainders). Publishers forget that there is an overstock problem in every industry, but it’s usually the retailers’ problem. But that cost has to be borne by someone.

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