One way to improve the relationship between bookshops and publishers.

There is usually somebody in The Bookseller talking about the need to improve the relationship between bookshops and publishers. From today alone, we have High Street Bookshops Need Greater Support and Children’s Indies Concerned Over Cover Prices.

This kind of talk usually sparks fear and defensiveness all round: neither side can really afford to give up any discount, or to switch to some other stockholding method that involves moving books around without actually paying for them. While these arguments go round in circles, leading to nothing but bad feeling, ebooks and online sales steadily erode the bookshops’ market share.

However, there is one very clear way in which bookshops, publishers, and even book buyers could all get a better deal. It should be possible to improve relationships across the trade, and even reduce cover prices, all without reducing the quality of the books we all work so hard to produce and sell.

A look at two pricing models

Here are two potential pricing models for a new trade (large format) paperback:

(A)
RRP £9.99
Price through online retailers (e.g. Amazon): £9.99
Price direct from the publisher: £9.99
Price from your local independent bookshop: £9.99

(B)
RRP £13.99
Price on Amazon / online retailers: £13.99 around £9-£11
Price direct from the publisher: £13.99 £9.99
Price from your local independent bookshop: £13.99

Model (A) is the one we currently use at The Fiction Desk, which is why Various Authors is £9.99, a relatively low price for a large format paperback. Model (B) is much more common in the industry, as any regular book buyer will know.

It will surprise nobody to learn that we’re under a certain amount of pressure to move from (A) to (B). What might surprise you is the source of that pressure: it’s coming not from Amazon, but from the independent bookshops.

Behind the numbers

To explain what’s happening, we need to look at the economics behind those two pricing models.

To create model (A), we set up a very simple system. All the books that leave our distributor destined for the retail trade do so at the same discount, which is 40%. The tiniest independent or the largest chain (or online shop) receives a fixed 40%. Because of this, we can be sure of receiving the other 60% to cover our distribution, printing, author fees, handling returns, and other costs. At the moment, a £5.99 cut should do this for us, so we can comfortably set the RRP at £9.99.

The difference behind model (B) is that we would now be supplying wholesalers at a higher discount: they demand between 57.5% and 60% discount from RRP. So instead of receiving £5.99 from the price of a £9.99 book, the publisher would receive as little as £3.99. In order to make a reasonable margin per copy sold, the publisher therefore needs to push up the RRP: in fact, at £13.99, the publisher would still only make £5.59. (To keep the same revenue per unit they had before, it would be necessary to push the RRP up to a massive £14.99.) Economy of scale doesn’t really apply here either: wholesalers don’t create sales, so much as reroute them.

So, in order to supply through wholesalers, it’s necessary to push up the RRP, and this is a rise in price that adds no additional value to the end consumer. The retailer gets something close to the same 40% discount they would have got direct from the publisher, so it makes no great financial difference to them. But the publisher doesn’t need that higher RRP, so they can offer a little discount on their websites. The higher RRP, along with better relationships with wholesalers, also means that Amazon et al have more room for discounting. The final result, as in model (B) above, is that only the indies are left selling the books at a now too-high £13.99.

You would think that independent bookshops would do anything to avoid this situation, but in fact, many of them actively encourage it: they refuse to buy stock except from wholesalers, and we’ve even heard of people being told that our title isn’t available to purchase at all, when it’s setting in our distributor’s warehouse with immediate availability. The message is clear: the only way we’ll get our titles into many indie bookshops is to make them available to wholesalers, and therefore price them too high for the bookshops to be able to sell them.

Breakdown in communication.

Aside from creating artificially high RRPs, there’s another serious problem resulting from the presence of wholesalers in the supply chain.

When bookshops purchase stock from a wholesaler, the publisher has no idea who they are. When we launched, we had plans to feature an online list of stockists, to provide those stockists with promotional material, and to actively promote them on our website. We’ve had to shelve all of these plans, because we have no idea which bookshops are stocking us at all. Of the few trade sales we’ve had, the only stockist I definitely know of is the excellent John Sandoe in Chelsea. All the rest could be anybody—they could well be Amazon sales.

What can be done?

Put simply, if we want to retain (regain?) a healthy and efficient supply chain, we need to encourage bookshops to purchase stock directly from publishers and their distributors. Only by doing this can we maintain (regain) realistic RRPs, some level of price equality, and strong lines of bookshop-publisher communication on which to build joint promotional efforts.

For bookshops, this means turning away from wholesalers and maintaining and using accounts with larger publishers, and with the distributors who directly represent smaller publishers. This means extra paperwork—more small invoices instead of fewer large ones—but that’s a small price to pay for the benefits of a more efficient and fair supply chain.

For publishers and distributors, it means working to ensure that their ordering systems are as efficient and flexible as possible, with low minimum orders and delivery costs, and efficient customer services to make the process as easy as possible for the bookshops.

I can’t speak for the industry as a whole, but I can speak for The Fiction Desk: We intend to maintain our 40% trade discount, making the book immediately available to any bookshop that cares to stock it. But we won’t be offering additional discount to wholesalers, or getting involved in the kind of short-sighted high RRP / high discounting that’s causing so much damage right across the supply chain.

As always, comments from people across the industry are much appreciated. I’m sure there are things that I’ve missed in the above summary, but I do believe that this is the general direction in which we need to be heading.