When a publisher ships, say, 120 copies of Bestsellingauthor's newest novel Cornfield Lust to Neighborhood Books, the invoices will all say that the books have been "sold." (The same is true if Neighborhood Books uses a distributor instead of direct publisher order.) That is an example of form over substance. The bookstore will "own" only the books it does not return to the publisher under the "returns" policy. Normally, that means that the bookstore can start cutting its stock around 90 days after the on-sale date. The bookstore is then issued a credit by the publisher for either the hardbacks and trade paperbacks returned to it in saleable condition or the covers stripped off the mass-market paperbacks returned to it. This is a "consignment," not a "sale." As we dig deeper into the finances of the publishing business, this seemingly technical distinction will begin to take on more importance—especially when we reach taxes and Thor Power Tools.
The books are shipped to the bookstore one of three ways: at retail (such as a customer's special order), with a short discount (typical for academic and certain specialty books, averaging around 20%), or a long discount (typical for general trade books, ranging from 40% to 55%). Thus, a trade paperback priced at $17.95 could "cost" the bookstore $17.95 at retail (minus any story-by-store consideration), $14.36 at short, or as little as $8.08 at long. The difference, when sold, is supposed to be the bookstore's operating income, from which rent, employee salaries, utilities, etc. get subtracted to create the profit. <FORESHADOWING>The kicker is the timing of the flow of funds, which quite possibly inspired E.F. Hutton's scheme in the late 1980s.</FORESHADOWING>
Confused yet? Don't worry; you will be.