12 August 2005

Terminal Depression

When one buys a book from a bookstore, one is not actually buying it from the bookstore—because the bookstore is not the actual owner of the book, except (perhaps) in (inaccurate) name. In substance, bookstores are consignees for trade books, because the books are fully returnable, for any reason, for full credit. The "transfer of title" to the bookstore is merely illusory (and probably more for insurance and tax purposes than anything else—if the publishers actually carries their stock of consignments on their own books as assets…).

This practice is a relic of the Depression. During the Depression, there were no chain bookstores, whether in the UK or US, as we have come to know them. Similarly, every publisher handled its own distribution, which was ordinarily directly from the publisher's own warehouse, as books came off the publisher's own press. (Certainly there were exceptions; but they were precisely that.) Deflation, slow sales due to the bookbuying public's reduction in available cash, the extreme economies of scale during the era of handset (or mechanically set) type, and a variety of other factors combined to make a system of returns economically advantageous to the bookstores, to the publishers, and to the authors.

In the 1930s.

Fast forward to the 21st century. There are simply more publishers; more-centralized (and vastly more cost-efficient on a per-copy basis) distribution systems; electronic ordering; electronic typesetting and direct-to-plate (and even POD) printing; Thor Power Tools (regarding inventory accounting for tax purposes—which does accept the sham of bookstore "inventories" as relevant); and, more than anything else, chain bookstores—whether the Three Bs (Borders, B&N, Books-a-Million), smaller local and regional chains (such as Brentano's, at least until recently), and the Big Brazilian River online.1 Then, too, there's the whole "format" issue: the shocking premium for casebound (hardback) books over otherwise-identical trade paperbacks, "premium" book sizes, and other mysteries. So, does the returns system continue to make any sense?

Certainly not for authors, as they're the ones getting killed by reserves against returns. One would expect, in a rational world, that a substantial proportion of authors whose books "appear" to have earned out their advances might have received more in royalties than actual returns will justify; instead, this is exceedingly rare, and tends to make news when it happens because one or more chains (or distributors—which are even more concentrated) does a massive cleanout of its consignments on hand. Or, sometimes, it's a bit more ridiculous, as in the (unconfirmed) story of the bookstore that returned its entire stock and reordered when it moved a quarter of a mile. The importance of accounting to this system cannot be understated; consider HarperCollins UK's profit rise on flat sales, the burgeoning controversy over WHSmith's attempts to impose even more draconian returns and timeliness penalties on publishers, largely because it can. (There's a word beginning with "a" that describes the appropriate remedy… at least in theory.)2 In any event, the structure of publishing contracts combines with the nature of royalty accounting and reserves to shift the vast majority of risk onto the author. This works because authors (at least in the US) cannot collectively bargain (freelance authors are independent contractors, thus management personnel, and therefore unable to form true unions), because information on actual practices is so scarce, and because the irrational impetus to publish often outweighs coldhearted economic analysis.3

So, instead, we end up with $30 casebound novels of dubious merit, with the return rate—something that is completely outside the author's control—being held against the author for the next book contract (not to mention in the course of this contract, as high early returns will increase the reserve held against returns). Sometimes that means a lower advance, lower print run, whatever; sometimes it forces authors to change their brand name, whether by adopting, dropping, or changing a pseudonym; sometimes it makes authors wholly "unpublishable"—the literary equivalent of Van Gogh, or "Harry". Sales, shipments, ordering, and so on are increasingly driven by "just-in-time" inventory management—a concept that works well for fungible widgets and not at all for nonfungible individual products. This is almost Orwellian:

Who controls the past controls the future; who controls the present controls the past.4

In an ideal world, we wouldn't have these problems: We'd simply eliminate the returns system. The problem is not the system so much as it is the transition. If we declared today that "returns are dead," we'd see a massive loss of independent bookstores, further dominance of large publishers that can afford to suck up larger inventories, and a host of other economic effects that would be bad for everyone. In the end, the benefit to consumers would probably be minimal: commodity-type books might decrease in price, and noncommodity-type books would disappear from most market outlets—if, that is, they're published at all.

  1. Alliteration appears to be the order of the day; and since "books" also begins with B…
  2. Although these particular references are mostly UK-based, it's just a question of time before practices cross the pond—in both directions. In any event, it's a word that has gone out of fashion in US practice, and never had much traction at the retailer level in the UK. I guess books just aren't as important as movie theaters.
  3. This is not intended to say that "irrational" means "invalid," or "unsound," or "stupid." Noneconomic rationales are perfectly valid justifications for taking action. However, since the focus of this post is on economic consequences, that's where I'm focussing for the present. The relationship between accounting advantage and true economic advantage is for another time…
  4. 1984: A Novel (1949). There is no "he" or other pronoun in the source work.