Why This is a Returnable Business

As I've mentioned before, back during The Great Depression (as opposed to today's Great Recession), a lot of things (surprise!) weren't selling, including (surprise again!) books. In order to get book stores to carry their stock, publishers allowed them to return any unsold merchandise for credit. Not surprisingly, this worked pretty well. Very surprisingly, the industry has continued this practice for the past eighty years, boom or bust, recessions, depressions, and rapidly expanding bubbles be damned.

As Jeffrey Trachtenberg points out (albeit in a Wall Street Journal article from five years ago), returns are "crippling inefficiencies of an antiquated business" and "The book industry... has been saddled with this system since the Depression." Around forty percent of books are returned (my estimate would be slightly higher in today's economic climate), comprising hundreds of millions (if not a billion or more) dollars per year in lost revenue. Many of these books are remaindered; the rest are pulped. Sad but true, mes auteurs.

So: why does the industry maintain this astoundingly inefficient business practice?

First, there's a sort of institutional singlemindedness I've discovered in which publishers seem to believe that because something has worked in the past, it will 1.) work just as effectivley now, and 2.) continue to do so indefinitely. As you can see: not the case (although, somewhat ironically, the returnable stock structure probably saved more than one book store when the recession hit in 2008). How things are done is how things are done, and this is more or less the end of it.

Second (and this sort of ties into the above), publishers are expected to demonstrate healthy growth year-on-year in terms of their sales numbers. Any year in which a publisher converts from a returnable to a non-returnable model will immediately see a 40% (or more) reduction in gross sales, and even though they'll recoup a lot of this by not having to print, package, ship, and warehouse books that will never pass through the register to the consumer, it would cause enough of an accounting and financial nightmare that most publishers will (and do) balk at the prospect, myopic as that practice may be.

Third, as mentioned in Trachtenberg's article, publishers have been steadily increasing the prices of books for years in an attempt to (among other things) compensate for the revenue lost to returned, remaindered, and pulped books. A conversion to a returnable model would almost certainly require a reduction in price point, which is great for consumers but bad for the publisher's bottom line (at least in the short term). I think there's something to be said about e-book pricing here, but that's another post for another day.

Finally, as I've mentioned in some of my co-op posts, brick-and-mortar retailers order more copies of would-be bestsellers than they really need, since they need to make those elaborate hardcover towers at the front of the store to attract consumers' attention. In a non-returnable model, they would be stuck with these books until they could either sell them at a sufficient discount or destroy them; this would in turn disrupt the co-op system as retailers and publishers scramble to reset the bar for promotional quantities.

This is all assuming a perfect world with a perfect supply chain, and as we all know, neither of these exists. Even if a publisher were to reach maximum efficiency in terms of getting books to retailers' warehouses, they would still need the cooperation of the retailers' supply chains and sales forecasting in order to make a non-returnable model work. It was easy back in the '30s to convert from a non-returnable to a returnable model when there were no superstores or Amazon; these days, converting back would be a Herculean task (though I think it would be enormously beneficial in the long-term).

What say you, meine Autoren?