From veteran publishing consultant Mike Shatzkin:
The sales-and-returns convention by which most books are sold by most publishers to their retail and wholesale accounts is too often described as “consignment”. It actually isn’t. Actual consignment terms would give us a quite different supply chain, and we may be closer than most people imagine to shifting to it.
Although major trade accounts do purchase their stock from publishers with the rights to return unsold stock for full (or nearly full) credit, this is quite different from true consignment in a number of ways.
1. The publisher’s customer is on the hook for at least some freight cost for shipping the goods. Most customers would pay the shipping cost to receive the books in the first place and almost all would pay the cost to send them back.
2. For almost all their customers, the publishers are paid faster than the customer recovers their investment (which would be by selling to the end customer for a retailer or by selling to and then collecting from the next holder of the inventory or a final customer for a wholesaler). So the publisher receives cash which is an actual capital investment by their customer. True consignment would not require that investment.
3. Because the retailer or wholesaler is providing the capital investment for the books on the store or warehouse shelf, the customer decides on prices and quantities. The publisher has to “sell” the customer on parting with some of their limited funds for inventory investment. True “consignment” would see the publisher deliver the inventory (pay the freight) to the customer and, if they subsequently wanted it returned, pay the freight to bring it back. The customer would be responsible for receiving the inventory, shelving it, paying for anything sold or lost, and packing it back up when asked to return it. But it wouldn’t be commercially practical for the account to determine titles and quantities if they were at no risk or penalty for taking in excess stock. Overstocking, which ultimately would require the publisher to overprint and eat inventory on every title, would be routine if the accounts decided what to receive on consignment. If there’s no cost, why should they risk being out of stock?
So, if the terms were “true” consignment, where the inventory risk and investment remained with the publisher, it would also require that the publisher decide on the titles and quantities to be consigned.
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This is a topic worth considering because we as an industry could be on the cusp of switching to this kind of commercial arrangement. For publishers today there are three major accounts which drive the business for most of them: Amazon, Barnes & Noble, and Ingram. Amazon has had an “Advantage” program for years that entices smaller publishers to offer consignment terms. Barnes & Noble has, with limited success, been pushing publishers toward consignment inventory in their distribution centers for years. And Ingram already holds a ton of consigned inventory through its largest-in-the-industry distribution business. They are already a very progressive company and would undoubtedly see the benefits of consignment for all their wholesale inventory as well.
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From the accounts’ (Amazon, B&N, Ingram) perspective, there are two big “risks” in going to consignment and ceding the inventory decisions to publishers. The less expensive one is that they might actually have to physically hold (warehouse, but not invest in) more books to achieve the same sales level. I say “might” because the publisher could conceivably operate with leaner inventory on many of the fastest-moving titles when replenishment inventory can be supplied without the bureaucratic need to get to a buyer and get an order.
The more serious risk would be of not having books that would sell that their own buyers would have put on their shelves. But, of course, any publisher would want to put in the most likely to sell, so as long as the account didn’t totally lose its ability to know what it could sell, that information could find its way to the buying decisions.
This all boils down to the practice of “demand planning”, which could also be called “sales predicting”.
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For Barnes & Noble, the information the publisher has about its own marketing efforts and how the book is doing in general in reviews and in cyber-discussion — or even how it is selling in other locations in the marketplace — is almost always secondary to internal B&N merchandising information. Is the book on model stock, an automated reorder capability where the sale of a copy triggers replenishment? Is the book displayed prominently in the stores, or, at the other extreme, is it in the stores at all? Is the book distributed across all geographies and store sizes? All of these elements have a big impact on the demand B&N distribution centers will see, whatever the other signals say about a title’s inherent appeal and marketing experience.
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There are few, if any, publishers today who are equipped to make the decisions to manage consignment inventory effectively at their accounts’ warehouses. But there are compelling reasons for the industry to shift to doing things that way. Fortunately, doing many of the right things will come naturally to the publishers if the tables get turned. It takes instinct more than genius to keep quantities lean if you’re on the hook for the freight in and out and you don’t need anybody’s permission to ship more copies in when they’re needed.
Link to the rest at The Shatzkin Files