Sterling Runs into Snags With Costco, Borders
by Steven Zeitchik with Jim Milliot, PW NewsLine -- Publishers Weekly, 2/3/2003
Now that B&N's acquisition of Sterling is complete, how are other stores reacting to the publisher? Not too well, judging by two leading retailers.The publisher confirms reports that Costco has stopped ordering and selling Sterling's books because it deems B&N a competitor, while Borders has articulated a similar policy.
Sterling president Charles Nurnberg says he "finds it kind of interesting" that Costco would make such a decision. "They buy two or three hundred titles and sell it with [high-margin items such as] garden hoses, instead of 150,000 titles, like Barnes & Noble and Borders and the independents do. Who is whose competition?" Costco did not return a call for comment.
As we went to press, Borders acknowledged that it too would cease ordering from Sterling. In a statement, the company said, "Borders has had a productive and positive relationship with Sterling. Yet, since Sterling is now owned by a competitor, we believe it is prudent for our company to phase out that relationship. We are confident the products supplied by Sterling can be purchased through other sources, assuring that Borders will continue to serve customer needs." The store also recently ended its category-management partnership with Sterling.
Reached by phone late in the day, Nurnberg said of the Borders move, "I certainly hope they'd reconsider the decision to deprive their customers of such a successful range of books when they're getting an absolutely equal playing field."
The hit to Sterling's business that the loss of the two accounts would cause isn't clear. Some estimated that Costco was responsible for as much as 10% of Sterling's sale but Nurnberg said that was "quite inaccurate" with the real number "closer to 1 or 1 1/2 percent." Borders sales are considered to be a somewhat wider stream of Sterling's revenue than 1%.
In the past, Costco has dropped suppliers when they think the suppliers are giving preferable terms to the competition. In Austin, Tex., a frozen-food company called Michael Angelo went on Costco's non-grata list after the company reportedly sent a memo to a competitor offering better prices. Sterling, though, says B&N gets the same discount as everyone else, and it appears as if the fact of B&N ownership was enough to rankle the Washington discounter.
In a time when vertical integration is expected to pick up, many have been monitoring reaction to the sale closely. Today's news indicates that the potholes on the road to such syntheses may be deeper than some imagined. The decisions also underscore the tension between buyers, who want to stock stores with the widest possible selection, and corporate executives.
As for the indies and other existing accounts, Nurnberg says that he has personally called any store with reservations about the new arrangement. "I think what everybody's losing sight of is that Sterling's price points have been better as a result of the sale," he said.
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