The 2004 CIROBE (Chicago International Remainder and Overstock Book Exposition), the show's 14th, will be held in its customary locale, the Chicago Hilton and Towers. Also as usual, it's being held on the last weekend in October (this year, Friday the 29th through Sunday the 31st). Business as usual? No doubt. However, an issue was recently raised in two national newspapers that has captured the attention of publishers and booksellers—and certainly has bearing on the remainder and overstock business that's the heart of CIROBE.
In July of this year the New York Times and the Chicago Sun-Times ran articles that reminded readers of a dismal publishing statistic: namely, that the number of books sold is shrinking year-to-year. A familiar tale, perhaps even a little dog-bites-man, but this time with a twist. The Sun-Times article—plaintively titled "The End of Books?"—and (even more directly) the New York Times article laid the blame not on the siphoning off of consumer attention by the Internet and video games or on shrinking consumer dollars. Instead, they pointed a finger at used books, and particularly the new wide availability of used books on the Internet.
The New York Times even used the N-word, comparing sales of used books online to the diffusion of free music via downloads on Napster. The music industry has long claimed that free-of-charge file swapping is eating away at profits and may eventually destroy the business completely. Might off-price books do the same to publishing?
Notes on Nomenclature
Before addressing whether discounted books are, indeed, destroying publishing, some nomenclature needs to be set in order. Sites such as Amazon, Barnes & Noble (www.bn.com) and others label discounted books as "used." Some of these are true used books, meaning they have been purchased by individuals, read and are now being resold. But some are hurts, some are remainders and some derive from other sources completely. Many are placed online not by individuals, but by companies that deal in discounted books. For end consumers, it's the lower price that matters. But for those in the discount book business, the failure to distinguish among them muddies some already murky water. As Shinu Gupta, president of A1Overstock, puts it, "There is a lack of proper terms."
John Alden retired from HarperCollins this summer after 39 years working in sales for the company, the last 13 of those running the consolidated remaindering operation that he created for the house. "My definition," says Alden, "which has been used in contracts and other kinds of things, is this: a remaindered book is a mint book that has been sold off either entirely or partially for reasons of inventory control. The second category, 'used,' includes hurt books, and hurt books are a major business. They are, however, different from remaindering in that when you buy remainders, you buy maybe 2,500 copies, while with hurt books you are buying pallets of unsorted returns and those may be in any kind of shape."
Brad Jonas, cofounder of CIROBE, part owner of the three Powell's Bookstores in Chicago and president of Powell's Books Wholesale, says, "Vocabulary is getting goofed up. The layperson probably doesn't care, but it is confusing and it's important for the industry to understand what they're talking about and what they're not talking about. I think what they mean by used books is 'not full price.' The word 'used' has a commonsense feeling, but when it's 'used' from these sites, I think they mean 'off-price.' " Clearly there's understandable confusion among book consumers in general: What are "used" books, and what differentiates them from remainders and other forms of discounted books?
Brian Elliott, COO of Alibris, a retailer and distributor of used, new and hard-to-find books, says, "There's a whole bunch of gray here. Most are still used books, but a sizable portion of the market is remainders. We also sell hurts, which more often than not are dinged or dented enough that they look used."
Amazon spokesperson Kristin Mariani says, "Unfortunately, we do not break out what percentage of books sold through Amazon Marketplace are true used books. However, I can tell you that Amazon Marketplace sellers are made up of many different kinds of people—including merchants, individuals and authors—and for larger publishers/distributors, Marketplace has proven to be a great way to move left-over inventory at discount prices."
The Internet Effect
While the two newspaper articles on the impact of used books on the industry may have made a misstep in terms of vocabulary, both did get one thing right: the Internet has changed everything. Jonas of Powell's says, "With online versus bricks-and-mortar, on a variety of levels we're facing a new paradigm. It's interesting that publishers were ready to embrace this new technology when they felt it was selling big for them and bricks-and-mortar stores were like dinosaurs. But now it's coming full circle and affecting them."
Michael Powell is owner of Powell's Books in Portland, Ore., which has long shelved new and used books together (and also stocks a large selection of remaindered titles) and has an active Web site (www.powells.com) that works on the same principle. "At one time there were books that were uncommon in the sense that you might find only one copy in Portland, Oregon," says Powell, "but suddenly, if there's one copy in each of 50 cities, it's very common on the Internet. To the extent that people are price conscious, the Internet certainly offers an opportunity you can't find in bricks-and-mortar."
Drew Montgomery, director of inventory management of Chronicle Books, says, "Certainly with the advent of more and more online book vendors, customers are afforded more opportunity than ever to do comparison shopping, and hence provide increasing competition for traditional book vendors. Also, with all this new online activity, my guess is that new rules—if that's even the correct terminology—are being written as we speak."
Several figures involved in sales of discounted books—whether on the retail or wholesale end—rejected the Napster comparison outright, noting that these books are not being given away for free, and that, additionally, many industries boast healthy resale sectors.
Elliott of Alibris says, "At a recent PW summit, somebody raised their hand and said, 'Isn't this like Napster?' Legally, absolutely not. There's been a used car business forever and a day. A lot of what's driving this business is based on two factors: the returnable nature of the product and the ongoing price increases. Publishers have continued to raise frontline prices on trade and mass market paperbacks. If the trade paperback costs $18, people say, 'I think I'll buy the discounted hardcover.' "
Whether publishers like it or not, the Internet model of discounted book sales appears here to stay. In the spirit of Charles Darwin, publishers must adapt or die. Michael Powell says, "The thing the Internet brought to that conversation was globalizing the opportunity to buy the product. Is that a minor thing or a major thing? That's almost impossible to quantify. But it's 200 years late for people to be waking up to the fact that books can be resold."
The Great Leveler
The bookselling activity more analogous to Napster may not be organized retailers or wholesalers at all, but individuals who sell their used books on sites such as eBay or Half.com—often at exceedingly low prices. These individual sellers, empowered by the Internet, aren't giving away books, but sometimes they come close.
Robin Moody, co-owner of Daedalus Books, a remainder company involved in wholesale, direct-mail, Internet and bricks-and-mortar sales, says, "A Web site is a real equalizer. You can have somebody with a little basement operation and he can have a Web site that makes him look like megacorp. Everybody pretty much looks the same on the Web."
"The unique thing about books is that nobody can throw them in the garbage," notes Shinu Gupta, president of A1Overstock, one of the largest sellers on Amazon's marketplace. "Junk mail, magazines, newspapers we throw in the garbage without thinking, but I can't think of anyone who would take a book and just throw it out. Instead, these people try to make 50 cents or a buck selling books online, and that is affecting businesses like ours a little bit."
But if the Internet has created more sellers, it has also created more buyers, Gupta explains: "There are many more buyers because of the Internet. It does have some negative effect, but it's also positive, because many more people are buying books."
Hannes Blum, CEO of Abebooks, an online marketplace for new, used, rare and out-of-print books, says, "Discounted books such as remainders are part of the value chain of the whole publishing industry. The industry is using that sales channel to get rid of books that they couldn't sell through the normal sales channels. The only thing that's changed is that such books are becoming available to a broader public through the Internet. I don't think that's hurting the industry. Books become more affordable, and I think it's encouraging more readers. We're activating a group that's probably sitting there."
At Amazon, too, the addition of discounted books has increased business—presumably for the long term. Mariani says, "By offering customers the opportunity to buy used books at a lower price, Amazon Marketplace helps customers find and discover authors/titles they may have been hesitant to experiment with at a higher price point, which ultimately leads to the sale of new books. Many customers have told us they are more willing to try something completely new at a lower price point; we've also heard from customers that when they sell books through Amazon Marketplace, it gives them a budget to buy more new books. Additionally, we've found that offering our customers a lower-priced option causes them to visit the site more frequently, which in turn leads to higher sales of new books. Marketplace has been a new customer generator and contributed to our customer loyalty, which generates continued sales of new books going forward."
Retailers who sell both discounted and full-price titles take things even further, insisting—as Mariani notes, above—that not only are discounted books creating new readers, but that they also help introduce unfamiliar authors and augment purchases of consumers who are already buying full-price books.
According to Marci Crossan, spokesperson for Abebooks, which began carrying new books in June, a recent survey of Abebooks users—the site gets about four million book buyers each month—found that "every discount book buyer is also a full-price book buyer."
Jonas of Powell's Bookstores says, "Bargain creates two things: First, it creates fandoms for certain things. I wouldn't have bought Paul Auster's novels at full price, but I bought one title as a bargain book, and now I do buy at full price any new book of his that comes out. Also, getting people to read or getting people in the position of buying books is a good thing and a good pattern. The whole genesis of these articles was the question of whether Americans are reading less. If bargain [books] provide them an opportunity to read more, maybe we get past this glitch and we still have a reading public."
Retailers acknowledge, however, that the bricks-and-mortar discount table model relies on a very different mechanism than a Web site does. In a real-world store, a table of discounted books is a target for browsers, but buyers are unlikely to "browse" Web sites that way. Instead, they are likely to look for a particular title, and often buy the least expensive copy of that title that's available.
Elliott of Alibris does point out that the Alibris Web site mimics that bricks-and-mortar model more and more and now has "more browse-oriented functionality." Still, when it comes to books, bricks-and-mortar is for browsing, while Web sites are for more directed buying.
Alden, formerly of HarperCollins, summarizes the difference: "A lot of online clientele, and particularly used clientele, have a precise thing in mind, and the computer has made that extremely accessible. At a bricks-and-mortar store, the remainder buyer is a different person. The buy is made on impulse. You could never go in and expect to get a particular book."
The Book Stall at Chestnut Court in Winnetka, Ill., a suburb of Chicago, doesn't stock any true used books, but it does feature a large selection of remaindered and promotional books, albeit only in clearly defined categories—mainly art books, design books, photography and travel. Bob Thiel, buyer for the store's remainder section, says, "These are books that offer a very obvious value over what their original publishers' prices were. We're not competing with core fiction or history or biography."
"They don't injure our sales, but we don't have the used Da Vinci Code sitting next to the new one," agrees Book Stall owner Roberta Rubin. "With fiction, I believe in the axiom that if it didn't do well at $25, it's not going to do well at $13. Even if we mark it down to half-price, people aren't willing to buy it."
So, sales of remaindered books aren't hurting the store, but are they damaging to publishers? Thiel says, "I have a hard time buying that. Sixty cents on the dollar is better than zero cents on the dollar."
Elliott of Alibris says, "Part of what happens on a remainder table is first-time authors, lesser-known authors, material that people don't want to take a chance on for $25, but for $4 or $5, they'll take a bigger swing at it."
Powell of Powell's Books agrees: "I would never have sold as many books as I do without the used books. It allows customers to come and exercise choice, and it's not like we have a 100% correspondence between new and used."
According to Moody of Daedalus Books, "The sales of remainders do not impact the sales of full-price books. Remainders are purely an impulse buy. You go into a bookstore and see a book on a table. If you're interested, it's a book you didn't buy when it was a new book, so you're already past that line and you're being seduced by price to give it a try. I think it's a great way to help people find new authors."
Alden, formerly of HarperCollins, also points to the common practice of partial remaindering, which he says may result in the following scenario: "Someone buys a book for a $1.50 from the dump up front. Then somebody sees it and says, 'Where did you get that Stephen King?' The original person names the store, and the friend goes in and it's not available at that price anymore, but the same book is available at full price."
With that hypothetical situation, Alden touched on the increasing changeability in remaindered or out-of-print status. A title may be partially remaindered—and during that period it cannot be sold at full price—but after a certain period of time the non-remaindered books may return to the market at full price. Interestingly, notes Alden, in this situation, sales almost always return to their initial levels. "If you remainder something in April and then look in August, it's right back to where it was," he recalls.
Elliott of Alibris points to Donald Trump's The Art of the Deal, first published by Random House in 1987. "That's a classic example," says Elliott. "It was out of print. He did the TV show [The Apprentice], and you could watch his prices on Amazon going up, and then it was back in print. It's a dynamic and fluid business these days."
Part of the Process
Both sellers and buyers of discounted books and publishers note that the sale of discounted books is actually an integral part of the industry, and ultimately it supports the sale of books overall. Publishers are most definitely not shooting themselves in the foot. "It may look like we're nibbling into their market, but on the back side we're supporting the long-term market," says Jonas of Powell's Bookstores.
Elliott of Alibris asks rhetorically, "Do the sales of off-price books cut into new book sales? They probably do to some degree. On the other hand, you'd do far more damage to your sales by trying to stop this."
Chronicle's Montgomery says, "If you define 'discounted' books as deeply discounted books—not your typical 15% or 20% chain bestseller discount, for example, but hurts, remainders and white-sale titles—then not only does it not hurt the publishing industry, but it serves as somewhat of a safety net for publishers who are saddled with underperforming titles."
Barry Baird, executive director of bargain book sales at inspirational publisher Thomas Nelson, agrees: "We look at selling bargain books as a really important additional sales channel. Books sold back into the market develop new readership for authors and help retailers and chains make good profits that help them to be more solvent and more profitable."
Baird adds that remaindering at its most effective is woven closely into a house's business model. "The tighter it's run the better. As soon as a book has had its day, when you can flip the other part to cash that's a smart thing to do. Books that are remaindered or returned don't become more valuable. They become less valuable. If they just sit there, they're kind of in limbo, and eventually they'll be liquidated or destroyed, and then there's impact in the accounting sense."
The Big Picture
Everyone interviewed by PW for this article agrees that blaming the recent economic slump on sales of discounted books of all types is a mistake. Alden, formerly of HarperCollins, says, "I think it's had some effect, but not the gloom and doom that people are saying. A much more significant factor is club sales. Go to Sam's. Go to Costco. There you've got stuff at full price marked down dramatically. One of the reasons publishers may be hurting is overpublishing and overprinting, which is also a major contributor to the remainder part of the business."
Elliott of Alibris says, "The interesting issue for publishers is, this isn't something they lack control over. The remainder business is based on the publishers' returnable policy and, given the power of big-box retailers, it will continue to some degree."
Jonas of Powell's says, "I think what's affecting the market a lot more is that books are now competing with so many different things for mindshare. It's possible now to spend money on the Internet or DVDs or videos." Gupta of A1Overstock advises a wait-and-see approach: "Publishers should not panic. Only time will tell. It's an evolving technology."
And perhaps some perspective is in order before anyone claims to foretell the death of any industry, especially one as entrenched as publishing. Ultimately, says Moody of Daedalus, "I don't think "used" books have that much impact on the sale of new books. I still think most people want to go into a bookstore and browse and see things they like the look of and read the first paragraph. I don't think they go into a bookstore, find what they want to read, go home, open up Amazon and look and see whether they can get a cheap copy. When someone buys a book for 25 cents over the Net, that's really a found sale. It's not hurting the sale of a book that costs $26.95."