Scholastic didn't need a crystal ball to know that Shrek 2 would be one of the biggest movies—and potential drivers of sales for children's books—this year. Having secured the rights to publish Shrek 2 books in multiple formats, Scholastic looked to mass market retailers for insight to help make the most of the license.

"I think some of the titles we developed that were more innovative and higher priced were driven in some way by the mass," says Ellie Berger, senior v-p of trade and publisher of licensed properties for Scholastic. Thus was created The Road Trippin' Back-Seat Shrek-Tivity Book. Priced at $14.99, the book is a veritable party in a box, with bingo cards, colored pencils, dice, stickers—and a plastic kazoo.

That's not to say traditional bookstores haven't moved their share of Shrek 2 books as well, only that paying attention to the folks who also sell groceries, cut-rate clothing and shopping carts full of inexpensive household items increased the possibilities for the license. "The push for innovation and a broad program came from mass," Berger says.

Mass market retailers, including discounters like Kmart, warehouse clubs such as Costco and supermarkets like Stop & Shop, have woken up to the profit potential in children's books. They're increasing the amount of space they're devoting to juvenile titles, improving their in-store displays and expanding their selection beyond what were once very narrow parameters. "Every day it's becoming a more important channel, because the quality of the book sections is improving," notes Rick Richter, president of S&S's children's publishing division.

Children's book publishers, in turn, are looking for ways to better exploit that increased interest. "Publishers are paying more attention to this marketplace and developing better product for it," says John Norris, senior product manager for children's books at Levy Home Entertainment, which services leading mass market retailers including Wal-mart, Kmart and Target. Norris says this fall's crop of books is the best he's ever seen.

Finding New Customers

At a time of stagnant sales at traditional book retailers, the mass market promises a huge source of new customers. Though it's impossible to know whether the person who throws the latest Lemony Snicket into their cart next to the $5 flip flops, folding beach chair and suntan lotion might otherwise have made a trip to the bookstore to get the novel, publishers definitely have their hunches. "I tend to think [sales are] largely incremental," says Doug Whiteman, president of Penguin Group (USA) Books for Young Readers. "I think that people who walk into a Wal-mart store and buy something are not the same customers who walk into Tattered Cover or Barnes & Noble."

While that's great news for the industry, there are perils in trying to capitalize on the mass market's growing interest in children's books—namely, huge returns for titles that fail to sell with the kind of volume demanded by the channel. And publishers say they're still experimenting to find out what does and doesn't work in the mass market.

To use the channel wisely, publishers must invest time in getting to know the accounts and what works for their customers. Fortunately, Whiteman comments, mass market retailers can be very savvy partners in that endeavor. "We as publishers don't do a lot of consumer research," he says. "It's very expensive to do exhaustive research and the margins don't support that. But you've got retailers who have systems in place and are doing a lot of research."

Penguin found out just how smart Wal-mart was about appealing to its customers after the discount giant approached the publisher about reissuing books based on Dick and Jane. Wal-mart recognized that the series, though long discredited as an educational tool, would have a powerful nostalgic pull for baby boomers who had learned to read with the primers.

Penguin re-published the books to be sold exclusively at Wal-mart for one year, starting in November 2002, then made the books available to other channels the following fall. The books were a huge hit, selling more than 2.5 million copies during their first 15 months on the market and inspiring Penguin to expand the Dick and Jane publishing program.

As with Shrek 2, traditional bookstores have played a big part in the success of the property. In fact, independents and chain book retailers are very much the target channel for a Dick and Jane Christmas gift edition planned for release later this year. But the mass market giant's interest in the property lent both speed and volume to the effort. "I think Wal-mart was very, very important to it because they gave it visibility," Whiteman says. "They were extremely aggressive in how they promoted it."

Increased Visibility

Wal-mart is far from the only mass-market retailer helping to shape the industry. Stop & Shop is planning to roll out book boutiques at its 345 stores. The boutiques will be locally managed, giving publishers an opportunity to target niche markets.

Kmart is also giving children's books more advantageous placement in its stores. In fall of 2003, it added value tables (piled with merchandise and placed outside the book department) at 500 stores (a third of its total); children's titles comprise 85% of the product merchandised on the tables. Another 538 stores added a section of books from Paragon Publishing last year, again with children's books making up 85% of the merchandise displayed. When there's an immediate hook—such as a new movie or approaching holiday—the titles are merchandised throughout the store, according to Kmart spokesperson Caryn Klebba.

The next step for Kmart, Klebba says, will be rolling out a young adult books section in all of its stores this fall. The YA category, while still less prominent in mass market stores, is gaining ground, thanks to the success of the Harry Potter series, the Series of Unfortunate Events and Eragon.

It's Not (Just) About the Price

Along with giving books increased prominent, space, mass market retailers are redefining what works in the channel. That includes changing their thinking about how price-sensitive their customers are. "It was always the wisdom that it had to be cheap, but now there's more flexibility," Berger notes.

Today, publishers and retailers say, it's less about price than perceived value. At Costco, for example, books are an ideal product because the list price is printed right on the cover, making it easy for customers to see just how much they're "saving." "The Costco value proposition really shines in the book department," says Richard Galante, CFO of the warehouse club.

And far from looking for low-priced books, Costco likes to carry higher-end items that can be heavily discounted. In children's books, that means plenty of hardcovers, often bundled into multipacks not available anywhere else. Galante points out that three Hardy Boys titles sold separately at a bookstore might be bundled for sale as a single item.

With mass market retailers having loosened up their price requirements, Richter says he expects the channel to be a key source of sales for several of his biggest forthcoming titles, including Thanks and Giving Every Day by Marlo Thomas, a November hardcover release priced at $17.95, and a pop-up version of Stephen King's The Girl Who Loved Tom Gordon, which will come out in October with a list price of $24.95. Even heavily discounted, these books are priced far above what used to be considered the breaking point for mass market retailers. "In the old days it was, 'don't talk to us for anything over $5,' " Richter recalls.

Similarly, Madonna's picture books, priced at $19.95, have sold in substantial numbers at mass market retailers, says Whiteman, who estimates the channel has accounted for about 15% to 20% of the books' sales. "Would they have had any distribution at Wal-mart 10 years ago? I don't think so."

Madonna, King and Thomas all have one obvious characteristic in common—they're celebrities with a built-in following that guarantees a certain level of attention from shoppers. One thing that hasn't changed is mass marketers' reluctance to devote an inch of space to an unproven product. That means if a book lacks a celebrity author or hot license to boost visibility, the channel can still be slow to embrace the title, even after it has established itself as a blockbuster in traditional trade bookstores.

That was the case even with Harry Potter. Mass market retailers took a much stronger position on the fifth Harry Potter title than for the other books in the series when they initially came out, according to Barbara Marcus, president of trade book publishing for Scholastic. In part, that's because in the years between books four and five, mass merchandisers became a bigger player in the market. But Marcus also attributes the change to the release of the first Harry Potter movie. "Once Harry became something that appealed to moviegoers, that's when we saw the lift," she says.

HarperCollins's Series of Unfortunate Events by Lemony Snicket was a bona fide trade book phenomenon long before the mass market got excited about it. "With [books] nine and 10, they really started to come to the party, and that's just because they became books that everybody had to have," comments Diane Naughton, v-p of marketing for HarperCollins Children's Books.

When number 11 in the series, The Grim Grotto, comes out in September, Wal-mart plans a major display promotion, which will be followed by another big in-store marketing push in December, to coincide with the release of the first Lemony Snicket movie." They have made a commitment to the series and the movie tie-in product in a significant way," Naughton says, "and I think the support has been above and beyond what they've done in the past."

But publishers who expect to profit from mass market simply by getting those retailers excited about trade books will miss out, industry members say. "Part of the next step for us is to work with publishers to develop products that perform better in the marketplace," says Levy's John Norris.

That includes books with added features such as sound, 3-D pictures and scratch and sniff, as well as tactile books for babies and toddlers. Norris says that among the most exciting products he's seen for fall are finger puppet books from Scholastic, in which the books are sewn into the puppet.

With movie tie-ins such an important part of the business, Levy does analyses prior to film releases to see what types of formats have worked in which accounts for comparable movies. To help Simon Spotlight prepare for the SpongeBob SquarePants movie coming in November, for example, Levy looked at the sales of Cat in the Hat tie-in books. "There's so much more data that we can digest and reflect on," Norris says. "And the publishers are smart people, too; we share the data with them and talk about what they can do with it."

It's all part of the growing sophistication in approaching a channel once considered an afterthought. In Norris's words: "Ten years ago, it was 8x8s and chunky books and 50% sell-through, and that's all changed."