It’s Raining, It’s Pouring: Returns in an eBook Age

Excessive returns can sink a publisher. Returns weren’t always a part of publishing. In the timeline of publishing (i.e., since the Gutenberg movable type press caused a seismic shift in production), it is a recent invention, but its ramifications are as seismic as movable type. Returns offer many lessons to publishers, but few that they will heed. For example, the lesson of returns setting an expectation that is hard to set aside is similar to giving away ebooks which may set the expectation of free.

The primary problem of returns is self-evident: Knowing that one can order 100 copies of a book that might sell 3 copies and pay no penalty for overordering wastes resources. Returns also have a highly detrimental secondary effect: Booksellers “return” all of the unsold ordered books and “reorder” them immediately, thus carrying an inventory that is never paid for by the bookseller, only by the publisher.

In the heady days of publishing, before the Internet and conglomerate publishers, returns were a problem that could be lived with. This is no longer true; returns threaten to derail publishing. eBooks can be either salvation or damnation for publishers and can be used to solve the problem of returns.

Returns are the bane of print books. If it costs a publisher $3 per book to print 1,000 copies of a hardcover book that sells for $25, the publisher is out $3,000 and has 1,000 books. Simple arithmetic. But if the book sells only 100 copies and 900 copies are returned, the printing cost per sold book is $30 and the publisher faces a loss of $500 based on the printing alone. The publisher now has to decide what to do with the returned 900 copies. If they are warehoused, the costs increase. It is uncertain whether any or all of them will eventually be sold, whether losses will increase or decrease. If they are remaindered, then they are generally sold for pennies on the dollar; it is not unusual for a book with a list price of $25 to be remaindered for 50 cents. Remaindering simply cuts the losses; it does not bring profit.

eBooks do away with this problem. There are no returns and no print costs. eBooks, with a single button push, eliminate a major publishing headache. This has ramifications for everyone in the book chain. For the first time, publisher’s are in the catbird’s seat regarding returns. If I were a publisher, I would tell booksellers that beginning with my next anticipated blockbuster, order only what you are willing to buy; no returns will be accepted. If booksellers rebel, then I would reply simply: A condition of receiving paperback versions of this blockbuster is that there be no returns of this title. Otherwise, only hardcover and ebook formats will be available. In addition, I would limit the initial hardcover print run to a quantity that I could reasonably expect to sell.

This would start the long-needed demise of returns yet it would not do away with any particular format of a book. Commenters objected to my earlier Modest Proposal‘s suggestion to eliminate paperbacks altogether, so here is a market response: Those booksellers willing to forego returns will be able to fulfill consumer desires for a paperback version. Should no bookseller be willing to forego returns, then either the consumer will have to protest against the bookseller or shift buying habits.

This is a winning strategy for publishers on several fronts. First, by reducing costs, the publisher will have more resources available to increase the value of ebooks. Second, if booksellers do not buy paperbacks, publishers will be able to concentrate on the two more profitable types of publishing: hardcovers and ebooks. Third, should booksellers not buy paperbacks, there will no longer be a paperback benchmark price against which to measure ebook pricing. Fourth, publishers could pass some of the savings on to consumers by lowering list prices or offering preorder discounts. Fifth, publishers will have less financial risk exposure.

Doing away with returns will bring some sense of proper practices to the book business. When booksellers have to buy their product, they will order more realistically and publishers will order print runs that better align with a book’s market. Making paperback availability conditioned on no returns is a smart way for publishers to move away from the current failing returns practice.

What does this do for consumers? In an ideal market, pricing would stabilize and ebook pricing would more realistically reflect publisher costs and publisher-imposed limitations on use of ebooks. But as with promises to lower ebook costs over time, there is no assurance that anyone but the publisher would benefit from this proposal.