Thursday, 24 March 2011

Book Distribution: Broad Brush or Fine Detail? The Conclusions are Quite Different.

This month Dominic Myers, MD of Waterstone's (the UK's last remaining national "bricks-and-mortar" book retail chain), has twice made startling public suggestions that over-capacity in book distribution space in the UK is contributing to inflated costs and thereby threatening the future of book retail. When a retailer suggests that the UK book industry as a whole is subsidising approximately £150 million-worth of excess supply chain space, and that this is squeezing everyone's margins, I would suggest that a closer examination of the problem suggests that increased discount to retailers is not the only place that the money could be better spent.

I should add that Myers did have the grace to add wryly that his comments might sound rich coming from the MD of a company that has recently added to the overall sum of UK distribution space through the implementation of its own 150,000 sq ft hub. But what alarms me about his statements is not their lack of tact in view of the hub's troubled gestation that still vexes many publishers. It is that Myers' observations contain a potentially dangerous half-truth. Modern book distribution is a macro-scale task underpinned by micro-scale detail. In such circumstances broad brush statements are potentially misleading.

I suspect that Mr Myers believes that there are too many books in too many sheds. And he has a point. It is indisputable that publishers world-wide frequently over-print, tying up too much cash in physical stock that occupies storage space that must be paid for. And even when overstocks are patently obvious to publishers, facing up to writing them down and pulping them can be a painfully slow process. But it concerns me that taken just at face value, what Mr Myers is saying might be grist to the mill for those who think that the supply chain is where we as an industry need to look in order to reduce costs. I wholeheartedly agree with Mr Myers that supply chain efficiency is a prerequisite for success. But it certainly does not follow that distribution is therefore a place that publishers should be looking for savings, or retailers should be pointing to as a place where more margin can be eked out of net revenues that are not increasing in line with volume sales or inflation.

At the recent IPG conference near Oxford, Myers said that he estimated that the UK book market has approximately 3.7 million square feet of distribution space at an average of £50 per sq ft. Statistics he then repeated at the BA's Academic and Professional Booksellers' Conference. Having recently been involved in NBNi's move to modern warehouse premises (the company I work for made a three-quarter of a million pound investment in more efficient warehousing facilities last year), £50 psf pa seems to me to be an astonishingly high estimate unless Myers was aggregating all book industry supply space: warehouse; pick/pack space, wholesale, retailers' hubs plus expensive high-street retail space. All of this is in one sense or another distribution space - but each category with significantly different overheads and purposes, and lumping these together is not necessarily illuminating.

It's worth noting that one of the ironies of the modern supply chain is that the requirement for just-in-time supply of all product lines, including deep back list, now demanded as a condition of supply by online resellers and (dare I say it) bricks and mortar retailers' own distribution hubs requires (if anything) more distribution space and less storage space. Increasing amounts of slow-moving product lines need to be kept available for instant pick rather than retrievable (more slowly) from bulk storage - and are taking up valuable picking locations that require a fast stock turn to be efficiently profitable. (Yes, in the long-term the answer to that could be print-on-demand - but for high-quality colour books with high production values, cost-effective technology to make this happen just isn't there yet.)

Plus, we should remember that a generation ago the major costs of the supply chain were rent and manpower. Nowadays there is a third major cost-component to efficient supply: I.T.  investment. Constant I.T. investment is required in order to interface with customers. The book buying experience - whether it happens online or in-store is underpinned by millions of data messages across the web, be they price and availability data from PubEasy or BookNet; EDI ordering of stock by large customers through their own systems; payment information through Batch; individual orders placed on publishers' own web sites; title data hoovered up from myriad sources by Amazon; daily stock feeds sent to online retailers; EPoS statistics; or even the tentative experiments with RFID currently being made by some publishers and retailers in a few territories. The technology required to make all of this happen is costly and requires constant upgrading. And the people who facilitate such technologies command considerably higher remuneration than the labour force of an old-fashioned warehouse. All of this cost is lumped by our industry under the generic heading of "distribution".

Nor should it be forgotten that what we traditionally think of as "distribution" includes customer services. Modern customers - be they the buyers employed by book trade intermediaries - or individuals sourcing direct from publishers (and there are a growing numbers of publishers for whom off-trade and direct-to-consumer supply are increasingly important) - are extremely demanding. Physical books require a top-class customer service experience paving their complicated path from the printer into the hands of the consumer. With increased competition from non-traditional media and gaming as well as e-books, customer service has never been a more important element of book distribution provision than it is now. 
When thinking about where we can save money, increase margins and leverage discount, we need to remember that modern book distribution is about more than sheds. It is about data excellence, service excellence and the end consumer.

Useful links
The Bookseller's report on the IPG conference
The Bookseller's report on the APS conference

Please add your comments & observations below. I'm interested in your opinions!

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