Don’t get rid of the middleman, we need him!
Of course, the LDS market doesn’t really have middle men — its actually one of the problems we have. And, believe it or not, its one of the reasons that the market isn’t as robust as it should be. Every market needs some middlemen — wholesalers, as they are known in the book market. They help retailers (i.e., bookstores) and manufacturers (i.e., publishers) find each other, keep prices low and make sure books are available throughout the market.
Unfortunately, this is one of those areas where terms get thrown around a lot, and definitions aren’t clear. For example, Deseret Book has an arm called Deseret Book Wholesale, but it isn’t a wholesaler. And many publishers offer wholesale prices, but they just mean that they sell to retailers at those prices.
So what is a wholesaler? It is a middleman who mainly represents retailers. A wholesaler buys from publishers and their distributors (distributors are middlemen also — but they represent the publishers and, in the book industry, generally have exclusive rights to represent that publisher. Wholesalers don’t have exclusive representation of anyone). The wholesaler then sells to retailers and others, usually at the same price or slightly more than what retailers pay to publishers.
Why is this an advantage? Why does the market need an extra layer to take profit away from the publishers and the retailers?
Bookstores know they can sometimes get a slightly better price if they purchase directly from the publisher. But they still buy from wholesalers for several reasons:
- Quantity discounts: Many publishers give quantity discounts. If you only want 5 or 10 copies of a publisher’s books, the discount off the cover price given to retailers can be as low as 20%. But if the retailer purchases in larger quantities, the discount can be as high as 47%. A wholesaler offers similar discounts, but allows bookstores to purchase the books of many publishers at once. Retailers rarely need large quantities of most books, and with smaller publishers, they often need 1 copy of 1 title. When they purchase books from a wholesaler, they can group titles from many publishers and get a higher discount on many books from many publishers than they would get by purchasing a handful of copies directly from many different publishers.
- Speed: Wholesalers are often located in different places around the country. The largest US wholesalers, Ingram and Baker & Taylor, have multiple locations around the US, and bookstores can usually get books from them in 1-2 days, instead of up to 5 days, if the publisher is located on the other side of the country.
- Market Knowledge: Because they sell the products of many publishers, wholesalers generally know more about what’s available and know better what sells than publishers do. They also are not biased toward the products of any one publisher. They often pass this information on to bookstores, and are much more help to bookstores than publishers can be.
In the US national market, Ingram Book and Baker & Taylor are the most important wholesalers, and between them carry almost every book available in the US. As a result, nearly every bookstore in the US has an account with Ingram and many with Baker & Taylor. What often happens is that bookstores place initial orders for new titles with the publisher and reorder smaller quantities as needed from Ingram, where they can purchase in 1 or 2 copies each of titles from many publishers.
This actually helps many publishers, especially small publishers, because wholesalers make it possible for bookstores to order small quantites of a title. Otherwise, they might not purchase those quantites at all, and the small publisher would loose those sales and its titles would be less frequently available. Wholesalers also keep down prices, by allowing bookstores to keep fewer copies of slow-moving titles in stock and still make money on them. When a bookstore can do this, they are more likely to sell the titles at a discount.
In general, a wholesaler makes it easier for small publishers. In fact, the rise in the past few years of print-on-demand vanity publishing (see my post on this) is due in large part to print-on-demand service providers working with wholesalers. Through Ingram, print-on-demand publishers see their books instantly available on Amazon.com and other internet retailers.
Unfortunately, in the LDS market most LDS bookstores don’t seem to know the difference between a wholesaler and a distributor, and are unacquainted with Ingram and Baker & Taylor. In fact, the Mormon market has plenty of distributors (4 or 5 last time I counted), but no wholesalers. An LDS bookstore has to purchase books from either the publisher or its exclusive distributor, and if the store only needs one copy of a book, its often not profitable to stock it because of the low discount on purchasing small quantites.
So why hasn’t someone started an LDS wholesaler? I think there are a few reasons:
- Initial Cost: Starting a wholesaler can be quite expensive, since a wholesaler has to invest in a huge inventory — enough to supply its potential customer base with stock from every publisher. Its also takes a while to earn back that investment, since wholesalers work on a very low margin.
- Publisher Support: To be successful, a wholesaler needs a larger discount from publishers –50-55% vs. the 40-45% publishers give to retailers when they purchase larger quantities. The wholesaler has to convince the publisher that giving a larger discount to the wholesaler will result in sales that it won’t otherwise get. In the case of the largest publishers, that’s a tall order — one that probably can’t be justified.
- Initial Sales Effort: A wholesaler will also have to convince bookstores to purchase from it instead of from the publisher. Since the reasons for purchasing from a wholesaler are complex, convincing bookstores to purchase isn’t as easy as if you were a publisher.
- Client Base: To make a profit, a wholesaler needs a large enough client base — a large enough number of stores that will purchase books from it instead of from the publisher.
So, given all this what’s the prognosis? Will we get a wholesaler soon?
I think there are a couple of reasonable scenarios: First, one of the LDS distributors could start up a wholesaler as a way of broadening their sales base. Since a distributor already has a base of clients among several LDS publishers, it would only have to add titles from the publishers it doesn’t represent.
Another scenario might be for LDS bookstores to start using Ingram or Baker & Taylor for LDS books. This too has some problems, since not all LDS publishers list their books with these wholesalers, and neither Ingram nor B&T are likely to go looking for those who aren’t.
Deseret Book is also a problem here since, while they list many of their titles with these wholesalers through a Florida-based distributor, they leave out titles that are particularly Mormon, assuming they are of little interest to the general LDS market and trying to force LDS bookstores to purchase directly from Deseret Book. This policy and Deseret Book’s market dominance (see my series of posts last fall, starting here) leads me to believe that Deseret Book is unlikely to provide its titles to an LDS wholesaler.
Perhaps things will change. The pressures of the growing audience for LDS materials (see my post on the international issues) will eventually force changes, and international shipping and currency issues could make an LDS wholesaler extremely useful (no foreign store can afford to get separate international shipments from individual low-volume publishers). But I think these changes will take time.
I’m afraid we’re still in for a wait.