In Part 1, we described the three big waves crashing down on the traditional book publishing business: Google Search, the Kindle and e-books, and print on demand. In Part 2, we indulged in some science fiction, envisioning the future of the major players in book publishing: readers, authors, printers, publishers, retailers, and e-book device vendors. In Part 3, we'll dig into one very specific business practice: returnability (a.k.a. "the curse of unsold inventory"). Some thinking outside the box on this 70-year-old business practice could possibly help an industry in turmoil. Unless e-books simply replace all physical books (which seems highly unlikely), some radical changes will need to be made to the physical book supply chain.

Bruce Batchelor: POD Pioneer and Returnability Crusader

We outlined the practice of "returnability" in Part 1, but it took a pioneer in print on demand (POD) from Canada to help us see the scale of the issue. Bruce Batchelor is a successful publisher and author. Back in 1995, he created the world's first POD publishing service, Trafford Publishing, which was recently acquired by US competitor Author Solutions, Inc.

So he knows this game from the inside. Through some emails exchanged with him, we began to see that eliminating this business practice was critical. Eliminating it may seem radical and impossible to book industry veterans who have never known an alternative. But change may now be feasible: necessity is often the mother of invention.

Further down, we'll look at new technology that could change the supply chain even more radically.

The Problem

Bruce describes the problem very well on his site. There, you'll find a 7-minute YouTube video for people who need the basics. Those in the book industry already know this, but for outsiders, here are the basics:

• Publisher says to retailer, "Here are some books. If you don't sell them, we'll take them back."
• According to Bruce, "Returns (and eventual shredding) reportedly run between 40% and 80%." That is massive waste.
• How can publishers afford this? By charging the retailer more. In most other markets, retailers get 50% off the retail price. For books, they get 40% off.

Bruce's mission is to get publishers to change this 70-year-old practice (it started in the Depression of the 1930s). That would save publishers a ton of money.

What About Retailers?

Our question to Bruce was, "Nice idea for publishers, not having to deal with returns. But retailers are already struggling. How will they survive if they have to deal with this added risk of inventory?"

Bruce told us:

"The answer is to give the retailers a deeper discount [which he explains in his video and on his website]. If retailers now get 40% and are barely surviving, think how much better off they would be getting 50% off. That's a 10% (of gross sales) reduction in expenses and would go directly to the bottom line.

"The sad truth is that small booksellers already order carefully and are not rewarded for doing so. It is the chains that grossly over-order, according to every publisher I've ever talked to. And the chains are already getting 50% to 65%(!) off simply by bullying the publishers. So, the smaller stores are subsidizing the wanton waste of the chains".

Retailers do pay higher prices, then. They pay to return books, and that cost is significant. It is not a free lunch for them, and it is a disaster for publishers.

Without this practice, what would happen? There would be inventory sales and discounts: i.e. the normal functioning of free markets.

What Other Industry Has this Practice?

Music retailing engages in returnability as well, and that industry seems to be doing just fi... er, nevermind.

If Trees Could Vote

Trees would vote to change this business practice. This is an ecological disaster. If consumers knew the environmental cost of those stacked shelves, they might change their behavior. Yes, it would accelerate the trend to e-books and many would see that as a positive, but it would also cause terrible hardship to all who work in the industry and would deprive people the inexpensive pleasure of the good old-fashioned book.

Can technology deliver a solution that totally eliminates waste from the physical book supply chain?

Is the Espresso Book Machine the Answer?

We are all techies here at ReadWriteWeb, so we tend to look for answers in technology. In Part 2 we described something we thought was science fiction:

"We can even imagine digital printers setting up shop in the back of coffee shop/bookstores."

What we thought was science fiction is already a reality called the Espresso Book Machine. It is POD in the retail store. You order something that you can't find on the shelves and, 20 minutes later, voila: a freshly minted book!

Ah, the wonders of technology. We love this stuff. Because Bruce is a pioneer in POD, we had to ask:

"Do you think something like the Espresso Book Machine is a part of the solution? Could it really remove the costs, risks, and inventory from the supply chain?

"Or is that a techie's pipe dream?"

Bruce responded:

"A decade ago, a small company called Sprout.com tried to introduce similar devices to bookstores. They even managed to get Borders to buy into the concept and install one machine. But the enterprise died because of many factors that are still around today. The machines work only for some formats of books: no color or oversized books, no hardcover or coil bindings, a lot of dust, fumes, and production issues, and s-l-o-w. Lack of demand is the real kicker. No one seems to want these out-of-print books very much.

"So, my answer is no, I don't think Espresso machines will make a significant difference to the situation."

We would take issue with his response. He is on a mission, and it is a good one, so he is probably smart to stay on message and not get sidetracked by this technological wonder. He talks of retailer POD as being only for out-of-print books. But there is no reason this could not work just as well for the latest blockbuster. If retailer POD became widespread, we would get an Amazon-like long tail for physical books at the retail level. That would eventually change both author and reader behavior.

Perhaps 20 minutes is too long to wait for a book in our rushed ADD world? My advice, of course, would be to "Chill out, dude!" But there are times when 20 minutes might really be too long; say, when you are rushing to catch a flight. But mobile devices could help with that. You could browse the catalog on your mobile device while waiting in line to pass security, order the book, and then pick it up as you head for the gate.

We are also likely at an early stage with this technology. These devices may be comparable to the IBM mainframes of the 1960s: amazing that they work at all.

This is a potentially big market for printer companies. It is hard to imagine HP, Canon, and Xerox not wanting a piece of this action.

The two approaches (eliminating returnability and retail POD) are complementary, not competitive. They are two approaches to a supply chain problem that is really hurting the industry. Whoever holds the inventory carries the old curse of "May you have much inventory on you!"

Eliminating returnability could trigger faster adoption of retail POD. Knowing that retail POD is feasible might make retailers more willing to accept the change in practice.

Just-in-time manufacturing worked for Dell in the PC industry, and book printing is a bit simpler.

Part 4 Returns to Regularly Scheduled Programming

We had planned for this Part 3 to focus on the author's point of view. We got diverted down the supply chain. Tune in to next week's thrilling installment to find out how our starving genius who hacks away at a typewriter in the attic might be able to prosper in this new world...