The book business is baroque in its complexity. Traditional publishers sell their titles to indie bookstores, bookstore chains, and online bookstores, but they also sell to wholesalers, who in turn sell to—guess who—indie bookstores, bookstore chains, and online bookstores. And what about book distributors? They also get books from the publisher and sell to indie bookstores, bookstore chains, online bookstores–and wholesalers! This is complicated enough, but consider that most books moving through these various paths to consumers are sold on a returnable basis. A large percentage of books in a bookstore–30% for some categories–wind up not being sold and are returned for credit from bookseller to wholesaler to publisher, or bookseller to distributor to publisher, or….you get the idea.
Surely this is a lot of duplication of functions! Well, sort of, but not really. Distributors and wholesalers perform very different functions in the book distribution value chain. Here are the ways that distributors and wholesalers differ.
Exclusivity
A distributor acts as a publisher’s exclusive agent and sole source of books to the book trade (the book trade includes bookstores, book chains, online booksellers, and book wholesalers). This is critical for a couple of reasons, one being the fact of returns mentioned above: everybody in the value chain wants to know where they can return books for credit on their account. They don’t want to get stuck with unsaleable books. Distributors want exclusivity not only to minimize the returns confusion, but also so that if a book sells anywhere in the book trade, they can make money from the sale. Because so many books don’t sell, this is critical to the distributor’s business model. They can’t sell books to the minor resellers while the publisher sells books themselves to Amazon, for example, diverting the lion’s share of sales dollars while the distributor’s sales and marketing staff do a lot of work for minimal sales. So a publisher can have only one distributor.
A wholesaler, on the other hand, is a non-exclusive seller of publishers’ books. The wholesaler can sell the publisher’s books to Barnes & Noble, for example, but so can any other wholesaler, or, in fact, the books’ distributor. In a sense, you could say that the distributor doesn’t have exclusivity in this case either, but any wholesaler who is selling the books to Barnes & Noble had to have bought the books from distributor, the publisher’s exclusive agent in the book trade, to begin with.
Big Publishers Have Their Own Distribution, Small Publishers Use Trade Distributors
Big publishers have their own warehouses and hire their own sales representatives. Most small- and medium-sized publishers use distributors. Economies of scale allow distributors to provide warehousing, sales, and marketing services much less expensively than small publishers can do it themselves. Big publishers can do it more effectively and economically themselves. Often, in fact, big publishers with in-house distribution offer those services to smaller publishers that are a good fit in terms of publishing categories. No publisher can publish every title in a category, and selling more titles in a category helps the big publisher get even greater economies of scale.
How They Get Paid
Distributors’ and wholesalers’ sources of revenue are different, though they look superficially the same. The wholesaler buys books from either the publisher, if the publisher self-distributes, or from the publisher’s distributor. The wholesaler gets a discount off of list price that is deeper than that given to the bookstores. It is that spread–the difference between the bookstore’s discount and the wholesaler’s–that is the wholesaler’s income. Typical discounts might be 55% off of list for the wholesaler and 40% off of list for the bookstore. So a book with a $20.00 list price would sell directly to a bookstore at 40% off, or $12.00. It would sell at 55% off, or $9.00, to a wholesaler. The wholesaler can in turn sell it to the bookstore at 40% off, and make the difference, $3.00, as income. Needless to say, you have to sell a lot of books to make any money at this!
There are all kinds of variations on discounts based on volume, whether the bookseller has their own distribution center (DC), etc., which I won’t go into here. The basic idea is that a wholesaler makes their money on the difference in price at which they can buy books versus what a bookseller can buy books at.
Distributors generally charge a fee that is a percentage of net sales. Net sales are what booksellers, chains, and online booksellers pay the distributor. The actual fees vary wildly from 10% to 26% or more: generally the larger the publisher’s sales, the lower the fee percentage.
Let’s assume a publisher’s distribution fee is 20%. Using the example above of a $20.00 list price book, for a sale to a bookstore where the bookstore pays the distributor $12.00 (40% off the list price), the distributor charges the publisher 20% of the $12.00, or $2.40, so the publisher winds up getting $9.60 for the sale. More typical would be a sale to a wholesaler, in which case the distributor would take 20% of the net sale amount of $9.00, or $1.80, leaving $7.20 for the publisher.
Distributors also charge other kinds of fees: storage, warehouse fees, cataloging fees, etc.
There are two kinds of distributors. Old-model distributors include Consortium and PGW (owned by Perseus but soon to be owned by Ingram), IPG, and NBN. These distributors have sales reps across the country and provide a full range of marketing services.
Because 90%+ of book sales now happen at just a handful of accounts–Ingram, Baker & Taylor, Barnes & Noble, and Amazon, primarily–the sales reps are less important than they were when most books were sold through independent bookstores. As a consequence, a new kind of distributor has arisen that charges lower fees because it doesn’t pay sales reps or offer the same kinds of marketing services. Itasca Books, sister company to Bookmobile, is one such new-model distributor. (It also offers fulfillment services for publishers selling direct to consumers, a growing trend.)
Why Do Book Wholesalers Exist?
You might think that publishers would cut wholesalers out and sell directly to bookstores themselves. However, wholesalers are too important to bookstores for publishers to be able to do this. In many cases, Bookstores would rather not buy the book at all than buy it from the publisher. The reason is transaction costs. Because wholesalers stock books from thousands of publishers, large and small, the bookstore can place one order to get, say, fifty different titles from fifty different publishers that otherwise might take fifty different orders to get. This is a huge reduction in paperwork for the bookstore. Ditto for returns: returning unsold copies of those 50 books would be one transaction if they came from a wholesaler, or 50 if they came on different orders from 50 different publishers. Plus, wholesalers often offer free freight, which is a huge cost savings to bookstores and is not a savings that a small- or medium-sized publisher can provide. Again, economies of scale matter.
There is another piece of the returns puzzle that works in the wholesalers’ favor as well: bookstores want to know that a credit they get for returning books is useable. If they get a credit on books returned to a publisher that they rarely buy from, that credit may be unusable, and it could take months—or forever—to get reimbursement in the form of a check.
The fact that the wholesaler is in the middle between the publisher and the bookstore works in the publisher’s favor as well. Small publishers have enormous difficulty getting paid for books they sell to small bookstores. (The reason is not the perfidy of small bookstores, by the way, but the bookstore’s slow cash flow and the fact that the bookstore has to pay the big wholesalers and big publishers first to get stock of the books that pay the bills!)
Because of the fact that wholesalers carry such huge selections, it is even possible to run a bookstore without dealing with publishers at all, which is a big simplification for a small store. However, there can be advantages in dealing with publishers that can offset the additional complexity, which I won’t delve into here. So most bookstores manage their inventory by buying both directly from publishers (or their distributors) and from wholesalers.
Why Do Book Distributors Exist?
I touched on the main reason distributors exist above: scale. It is very expensive to run a warehouse and maintain a sales operation on the relatively low transaction volume that a small- or medium-sized publisher has. But there are other reasons as well. Smaller publishers may not even be able to open an account with a wholesaler, and may find themselves having to offer super-high discounts to get any orders at all.
You might think, as a small publisher, that if you manage to get an account to sell to Ingram, the big wholesaler, that you don’t need a distributor, and you can save the fees you pay the distributor. That might work, but a distributor does a lot of things a wholesaler doesn’t, including the following:
- Traditional distributors have a sales force that covers the country. New model distributors like Itasca don’t have the sales force, but they still sell through competitors to the major wholesalers, resulting in greater reach.
- Traditional distributors provide marketing services, such as producing and distributing a catalog and title information to all the appropriate databases: Bowker, Baker & Taylor, Ingram, Barnes & Noble, Amazon, etc. A new-model distributor like Itasca distributes the same title information, but doesn’t produce a printed catalog on a regular basis.
- Traditional distributors usually have active efforts to reach out to submarkets like libraries and academia.
- Because their success with their limited stable of publishers is aligned with that of client publishers, they are strongly incented to advise and support publishers in a way that a wholesaler, which is a massive clearinghouse between thousands of publishers and thousands of customer accounts, just isn’t.
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Don Leeper is founder and CEO of Bookmobile, which has provided design, printing, eBook, and distribution services for book publishers since 1982.