One-Stop
Shopping
Are Bulked-Up
Book Distributors The Industry's Next Goliaths?
FROM PUBLISHING
TRENDS (FEBRUARY 2001)
Time
was, you would call a guy like Gilbert Perlman
a book distributor. The warehouse, the sales staff,
the publishing clients, even the name on the door —
Client Distribution Services — all fit the modus
operandi of firms schlepping books from the presses
to the masses. But times have changed. So has the nomenclature.
“We don’t call ourselves a distributor,” Perlman explains,
adding after a moment: “We kind of don’t know what to
call ourselves.” Indeed, it seems book distribution
companies have embarked on a bit of strategic soul-searching
as they vie for what industry estimates place at a billion
dollars worth of distributed independent publisher sales
every year. “I wish I could think of a better word than
‘distributor’ because I hate that word,” Perlman says.
“The word ‘partner’ is horribly overused, but we see
ourselves as a partner to our client publishers.” And
for CDS, partnership means a certain behind-the-scenes
savvy. “Our goal is to be transparent to the process,”
Perlman explains. “Do you see ads for Simon &
Schuster’s sales department? No. And you’re not
ever going to see an ad for CDS.”
Whether as distributors, partners, or the dreaded “total
solutions providers,” distribution companies are emerging
as the middlemen-turned-marquee players of the supply
chain. “Our business with distributors grows every year,”
affirms Phil Ollila, vp of merchandising for
the Borders Group, “and it has grown faster than
our business with traditional publishers.” It remains
unclear, however, whether distributors are capturing
a larger share of the pie in terms of absolute numbers.
“Our business is not up significantly with major distributors,”
says Ingram president Jim Chandler. And
last year, along with the rest of the economy, the $100
million–plus distributor Publishers Group West
turned in a soft fourth quarter, with flat growth for
the year, according to president Charlie Winton.
Still, Chandler says, “We too value consolidation of
sources in terms of the efficiencies that it provides.
Distributors are controlling larger numbers of small
presses.”
The
Full Meal Deal
Distributors
got a boost when Random House jettisoned its
client distribution business (see PT, 7/99),
but their expanded presence in the market is nothing
new. “When you look at distribution services, it runs
the gamut from pick-and-pack to full-service,” says
PGW’s Winton. “We feel we have defined the service standards
on the high end of that scale — the full-blown partnership
with a publisher.” Now at 115 clients (though Winton
says the top 25 clients represent around 80% of PGW’s
billings), the company has been selectively adding services
to its menu for at least a decade, bringing it into
the big leagues. “Most of our competitors nowadays are
major publishers looking to fill a niche in their catalog,
not other distribution companies,” says Winton. Increasingly,
of course, e-capabilities have become part of the full
meal distribution deal. On that count, PGW has partnered
with iUniverse, which will provide client publishers
with e-delivery in various formats, as well as print-on-demand
options — and Winton looks forward to a minimum of 500
e-books by the end of the year, up from the 65 titles
currently available.
Though you might think e-delivery would threaten distributors’
hold on the marketplace, no one’s too worried about
job security yet. “The same reason that a distributor
is viable in the printed world, a distributor will be
viable in the electronic world,” says Rich Freese,
senior vp for sales and marketing at National
Book Network. The company has been growing at 30%
per year for the last several years, Freese says, with
sales jumping from $53 million to $72 million in the
last year. Now with about 85 publishers, NBN is developing
an “e-warehouse” as a central repository for electronic
editions of clients’ books, with electronic initiatives
overseen by e-commerce director Larry Fox. The
company is still in conversations with various data
conversion partners (Ken Brooks’ Publishing
Dimensions was among the contenders), and has hired
half a dozen employees to tackle Internet marketing
and distribution.
Meanwhile, other distributors are focusing on expanding
services not in the ether, but overseas. “The most exciting
event for us in the last six months was opening up the
London office,” says Consortium CEO Randall
Beek. Managed by Katherine Bright-Holmes,
the London outpost will have 11 UK publishers on board
by June. “Overseas publishers need someone like us to
teach them how this country works,” Beek says. As the
market continues to globalize, Beek envisions a “Consortium
International” division that would manage publicity
and promotion for its foreign clients. He’s also looking
at foreign language distribution, particularly in Spanish.
Now at about 70 clients (Consortium picked up City
Lights in January), 40% of the company’s business
comes from nonprofit literary publishers. It has partnered
with Small Press Distribution to coordinate coadvertising,
linked websites, and perhaps a co-marketing campaign.
And in the remote distance is the ultimate service expansion.
“Maybe in our future is selling more directly to individuals,”
says Beek. “I’m cautious about that because I don’t
want to be perceived in competition with our booksellers.
But a lot of bookstores don’t take a position on a lot
of our books.”
‘It’s
the Book, Stupid’
There’s
a severe shortage of parking places at CDS’s 300,000
sq. ft. distribution facility in Jackson, Tennessee,
indicating either scrimping on asphalt or a staff at
capacity. “We’re experiencing a boom in independent
publishing,” Perlman says by way of explanation. “Due
to the superstores and the Internet, there is unprecedented
access to the marketplace. And we see ourselves as the
facilitator of that process.” Aiming to “provide all
the noncreative services to publishers,” CDS has been
fine-tuning its distribution facility (acquired from
Random House), which Perlman says can ship 500,000 books
a day; every order that comes in by noon goes out by
business close.
With 12 active clients (another half dozen are due to
be signed within the next six months), Perlman says
the key differentiator is not efficiencies of scale
— though CDS has them — but a certain bedrock passion
for the products in question. “Everyone asks us what
our volume requirement is,” he says. “But the truth
is that we do business with some very small companies.
We choose clients based on the books. I like to say,
It’s the book, stupid. The book and its marketing program
have got to be leading the way.”
Perlman notes that the trend toward full-service partnerships
has been mirrored in other industries. For example,
IBM’s revenue and profit growth has come from
sales of services, not hardware. And major brokerage
firms have gotten into the business of clearing trades
for smaller brokerage firms. As financial and technology
companies morph into “total solutions providers,” so
distributors push for ever more expansive partnerships.
Not to mention the fact that the infrastructure has
become increasingly data-intensive, with EDI, purchase-order
acknowledgement, and advance-ship notification mandated
by the most powerful retailers.
Better,
Not Bigger
There
are contrarians, to be sure. Eric Kampmann, president
of Midpoint Trade Books, says that instead of
service expansion, his company took an opposite tack:
“We got rid of the sales force. This office is made
up of three people, and we talk to our publishers every
day.” Now finishing its fifth year of business, Midpoint
has topped $10 million in sales and attracted 150 client
publishers (with 20 in the UK, which account for around
10% of the company’s sales) on the philosophy that a
model needed to be developed that would not imitate
the sales, distribution, and marketing functions of
the biggest publishers. “That seems to be the mistake
made by many distributors,” Kampmann says. “It escalated
their costs while not insuring appropriate sales volumes.”
Midpoint targets superstores, Internet retailers, and
wholesalers. “We focus only on those types of accounts,”
says Kampmann. “We did not hire a sales force, commission
or otherwise, to call on every territory in the country.
Instead, we reach every account through wholesalers.
We encourage all our accounts, including B&N,
to use wholesalers.” Kampmann now aims to persuade larger
publishers that his model can work for them as well.
“As we grow we think we’ll be a leader in bringing the
cost for using a single source of sales and distribution
down below what is now being charged,” he says. Midpoint
sells on a monthly basis to accounts, deliverable from
its 80,000 sq. ft. warehouse in Kansas City; select
mass merchandise accounts may soon be added to the sales
package.
As the industry continues to evolve, distributors and
their clients alike may come to appreciate the value
in remaining sharply focused on the essentials. “There
are things we do better than publishers,” says Consortium’s
Beek. “We ship books better. We bill better. We collect
money better. These are still valuable services for
the foreseeable future. They’re not sexy and they’re
not earthshaking. But the infrastructure is very important.”
And for publishers with lucrative client distribution
contracts, the bottom line seems to be this: As distribution
companies get better at delivering and servicing that
infrastructure, publishers would be well advised to
keep a close eye on their market share.
©2001
Publishing Trends
