Are Bulked-Up Book Distributors The Industry’s Next Goliaths?
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.
