The Rise and Fall of Books.

I have a theory about the rise and fall of books. Like many good theories, it depends on the idea of a 'golden age,' which may have never existed.

My understanding of book publishing was that the 'return privileges' were instituted during the Great Depression as a way for publishers to support bookstores. The ability of your local bookstore to order books and return unsold copies stayed in place and worked pretty well for the next 40 years.

A LOOPHOLE.

But there was a big loophole in this policy that no one really exploited until around 1971 when Leonard Riggio bought Barnes and Nobles. He realized that if he built really big stores and filled them with lots and lots of books, that he could stomp the neighborhood bookstore into the ground.

Why not? He could always return unsold books.

At first, this worked. The mega-bookstores did very well. More were built. More books were ordered, and then huge racks of returnable magazines.

DESTRUCTION OF THE CREATIVE.

But in the backroom of every Barnes and Noble and Borders there is a guy whose job it is to rip off the covers of unsold books and magazines and return them for credit.

I'm sure the publishers thought it was all worth it. Instead of having to process small 10-book orders from 10,000 independent bookstores, they could sell an equal number of books to 2 book chains.

The more books B & N sold, the better their terms became. The longer they had to pay, the more they could return. They started to dictate to the publisher what kind of books they wanted; best-sellers became the benchmark, and mid-list books were dropped.

THE INEVITABLE PONZI SCHEME

My theory is that after awhile, the real growth of publishing and sales came from opening newer and bigger stores. It would be very interesting to see the sales graph of stores that were built in the mid-80's, for instance. At what point did the temptation to over-order become the predominant technique?

Discounting a book 50% is a no brainer if you are going to get 50% in credit for a return. So discounting become endemic.

But what is the real level of readership? How many books are really selling? How many books are selling per square foot, and when does cannibalization begin? It becomes a 'Peter Principle' for books -- you keep ordering and ordering until they stop selling, and the publishers will be swamped with the leftovers.

Magazines especially have been hammered by this process. They base their advertising costs on how many magazines are distributed, with 'estimates' of readership instead of sales.

Not surprisingly, many people began to just sit in B % N and drink coffee and read magazines and never buy them. Again, the magazines went along because more and more stores were opening and they could pretend that they had ever widening readership, nevermind the sell-through.

THE IRREDUCIBLE MINIMUM.

But eventually, when you have built a chain store in every single metro area, you have to build a second in the same market.

I think B & N picked up market share throughout the 70's, 80's and 90's, but what happens when you've pretty much stomped every single independent you can and there are no more to destroy? Or when the survivors have figured out ways to take some of that business back?

There are only 3000 or so indy bookstores, down from 8500 from less than a decade ago. These are probably the irreducible minimum, and B & N is going to have a hard time prying market share of out of them.

CLOSE THE LOOPHOLE.

I think, eventually, the publishers will close the loophole of returnability; or make the conditions such that it can't be abused. The magazine distributors have had enough; they are demanding a payment for every magazine handled. Some publishers are creating non-returnable imprints.

But the biggest problem for B & N is that, like every Ponzi scheme, it will become top heavy and topple. Older stores will start to show their age.

Customers will start to wander back to places where the owner can talk books with you.

Those customers looking for price and selection will turn to Amazon.

Barnes and Nobles and Borders will topple like the dinosaurs they are.