walkitout (walkitout) wrote,

old skool retailing

I mentioned in an earlier post that once upon a time, the MSRP wasn't suggested: it was enforced. The post WW2 rise of the discounters -- associated closely with the development of suburbia -- included some key court battles the led to the replacement of manufacturer defined pricing with a wholesale model that led directly to Pile It High, Sell it Cheap. It probably wasn't an accident that this was all happening in the same time frame that railroads (transport priced by class of goods, based on the retail value of those goods) were getting creamed by truckers (transport based on a pretty inadequate calculation of total cost to move the crap) who were taking all the high value business away from railroads, leaving them to move a bunch of stuff like coal and agricultural products at regulated rates that didn't permit them to maintain the track, much less anything else.

For reasons that are murky, and honestly, I just don't care about much right at the moment, publishing retained a lot of the old skool manufacturer defined pricing. It also retained some other characteristics of old skool retailing. A discounter, for example, buys the goods for cash, or financed by someone other than the seller. Thus they now own all the risk associated with whether those things will sell to retail customers. The manufacturer got rid of that risk and with it, lost the opportunity to enjoy the possibility of vast profit should every last one of those things sell for full price. What the manufacturers may not have anticipated was how easy it would be for those discounters to then switch to other manufacturers. In other countries. Employing child slave labor. That they didn't pay. I mean, who could have seen that coming?

Book retailing, new book retailing in any event, retained a lot of old skool characteristics: financing for product supplied by maker on generous terms (months and months before you had to repay, right to return for full refund, blah, blah, bleeping, blah). Running a bookstore was a dodgy business, and publishers shared a lot of the risk. When Amazon first entered this world, they were a great deal for the publishers, because they paid on time and didn't return hardly anything. And Amazon used those months of no-interest float to expand their business. It was a party all around, especially once people like Mary Meeker got a glimmer of an idea about how that all worked.

I don't know when the publishers figured out that this wasn't going to be a completely free ride, but it was long before Amazon released the kindle. When did publishers realize that the smaller orders, higher rate of returns and bookstores going out of business weren't purely attributable to indies getting wiped by B&N and Borders? That uncertainty went straight to the bricks and mortar crowd which wasn't benefiting from the existence of Amazon in any way at all -- very much unlike the publishers.

The kindle must have sped this process up. A lot. Altho it is not easy to tell precisely what can be attributed to the economy going bust and everyone buying used books at Friends of the Library booksales versus heavy consumers buying kindles and slurping up ebooks at a frenetic rate, trading the authors whose names they can't remember and/or can't find available on the kindle for new authors, some of whom are giving it away for free. The kindle must have brought home to the publishers that their per unit cost on paper books was going through the roof -- and not just because of a fuel price spike. I've got zero data, but I bet their return-and-pulp rate went absolutely nuts. They tried to deal with it by engaging in a price war. I suspect that did not go well.

I think behind all the per unit cost arguments and what ebooks "should" cost are a bunch of publishers literally cannot supply paper books to their bricks and mortar retailers if ebooks are being sold for 9.99 -- even if they're getting a bigger cut of the 9.99 than they will get out of the slightly higher price. Publishers _have_ to slow this transition down, or the exodus of the tiny fraction of people who buy the vast majority of books will destroy the entire sector.

I guess we'll be finding out in the next few years whether that worked or not.
Tags: economics, publishing

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