Just say "no" to book returns
Back lists, power tool companies, tax evasion, and torn covers
As a leading American book distributor says in one of their FAQ articles:
If you’re new to the publishing world, book returns may be a bit of an elusive concept.
In the United States, many publishers offer a full refund on unsold books. And on books that were sold to a customer, read, and then returned to the retailer for a refund. And on severely damaged unsaleable books. In fact, in many cases, retailers don’t even have to physically send the book back - they just have to tell the publisher they destroyed the book in order to collect a refund.
There aren’t many other industries like this, and a lot of independent publishers and self-published authors make the mistake of trying to follow along with the established practices of the major traditional publishers - and lose money as a result.
How did this come to pass? Why is book distribution so weird and wasteful?
Well, you could blame FDR if you want, or perhaps the creative accountants at a power tool company; there’s an interesting history behind this. At present, it’s an anti-competitive practice that helps an increasingly-consolidated group of major publishers cling to dominance of the (admittedly declining) brick-and-mortar share of the book market.
The backlist warehouses & media mail
Once upon a time, book publishers used to keep large warehouses of books on hand. They sold these backlists to consumers. In books published before 1979, it’s very common to see mail-order instructions or even mail order forms in the backs of books, with publishers marketing directly to consumers for repeat business. After 1979, this practice gradually became less common.
Given that publishers kept warehouses full of books that they slowly sold to retailers and individual readers, accepting returns of unsold books in good condition from retailers is something that makes sense. The books would be eventually resold to someone else. I’ve seen a number of sources suggesting the practice of accepting unsold returns from retailers first became widespread in the Great Depression, and that it was originally only offered if the retailer made an order of new books from the same publisher at the same time.
Perhaps not coincidentally, these accounts date to about the same time that a recently-elected president named Franklin Delano Roosevelt (FDR) ordered the United States Postal Service to implement a special low “book rate” (now known as media mail).
The publisher could recover unsold but still salable merchandise that they could resell to another retailer or sell directly to consumers - without the expense of an additional print run. The retailer got a new batch of books more likely to sell in their market at a rate discounted by the number of the previous batch that they’d sent back. The only cost taken out of either party’s pocket was postage at the new and heavily-discounted book rate.
Power tools and tax evasion
As corporate income taxes increased and the corporate tax structure grew more complex, creative accounting became widespread in American corporations. The courts ended up allowing some of these practices and banning others.
Some book publishers wrote down or wrote off excess inventory (unsold books sitting in warehouses) on the basis that most of it would not be sold for a profit. Like a number of other companies operating in this era, they were able to get away with writing off the losses of unsold merchandise in the short term and wait until the stored eventually sold (years later) to realize a long term profit.
One company outside of book publishing doing something similar was the Thor Power Tool Company. In 1979, the US Supreme Court came down on Thor Power Tools like a hammer in the case of Thor Power Tool Co. v. Commissioner of Internal Revenue, ruling that the company could not both write off warehoused inventory as unsaleable and continue to sell it at full retail price directly to consumers.
With corporate tax law being what it was, book publishers had a real financial incentive to destroy unsold books in order to write them off as losses. This was a key turning point, and as the book publishing industry slowly consolidated, book publishers shifted away from warehousing backlists of books and towards destruction of unsold inventory. (Most US companies were also shifting towards short-term value extraction during the same period, and maintaining a backlist is a long-term affair that helps keep readers and authors happy without producing much visible short-term revenue.)
The torn off cover era
It didn’t take long for publishers to realize that, even at the relatively low “book rate,” paying for postage on returned books just in order to pulp the returns was expensive, and the value of pulped books was fairly negligible. In many cases (particularly but not exclusively for mass market paperbacks), they stopped requiring retailers to send the whole book back for a refund, which means that retailers could start offering refunds for books that weren’t in salable condition.
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By the mid-1980s, most publishers were asking retailers to do the work of “destroying” books to save on shipping and handling costs. The common practice was to accept a torn-off cover (in many cases partial) as proof that the book had been “destroyed” by the retailer.
It turns out that a book with a torn cover is still readable, and neither retail bookstore owners nor bookstore employees had a financial incentive to actually destroy the “destroyed” books. In fact, the opposite was true, and books with torn covers started showing up in large numbers in secondary markets in the 1980s. Publishers noticed this was eating into new book sales, and books began to routinely carry notices asking consumers not to buy books with torn or missing covers.
Why just say “no?”
Retailers and distributors have an incentive to keep the system in place because they make more money that way. The major publishers have an incentive to keep the system in place because it helps keep independent publishers from gaining ground. It’s expensive, but they have the necessary scale to manage this as a cost of doing business. Independent publishers (including self-published authors) can and should challenge this paradigm.
If you’re starting up a small press or self-publishing and set up a title with a major print on demand distributor, you’ll likely be faced with the following three options:
Accept returns, and have the distributor destroy books sight unseen.
Accept returns, and have the distributor mail books to you for a fee.
Do not accept returns.
The distributor will likely strongly recommend the first option, and strongly recommend against the third option. This is because they make money on every book printed and sold to bookstores whether it’s returned or not, and the first option leads to the most books being printed. Similarly, the reason they discourage the third option is that it leads to fewer books being printed.
With the low margins involved in book publishing, it’s very easy for returns to completely erase any profits for the publisher on any given book. Major publishers can operate with the expectation that the vast majority of their books will lose money, and that a handful of books that sell extremely well will make up for the majority of books that do not; they also control their own distribution, which helps limit the scale of their losses on losing books.
Small publishers cannot count on the law of large numbers to produce a reliable return. Small publishers who rely on a major print on demand distributor also have no control over the volume of returned books, and there’s a critical misalignment of incentives. Remember how retailers and their employees had little incentive to actually destroy books, and perverse incentives not to? The same problem applies to print-on-demand distributors that destroy books sight unseen.
If that pile of books are going to be destroyed anyway, why not take one home? Why not take an unopened carton of books returned from one retailer, mark them down as “destroyed” on paper, and send the “destroyed” carton of books back out to the next retailer to place an order? Remember, “destroyed” books flooded used book stores in the 1980s and 1990s.
It’s entirely possible to use books that are actually returned - selling returned books at conventions and events, or sending them out as promotional copies - but books “destroyed” sight unseen are simply money wasted through decisions made by other people. And, to add insult to injury, may end up circulating in the market anyway.