Online Business Valuation Tools
The Bargain Book Business: How It Has Grown in Recent Decades
When I worked in bookstores during the late 1960s and early 1970s, the book business consisted of dozens of independent publishers, some very large, and probably thousands of independent and locally owned bookstores. Many of the stores sold other things besides books, but not the publishers. The book business has changed dramatically since then.
Formerly, publishers determined each title’s retail price, which all the bookstores observed. The publishers knew that not every title would make a profit, but usually kept the slower sellers in print until either they had sold all the copies. At that time, they could decide to print more copies if there was still reasonable demand, or remove the title from the catalog and declare it out of print. Sometimes, instead of keeping a title around until it sold out, publishers would sell remaining titles to remainder companies for a pittance, and the remainder companies would attempt to sell the books for a sharply discounted price.
Two big shocks hit the book business in the late 1970s. Crown Books opened its first store in 1977 and challenged the publishers’ right to set prices. It offered discount prices for everything it sold. Barnes & Noble and Borders soon started their own nationwide chains of very large bookstores. A 1979 Supreme Court ruling, Thor Power Tool Company v. Commissioner of Internal Revenue, caused an even bigger shock.
The IRS had denied the company’s valuation of unsold inventory. The company sued, claiming that according to “generally accepted accounting principles,” the market value of the inventory had decreased and that the IRS had acted improperly in refusing to allow the company to write off its lower value. The Supreme Court ruled, “There is no presumption that an inventory practice conformable to “generally accepted accounting principles” is valid for tax purposes. Such a presumption is insupportable in light of the statute, this Court’s past decisions, and the differing objectives of tax and financial accounting.”
Since publishers had routinely treated their inventories in the way the court had ruled against, they could no longer afford to keep backlist titles until they sold out. They adjusted in two ways: first, they printed fewer copies in the first place, and second, they took them out of print much faster than before. Remainder books therefore became a much larger portion of the book business.
Another shock came in 1994, when Amazon.com began to sell books over the Internet. Its business model required neither a physical store nor a warehouse to keep inventory. Therefore it had no limit on the number of titles it could offer. Eventually Amazon and other online booksellers began to offer used books as well.
The bargain book business soon followed. Remainder books have gone online, using two basic models. Some companies sell in large quantities to either stores (for example, the bargain book tables in various chain bookstores) or home-based Internet businesses, which take delivery of the inventory and, in the case of the Internet companies, take over responsibility for shipping copies to individual customers.
Others deal with individual buyers, either directly or through affiliate marketing. Anyone with a monetized web site can sign up as an affiliate, link directly to the remainder company’s web site and receive a commission on each sale. The All-Purpose Guru and All-Purpose Guru Alert both participate in the bargain book business and offer remainder books.
About the Author
David M. Guion: the All-Purpose Guru, All-Purpose Guru Alert
FinMint Business Valuation
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