Bookstore Baksheesh

Adam L. Penenberg
FastCompany, 11/27/2009

STEP INTO ANY BARNES & NOBLE and the first thing you see are tables covered in books. ‘Tis the season, so there’s the “Happy Holidays” table, with its quirky array of titles–Cornell West’s new memoir, Ken Auletta’s Googled, Alexandra Horowitz’s Inside of a Dog: What Dogs See, Smell, and Know, a biography of Thelonious Monk–authors and subjects with seemingly little if anything in common. The “Gift Books” table (20% off) is stacked with painstakingly crafted art books–one with gorgeous photos of the Vatican flanked by the Marvel Comics Encyclopedia and a history of Lego, the snappable children’s toy. There’s “Children’s Books,” “History,” “Biographies,” “New Arrivals,” and “New in Paperback.” Off to the right, Dean Koontz warrants his own narrow shelf. So does Michael Crichton. Beat a path to the cash register and you may stop to chuckle at the “Humor” table.

Have you ever wondered who decides which of the 55,000 books published each year end up on which tables and why? It’s not serendipity, not by chance, not because some Barnes & Noble tastemaker is trying to lure us with the most scintillating reads of the year. It’s marketing, pure and simple, all of it bought and paid for by publishers. One editor I spoke with, who, like almost everyone else I interviewed for this column insisted on anonymity for fear of alienating powerful booksellers, calls it “bookstore baksheesh.”

The practice is known as Co-op, and each book on each table costs publishers anywhere from $3,000 to $30,000, and even up to $50,000 depending on placement. The closer a table is to the front of the store, the more expensive the real estate. But quantity, duration, and even the season affect what publishers must pay. Holiday placement–Christmas, New Years (when a flood of self-improvement “new you” books comes out), Fathers Day, and Mothers Day are big seasonal tables and demand higher prices. If you see books with their covers facing you, odds are publishers paid for the privilege. (These are called “end cap” displays.) While I’d like to believe that my new book, Viral Loop, is one of the best business titles of the fall (SmartMoney did), my publisher had to pay Barnes & Noble to include it in the “Best of Business” bay for a month and the “New Arrivals Hardcover” table for two weeks.

Barnes & Noble is not alone in charging publishers for placement. Borders names its price for front-of-the-store placement. Large independent booksellers sometimes glean money for tables and get $50 for mentioning a book in their newsletters. On Amazon, my publisher paid for a month of “Buy Viral Loop Get Predictably Irrational” and at 19 airports there were displays at Paradies stores pairing Viral Loop with Fast Company magazine.

Booksellers and publishers have draped a veil of secrecy over the entire practice. A spokesperson for one publisher told me this “information is considered proprietary” and “it would be against company policy” to talk about it “even anonymously.” But really, there’s nothing nefarious about it. It’s all part of the retail game. When you control the distribution channels, you get to make the rules. Department store, supermarket and drug store chains all demand pay-to-play placement on their shelves.

“If you took everything out of a supermarket that was bought and paid for promotions, it would look like Soviet Russia,” says Lorraine Shanley, a principal of Market Partners International, a consulting firm. “Books have a kind of halo effect because they are advertisement-free, but they are not promotions-free.” Barnes & Noble monetizes only a scant 3% to 5% of a store’s total space, far less than supermarkets. The miles and miles of shelves crammed with books with only their spines showing don’t cost publishers anything. But because Barnes & Noble, Amazon and Borders control distribution, they have immense clout, deciding which titles stick out when customers browse their stores and Web sites. They are empowered by a scarcity of space: There are so many books but only so much square footage available in stores. But publishers only invest in titles they predict will sell, and Barnes & Noble has the final say, sometimes refusing to stock books on tables if it decides customers won’t buy them. For mid-list books, the booksellers have the upper hand. For top-selling authors like Mitch Albom and now Sarah Palin, the bookstores need the books to fly off shelves as badly as the publisher do, and in that scenario the publishers often gain leverage.

While authors complain the loudest, it’s a tough business for everyone involved. A recent post on “The Profitable Publisher” blog kindly crunches numbers. If a book lists for $30, the publisher gets between $15 and $18, but it has to pay a wholesaler 15% ($4.50) and a distributor another 15%. Take the higher number and Hyperion, HarperCollins, Simon & Schuster, and the rest end up with $9. Pre-publication (cover design, text design, copyediting, etc.) run about a buck. Printing: $3.25. Author royalties, maybe $3 a book. Don’t forget salaries, rent and the like, which may cost a buck or two on each title. Then there are returns, with booksellers returning unsold merchandise to the publishers, who either remainder it for pennies on the dollar, or simply pulp it. In the end a publisher is fortunate to wring a few cents on a book. No wonder it’s a hits business, with John Grisham, Dan Brown, Stephenie Meyer, and J.K. Rowling carrying the rest of us. If a publisher gets one or two big books a year, it might report margins of 10%–if it’s lucky.

Meanwhile, bookstores don’t have it any easier. Of the $12 Barnes & Noble receives for carrying a $30 hardcover, a high percentage is earmarked to overhead. A store has to sell about 2,000 hardcovers just to pay rent on a superstore, which can reach $20,000 a month or more. Then there are salaries in both the store and corporate headquarters, utility bills, maintenance, taxes, marketing, and advertising. Maybe, just maybe, the company earns a buck or two off of each title. If it doesn’t sell enough books, it doesn’t stay in business.

With publishers and booksellers battling over such slender margins, no wonder booksellers aren’t shy about pushing publishers around, since, well, they can. Amazon calculates how much business it did over the course of a year with a publisher and dictates how much it will spend on marketing, like it or not; it also offers used books on the same page as new titles (royalties accrue only on new books) which publishers view as an affront but are powerless to prevent. Barnes & Noble deducts marketing costs from the amount it owes each publisher for the books it sells and has its own rules for returns–20%, 30%, sometimes 40% of a particular title–which it ships back to publishers who must eat the cost.

A former children’s book publisher, who left the business 10 years ago, still gripes about Barnes & Noble. “They’re bullies,” he says. Out of the blue he would receive a truckload of books that had been sitting on shelves for two or three years, many of them torn, dog-eared or colored in. Sometimes, he claims, they weren’t even his books. He’d send them back but Barnes & Noble would simply deduct the amount from his account. It wasn’t personal, just business.

And this business permeates everything. So the next time you find yourself wandering into a Barnes & Noble and stop at a table to thumb through a book that catches your eye, remember that a publisher paid to put it there, hoping you would do just that. It’s not that you’ve been punk’d. You’ve just been marketed to.

Copyright 2010 Adam L. Penenberg (