Preparing for the Future: An Interview with Joe Mangan & Rick Joyce

For a PDF version of the interview, click here.

 

 

 

Preparing for the Future: Changing the Publishing Infrastructure to Meet New Challenges

Originally published in the Publishers Launch London Conference program book, June 21^st, 2011.

Through Consortium, Perseus Distribution and Publishers Group West, the Perseus Books Group is the leading provider of sales, marketing and distribution services to independent publishers in the US. Perseus serves over 350 client publishers, across all genres and types of publishing. Mike Shatzkin recently sat down with Joe Mangan and Rick Joyce, chief operating and marketing officers for Perseus, to discuss how and when publishers should transition from in-house warehousing to an outside distributor.

What causes the “aha” moment for a publisher that has had its own warehousing and shipping facilities to motivate them to think about outsourcing that capability?

JM: Well, when we look at that, it’s really two things. The first is that every publisher should have had that ‘aha moment’ by now. As we transition from physical to digital, anyone who owns warehouse space, just putting their own books through, is seeing that decreasingly utilized. Secondly, the answer really depends on the kind of publisher you are. What genres are you publishing and how rapidly are those moving to e? How concentrated are your sales in major accounts versus broadly across channels and a great many accounts? What’s the breadth of your sales across ISBNs? If you’ve got a few titles that are pumping out big units, it’s just a very different model in a warehouse than a broad and deep backlist that’s selling lots of units across a great many titles.

MS: If it’s spread out, you’re going to have a higher pick cost.

JM: Right, and boxes that aren’t full.

RJ: The places where the transformation toward ‘e’ or the descaling of ‘p’ hits you most directly is in your warehouse cost and your freight costs. Freight costs, even without the descaling of print, are getting hit by the increase in fuel costs.

At approximately what percentage cost for back office facilities should a publisher start thinking about outsourcing?

JM: We were trying to think about what kind of metrics you would put around that. If your warehouse utilization starts to fall below 80% on a consistent basis, then you’ve got to start wondering where it’s going. When freight as percentage of gross sales exceeds 3%, or put another way, when your parcel shipments fall below 15 pounds, you’ve really got to start to question it. You’re really hitting the deeper part of the scale curve.

RJ: We believe that most people are either past the point of economic efficiency, or it’s heading at them fairly quickly. But it does matter what kind of publisher you are. You can imagine folks that are selling a handful of huge titles through mass channels have a fairly efficient publishing program. The folks that have hundreds of titles that sell in hundreds of units, rather than dozens of titles that sell thousands of units – they’re probably behind it now, and they’re really going to feel it sooner.

JM: And also the folks who publish fiction, that’s traveling to e much faster than the folks who publish craft books and cookbooks.

How do you anticipate this transition impacting the UK as compared to the US?

RJ: The UK is a smaller country, so its freight logistics are a little different, but its volumes are also different. Some of these things will hurt more over there, some of them will hurt a little less, but the basic economic truths are the same. We certainly think that things will pick up faster in the UK because the infrastructure is in place and being exported from the US. You know, we had three years of ramping here to 15 to 18%. We might hit a tipping point this year, but folks have had three years to get there. It might be 18 months in England, to get from 5% to 30%.

‘E’ is coming at you at a pace that you can’t quite control. But transitioning your physical distribution does take some time. You actually have to do some thinking, run your own numbers, talk to partners. And even once you make the decision, it can’t be done in a day. It takes a couple months of work. So it pays to be in front of this.

JM: You can’t wait until you’re thirsty. You’ll find that you’re already dehydrated.

MS: Find the bar now. As a matter of fact, order the beer immediately.

What are the challenges for publishers unwinding from existing warehouse and back office systems, or transitioning to a new one? How do you help?

JM: We provide a lot of planning and guidance for them. It’s something we do all the time, and it’s not that different across publishers. The first thing is you have to deal with excess inventory. Whether it’s instigated by the publisher or by your existing warehouse footprint or your new service provider. When you’re actually going to pick up and move all the books, most publishers take that opportunity to deal with excess inventory and try to leave the obsolete stuff behind.

Secondly, for better or worse, a lot of the systems that people use to run their business and track sales and inventory are grounded in those distribution structures. So, typically, you’re going to transition to a lot of new systems. Our general experience is that when you’re outsourcing, you’re going to move to significantly better systems. Most people who are doing it themselves don’t have the scale to invest in systems like a third-party provider can.

RJ: The good news is you’ll be moving to better systems; the bad news you have to learn a new system.

JM: And the third thing—and this is kind of obvious—but you’ve got to move the inventory and you have to transition the accounts. Those two things are nowhere near as big a problem as people think they are. It’s really very manageable. I would say the same is true of the account transition. Notifying the accounts that you’re going to have a vendor record transition, from publisher to service provider, is something we do all day every day. The industry has gotten pretty good at it.

RJ: It’s worth noting that most retailers like increased concentration of suppliers. It makes it easier.

JM: Of course, there are other challenges. One is staff reductions and reassignment. If you’re a publisher with in-house distribution, you’re going to shed some people. Often, people aren’t 100% warehouse or 100% publishing. You have to pull those things apart. That is a reality you have to deal with.

And the last thing we wanted to touch on is adapting to your service provider’s processes and procedures. If you’re home-grown, you’ve tailored or processes and procedures to exactly how you work – which may or may not be efficient, but it’s how you work. I can say that with 350 clients across every possible genre of publishing, there’s very little that we haven’t seen, and there’s very little that we can’t accommodate. But when you move to a service provider, you have to understand what you’re getting yourself into.

RJ: We really lean in with publishers and say, ‘Here’s why we do things,’ in terms of procedures and policies. And often, it allows them to adopt best practices that are gleaned from a great many publishers.

JM: In that collective, you give them clout. You give them the power to be more efficient.

Does shifting distribution arrangements cause any increase in returns? Does it cause any lag in payments?

RJ: Absolutely not. It makes sense that people are worried and confused and anxious about either changing distributors or from warehouse to distributor. It happens once a generation for that publisher, but it’s once a month for us. That’s why people go to professionals to do things they don’t do very often. There are certain things you could do yourself, but you don’t do it all the time. You don’t know what’s hard, what’s easy, and how to do it right. When you switch to us, or to any high-scale distributor, you actually get to trade some disbursal and uncertainty for more certainty.