Controlling Returns to Preserve Profits

June 2006
by Doug Shidell

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What is the real cost of
returns? At what point does the cost make them unprofitable or marginally
profitable? What do you do when an account reaches that point? I had to face
those questions in 2005.


In the spring of 2004, Borders
Books purchased 300 copies of my book Bicycle Vacation Guide through my
distributor. A year later, at the beginning of a new bicycling season, they
returned 86 books, all damaged. Throughout the summer of 2005, Borders continued
to return damaged books until I had 163 in my basement.


I’ve worked most of my life as a
publisher and as an employee in the bicycle industry. Bicycle retailers pay
distributors a restock fee of 15 percent for all returns. Distributors do not
accept damaged products, and any retailer that returns more than 1 percent of
its purchases loses its rebates and other customer incentives. If returns rise
above 2 or 3 percent, the dealer could lose its right to do business with the
distributor. By contrast, when I protested the huge Borders’ return to my book
distributor, I received the equivalent of a palms-up shrug.


Doing business in a culture where
all risk belongs to the publisher is difficult in the best circumstances. At
some point it isn’t worth pursuing. To quote Bruce Merrifield, a consultant to
the distribution industry: “Sales are vanity. Profits are sanity.” These are
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