March 27, 2018 by Mike Shatzkin Originally appeared on The Shatzkin Files blog
Publishing and digital change consultant Bill Rosenblatt — always worth paying attention to — pointed his contacts last week to a podcast from NPR celebrating the current renaissance of independent bookstores. The history reported as part of what was really the celebration of very recent events is useful to ponder, even if it was sometimes a bit confused about the timing of mall stores and superstores and their impact on indies. But its memory wasn’t long enough to recall a critical development that is essential to understanding book retailing over the past half-century and what makes it possible to be a successful retailer of books today. And it elides the fact that indie bookstores have risen before, several decades ago.
The story the NPR report didn’t tell contains the kernal of a totally underappreciated fact of the book business. The first serious harnessing of the power of modern computing to improve the book supply ecosystem was by Ingram in the early 1970s. Ingram’s innovations over the past two decades, in what could be called the Amazon era, are critical elements of the modern book business infrastructure. Lightning’s print-on-demand capability and “third party fulfillment”, by which Ingram can turn any entity with a web address into an Internet bookseller, are the industry’s counterbalance to Amazon’s growth.
But the podcast, which focused on the recent rise of independent bookstores, would have benefited from an acknowledgment of the innovation by which Ingram dramatically changed book retailing nearly 50 years ago.
The central challenge of book retailing has always been to use the store’s limited shelf space and inventory investment dollars to have the best possible selection of books in the store. Before Ingram’s seminal innovation, publishers and retailers had a many-to-many supply chain with hundreds of publishers selling to thousands of stores. Wholesaling — stocking a warehouse that could provide books from many publishers — faced the same challenge. Wholesalers in those days were predominantly “local” — many of them had added a few trade books to their magazine and mass-market paperback selections.
But magazines and paperbacks were “forced out” — stocking decisions were made by the wholesaler not the customer — and then, after a while, just the covers of the magazines or paperbacks needed to be returned for credit. Inventory management wasn’t really an issue for the magazines and mass-market paperbacks. Trade books were really a different business.
The trade books were worth more to the wholesaler, unit for unit. When a title took off, the wholesaler could order a big shipment from the publisher and it got orders for the book quickly from local accounts. That’s where the money in book wholesaling was in those days, pumping the bestsellers, not “backing up” a store’s need for an additional copy here or there across the range of possible titles.
The fact that wholesalers stocked very few titles didn’t stop stores from trying to order what they needed from them. The net result was unsatisfactory for everybody. Wholesalers couldn’t fill most of the orders they got. Stores found resupply of anything except bestsellers from the local wholesaler to be time-consuming and inefficient. And the net result was that it was very hard to for most stores to match inventory to demand.
And that was a big part of the reason that independent bookstores had trouble competing with the mall store chains as they built out. They couldn’t compete with a better or more responsive selection of books because the supply chain inefficiencies, which included the fact that there were hardly any in-store stock tracking mechanisms in those days before personal computers, made that an insuperable challenge.
And then Ingram changed everything.
Harry Hoffman, who had been at tech company Bell & Howell before he came on board to run Ingram Book Company, clearly had a more tech-oriented management style than most book businesses did at that time. He built an efficient internal computer system to track Ingram’s inventory holdings and sales. This included an Ingram-generated “SKU” number (these were the days before every book reliably carried its own unique ISBN number) which they also used internally to “code” orders. But the big challenge to profitable wholesaling — the requirement to process more orders from customers that they could not fill than orders that they could fill — was not solved by that internal efficiency.
One day Hoffman entertained a former Bell & Howell colleague who showed him their new microfiche reader technology. The microfiche enabled the delivery of data on a piece of film that could be read by a projecting reader. Enormous amounts of data could be put delivered quickly and inexpensively by microfiche, if only the recipient had the “reader” machine to look at it. Hoffman and his team quickly grasped the potential benefits if a store placed its orders to Ingram with advance knowledge of what was in stock and what was not.
They hit on a formula. If the stores would pay the “rental” cost of having the reader (about $10 a month), then Ingram would deliver its complete inventory record to the stores weekly, including both the titles being stocked and the Ingram inventory as of when the microfiche was cut. The benefit to the store was that there was a high likelihood that their order would be filled (except for some titles whose stock had been depleted during the week.) That made Ingram their wholesaler of choice.
And to Ingram, the benefits were even greater than the increased volume of business. They no longer were processing reams of orders they couldn’t fill. And, as a bonus, they were able to put their internal SKU numbers into the microfiche as well, which meant the stores were able to do Ingram’s “order coding” when they created their orders. That cut costs for Ingram and increased the speed of fulfillment.
(This aspect of things seemed small to most people, but not to me. In the summer of 1966, I had a job working for Random House. What I did was “code orders”. I got the orders from the stores and looked up the internal Random House code in a directory. That’s what every filler-of-book-orders, including every publisher and every wholesaler, had to do when they got hard-copy orders from their accounts. It was tedious and expensive work that Ingram eliminated for themselves!)
It was this innovation by Ingram that actually spawned the first big uptick in the number of large and successful independent bookstores. Before Ingram’s microfiche, Baker & Taylor was the only “national” wholesaler, but their bailiwick was libraries, not bookstores. Libraries would wait for the books and, indeed, B&T did not stock big quantities of bestsellers to fulfill bookstore demand. But after Ingram showed the way, B&T scrambled to catch up. Before long, they’d imitated Ingram’s microfiche, although somewhat less successfully because their core internal systems weren’t as good.
For the next twenty years, until the mid-1990s, successful book retailing increasingly depended on delivering “selection”: larger and larger title counts in the stores. Big selections were the signal to the consumer that they would find what they wanted. With increasingly sophisticated communication with Ingram and B&T, stores could get most high-demand books in a day or two if they weren’t in stock. The mall stores and smaller independents suffered because their smaller selections were less of a magnet to the book shopper.
Then Amazon changed everything again, becoming the first store that carried every book and would tell you exactly how long it would take for you to get it. Of course, they did that leaning primarily on Ingram’s inventory and reliable service to deliver. But that’s another story.
Today’s indies rely on wholesalers, primarily Ingram, without a second thought. You won’t find a bookstore today that doesn’t order from wholesalers daily and depend on them for most of its stock. Whatever stocking or community or events strategy any book retailer employs, it is made possible by the ready availability of whatever books are needed to be delivered within hours.
So what we are celebrating today is actually The Rise Of Independent Bookstores Redux. The first time indies grew in importance, starting more than four decades ago, the foundations were size and selection. This time the main pillars are community and creation. But both times there was one company without which the thriving community of indies could not have happened. And that company is Ingram.
Ingram has been a consulting client on and off for years and I’m still engaged with them. This particular tale has been worth telling before, most recently a bit over two years ago., once almost a decade ago in the early days of this blog and once more than two decades ago in a speech I gave when Amazon was barely a year old!