Forward to next post: I’m just a typical American boy from a typical American town
A&R Whitcoulls Group, a.k.a. the Angus & Robertson bookstore chain, is Australia’s largest bookseller, with 180 bookstores and about 20% of the retail market. A&R’s owners, an outfit called Pacific Equity Partners, are thinking of taking it public.
This may or may not have been why A&R’s commercial manager, Charlie Rimmer, sent a startlingly arrogant letter to Australia’s smaller publishers and distributors, demanding a substantial payment from each by August 17 (reportedly ranging from AU$2,500 to AU$20,000) if they want A&R to keep selling their books. Among the recipients was Michael Rakusin of Tower Books, who made the letter public. (Presently we’ll see Mr. Rakusin’s reply.) From A&R:
Dear MichaelTacky. When you’re sending a formal blackmail request, you should always use the recipient’s full name.
I am writing to inform you of some changes in the way we manage our business.Malarkey. If you’re a bookstore chain, doing business with a publisher doesn’t mean that you automatically carry a standard number of all the titles they publish. You order the books you want, in the quantities you judge appropriate. Whatever doesn’t sell gets returned to the publishers at their own expense. If A&R hasn’t been making a suitable profit off these publishers, it’s not the publishers’ fault. Booksellers make money by recognizing the books their customers will want to buy, ordering them in appropriate quantities, and selling them well.
We have recently completed a piece of work to rank our suppliers in terms of the net profit they generate for our business.
Later we will read how A&R has been determinedly paring down, de-rationalizing, and generally muddling their own purchasing operation so badly that their bookbuyers no longer see any of the books they’re ordering.
We have concluded that we have far too many suppliers,Malarkey again. Rimmer is inappropriately borrowing language from other industries, as though A&R were a construction firm and he’d noticed they were buying their bricks from too many different brickyards. Bricks are interchangeable. Books aren’t. A house built with bricks from one or two brickyards will be just fine. A bookstore that only carries stock from a few publishers will have a thin, poor selection to offer its customers.
Multiple suppliers—that is, a broad range of publishers and books to choose from—is a good thing, if a bookstore chain knows what it’s doing.
and over 40% of our supplier agreements fall below our requirements in terms of profit earned.He doesn’t say they’ve been losing money on them. He doesn’t say what the requirements are, or how long they’ve been in force. He just says A&R now wants more profit from business it’s already transacted.
At a time when the cost of doing business continues to rise, I’m sure you can understand that this is an unpalatable set of circumstances for us, and as such we have no option but to act quickly to remedy the situation.A&R’s been cutting its operating expenses (ineptly), so if its net profits are down, that’s because its sales are down; and if so, that’s A&R’s fault. But are its profits down? If so, it’s an odd moment for its owners to be taking it public.
In any event, “we have no option but to act quickly” is a barefaced lie. Rimmer’s been describing a slowly developing situation. The only need for speed I can see is that A&R wants to gouge a lot of money quickly out of the small distributors and publishers it does business with, and it wants them to pay up before they have time to compare notes and organize a general response.
Accordingly, we will be rationalizing our supplier numbers and setting a minimum earnings ratio of income to trade purchases that we expect to achieve from our suppliers.“Earnings ratio of income to trade purchases” has nothing to do with A&R’s cost of doing business. What he’s talking about there is the discount rate publishers give bookstores. He’s saying he wants them to give him a higher discount rate; i.e., give the booksellers a greater proportion of the sales revenues, and give the publishers less. (I’m not saying this situation is unique to Australia. Bookstore chains in the US and Canada are always pushing for bigger discounts.)
What I find interesting here is that A&R is specifically putting the thumbscrews on the smaller distributors and publishers. If A&R’s been ordering haphazardly and selling badly, their sales should be down for all the publishers they stock. The only difference is that the little guys don’t have as much clout and can’t hold out as long as the bigger publishers.
If A&R gets a bigger discount, the other booksellers will want one too.
I am writing to you because TOWER BOOKS falls into this category of unacceptable profitability.Raise your hand if you think A&R didn’t know at the time how much it was making on those transactions. No? Me neither.
As a consequence we would invite you to pay the attached invoice by Aug 17th 2007. The payment represents the gap for your business, and moves it from an unacceptable level of profitability, to above our minimum threshold.
Wouldn’t life be interesting if we could just tell our trading partners that we’ve decided to raise our “minimum threshold of profitability” on past transactions, and they owe us?
According to the Sydney Morning Herald, A&R “invoiced” Tower Books for AU$20,000.
If we fail to receive your payment by this time we will have no option but to remove you from our list of authorised suppliers, and you will be unable to complete any further transactions with us until such time as the payment is made.For some small publishers and distributors, that’s a death threat. They can’t afford to pay the mordida now, they can’t afford to give A&R a bigger discount, and they can’t afford to lose that large a percentage of their retail sales.
I’m wondering whether it’s also an implicit threat to return all their Tower Books inventory and/or hold on to any monies currently owed to Tower.
I have also attached a proforma for you to complete and return to me, with your proposed terms of trade for our financial year commencing Sept 1st 2007. We have the following expectations:It’s a new contract. Tower is expected to write out the terms of their own servitude and submit them to A&R. Other publishers will be sending in their own offers of terms. Effectively, they’re being ordered to bid down their own market.
I’m not familiar with the “standard rebate/growth rebate” terminology. My guess is that that’s a bigger standard discount, an even-bigger-than-that discount, and a commitment to formalize and regularize tribute paid for co-op advertising.All agreements contain a standard rebate, a growth rebate and a minimum co-op commitment to enable participation in our marketing activity
I believe that means that if A&R sells $1 more of Tower’s books than it sold the previous year, Tower has to pay an even higher discount rate—which is going to amount to a lot more than a dollar.Growth rebates activate as soon as our purchases with you increase by $1 on the previous year
There’s no way the publishers can calculate that in time. The only way to avoid that piratical interest charge is to overpay, then try to get a refund on the overpayment. And you can bet your booties that A&R doesn’t pay publishers anywhere near that quickly.All rebates are paid quarterly for the previous quarter’s performance, you must ensure that your remittance, with calculations, is received by us by the 7th of the month following the preceding quarter. Any remittances not received by this date will attract a daily 5% interest charge.
That’s that non-elective co-op advertising.I am also including a copy of our ratecard, and our marketing calendar, to enable you to begin planning your promotional participation now.
If you would like to discuss this with me in more detail, I am delighted to confirm an appointment with you at 1:00pm on Friday 17th August for 10 minutes at my offices at 379 Collins St, Melbourne.It’s not just the non-negotiable timeslot or the insulting ten-minute limit. Tower Books is in Frenches Forest, NSW. Rakusin would have to fly to Melbourne for his ten-minute meeting with Rimmer.
Best Regards,I have a theory about what A&R is up to. Traditionally, when a publishing house is acquired by some big conglomerate, the bean counters take a look at the accounts, turn pale, and have a talk with the publisher. It has come to their attention, they say, that many books lose money, and most of the others make a small profit at most. Almost all the publisher’s profits come from a small number of bestselling titles. “True,” says the publisher. In that case, the beancounters reply, would it not make more sense to only publish the bestsellers?
Charlie Rimmer A&W Group Commercial Manager
I’m wondering whether A&R thinks they’d do better business if they only stocked the bestsellers. (If you look at the sixty-odd reader comments on the news story in question, you can see the actual reaction the book-buying public has when they find a poor selection on offer in a bookstore.)
Alternately, it’s possible that A&R’s management stands to personally profit if the company goes public and the initial stock offering does well, so they’re running a quick slash-and-burn raid on their more vulnerable suppliers in order to temporarily make their company look more profitable. Or maybe it’s something else. It’s tacky and stupid and self-defeating, whatever it is.
Onward to Michael Rakusin’s reply:
Dear Mr RimmerThat’s a buying department that’s being serially meddled with by people who don’t know what they’re doing and don’t like the inherent particularity of books. You can’t engineer the complexity out of the book business.
We are in receipt of your letter of 30 July 2007 terminating our further supply to Angus & Robertson. As you have requested, we will cancel all Angus & Robertson Company orders on 17 August and will desist from any further supply to your stores.
I have to say that my initial response on reading your letter as to how you propose to “manage” your business in the future was one of voluble hilarity, I literally burst out laughing aloud. My second response was to note the unmitigated arrogance of your communication, I could not actually believe I was reading an official letter from Angus & Robertson on an Angus & Robertson letterhead.
My reply to you will perforce be a lengthy one. I hope you will take the trouble to read it, you may learn something. Then again, when I look at the level of real response we have had from Angus & Robertson over the past six or so years, I somehow doubt it.
The first thing I would say to you is that arrogance of the kind penned by you in your letter of 30 July is an unenviable trait in any officer of any company, no matter how important that individual thinks himself or his company, no matter how dominant that company may be in its market sector. Business has a strange habit of moving in cycles: today’s villain may be tomorrow’s hero. It is quite possible to part from a business relationship in a pleasant way leaving the door open for future engagement. Sadly, in this case, you have slammed and bolted it.
More to the point, however, we have watched our business with Angus & Robertson dwindle year upon year since 2000. We had to wear the cost of sub-economic ordering from you through ownership changes, SAP installation, new management, and stock overhang. In summary our business with you has dropped from over $1.2 million at the end of 2000 to less than $600,000 in 2007.
You would be quite correct to question whether our offering to the market had changed in any way. The answer can be derived from the fact that during the same period our business with Dymocks, Book City, QBD and Borders continued to grow in double digits, our business with your own franchise stores has grown healthily, and our overall business during the same period has grown by more than 50%.
Six years ago we were allowed to send reps to your company stores and do stock checks. Then these were “uninvited” and we had to rely on monthly rep calls to your Buying Office. Subsequently even that was too much trouble; your Buying Office was too busy to see us, so we were asked to make new title submissions electronically. Every few months the new submission template became more and more complex. This year, we have been allowed quarterly visits to your Buying Office at which we were to be given the opportunity to sell to all your Category Managers. At the first, we did indeed see all of the Category Managers - but they didn’t buy any of the titles offered. At the second, one Category manager was available, and again no purchases resulted. At the last (only last week), two Category managers attended. Through all of this, your overworked and under resourced Buying Department never got to see, let alone read, an actual book. While one may be forgiven for believing that Angus & Robertson is actually a company purveying “Sale” signs, I do believe you are still in the book business?
That Angus & Robertson is struggling for margin does not surprise me. It amazes me that the message has not become clear to your “management”: there are only so many costs you can cut, there is only so much destiny you can put in the hands of a computer system, there are only so many sweetheart deals you can do with large suppliers. After that, in order to prosper one actually has to know one’s product and have an appropriately staffed buying department. Most importantly, one has to train sales people of competence. You will never beat the DDSs at their cost cutting game, you will only prosper by putting “books” back into Angus & Robertson. And it would seem to me paramount to stop blaming suppliers for your misfortunes, trying ever harder to squeeze them to death, and actually focus on your core incompetencies in order to redress them.Tower Books distributes Alexis Wright’s novel Carpentaria, winner of the 2007 Miles Franklin prize, which is a major Australian literary award.
How a business that calls itself a book business is going to do without titles such as the Miles Franklin Prize winning book or titles like Rich Dad Poor Dad (according to this week’s Sydney Morning Herald it is still the fifth best selling business title in Australia nine years after publication) is beyond me. And how in good conscience Australia’s self-purported largest chain of book shops proposes to exclude emerging Australian writers who are represented by the smaller distributors, is an equal mystery.
We too have expectations Mr Rimmer. We have had the same expectations for many years, none of which Angus & Robertson have been willing to deliver:Translation: “Don’t blame us. If you were doing your job, we’d all be making more money.”That we are treated with equal respect to the larger publishers within the obvious parameters of commercial reality;Had you made any effort to meet these expectations you would have found the niche we should have occupied in your business, as have all other book shops, and you would have found our contribution to the profitability of your business would have been dramatically different.
That your Buying Department is able and willing to assess our books with equal seriousness to those of the big publishers and buy them appropriately;
That you recognise the fundamental differences between the smaller distributors and the larger publishers and stop demanding of us terms that we are unable to deliver;
That you would support and help develop Australian literature.
In summary, we reject out of hand this notion that somehow, even giving you 45% discount on a Sale or Return basis, with free freight to each of your individual stores, where we make less than half of that on the same book, puts us in the “category of unacceptable profitability”. We have seen Angus & Robertson try this tactic before - about 12 years ago Angus & Robertson decided that unless we gave them a 50% discount, they would not buy from us any longer. We refused. Angus & Robertson desisted from buying from us for seven months. We survived, Angus & Robertson came back cap in hand.As I said, this is a recurring fight between publishers and booksellers.
We have seen Myer effectively eliminate smaller suppliers. We survived and prospered but look at the Myer Book Departments today.He’s right. Readers don’t like being offered a curtailed selection. If you don’t have the books they want, they’ll take their business elsewhere—or spend their money on something else entirely.
We have seen David Jones decide that it had too many publishers to deal with and to exclude the smaller suppliers. We survived and prospered but look at the David Jones Book Departments today.
David Jones and Myer sell other goods; Angus & Robertson does not.Bravo, Michael Rakusin. May his company flourish while publishing excellent books.
That the contents of your letter of 30 July are both immoral and unethical, I have no doubt. That they probably contravene the Trade Practices Act, I shall leave to the ACCC to determine. (Five percent interest PER DAY !!!)
If you wish to discuss any of the contents hereof you may call my secretary for an appointment at my office in Frenchs Forest. I shall be marginally more generous than you and at least allow you to pick a convenient time.
Tower Books Pty Ltd
Carpentaria, Alexis Wright : Winner of 50th Anniversary Miles Franklin Literary Prize, 2007
Copy: Graeme Samuel, Chairman, ACCC
Rod Walker, Chairman, ARW Group
Ian Draper, ARW Group Managing Director
Rickard Gardell, Managing Director, Pacific Equity Partners
Simon Pillar, Managing Director, Pacific Equity Partners
Barbara Cullen, CEO, ABA
Maree McCaskill, CEO, APA
And a final note: if you’re interested in the realities of bookselling, do read the comment thread in the Sydney Morning Herald.