As the pricing crisis keeps reverberating throughout the book industry, more booksellers are unilaterally lowering their prices. In Waterloo, Ontario, Words Worth Books is now offering a 15% discount on all dual-priced books. According to the store’s website:

This means that we will take 15% off at the till on American books. If the resulting price is below the US price, you’ll pay the US price.

There are no winners in this situation of rapidly changing exchange rates. Our prices are set by the publishers, who in turn set them according to the rates prevailing some six to nine months prior to the book’s release. Imagine that you were travelling to the US for several months and a friend asked you to buy her an expensive purse. You did when you arrived stateside and asked for the $500 you paid for it, months later when you returned. But your friend wants to pay $400 because of the lowered value of the US dollar. Would you accept the $400 and ignore the loss?

And in Kelowna, B.C., Mosaic Books owner Michael Neill recently sent a message to 500 indie booksellers and their suppliers calling for “variable discounting.” Essentially, that means publishers would offer booksellers a different discount for each dual-priced title, with the discount being used to bring the Canadian prices into some kind of standard ratio compared to the American ones.

Neill also discusses the pros and cons of various retail strategies, from doing nothing (keep your margin but lose angry customers) to discounting across the board (lose your margin and possibly go broke).

Neill’s letter is excerpted at length below.

What is variable discounting?
Variable discounting is necessary in the Canadian book business and anywhere pre-printed dual-pricing is used. It would otherwise require a very stable and long-term currency rate between Canada and the US. Variable discounting is good for the long term and works whether the dollar rises or falls.

[more after the jump]

How does it work?

The supplier adjusts the retailer’s discount (from a base discount) whenever the pre-printed US/Canada price wanders too far from the currency exchange rate. For example a $10US / $11Can book might be sold at 45% base discount, and a $10US / $14Can book will be 57% discount, which essentially makes the retailer’s cost the same for both of the $10US price books being imported.

The retailer can choose to sell at $14 and pocket the difference, but more than likely they will reduce the price because too many other outlets (including online) are anxious to gain customers though price cuts and discounting. It may also be that a retailer in a small town may choose $12 for the price, which is needed to cover the higher costs associated with low-volume sales.

When the supplier reprints or stickers remaining stock to a new $11Can price, they reduce the discount on that ISBN back to the base 45%. (do ya like my base discount, hint, hint?)

If this approach is consistent across the supplier’s product line, then the retailer dos not have sift through 1,000s of items and separate their sources based on the US/Can price difference (best deal). The mutual loyalty is strengthened and the Canadian supplier regains business. From there, the options to partner on cooperative promotions and discounting events becomes much easier and more likely. (I loved Wiley’s 60% off dummies promotion, and only wish I had done it bigger).

Of course, if the Canadian supplier is buying from a US source that bases their Canadian supplier’s discount on Canadian prices, they cannot make this work. This arrangement should be renegotiated on the basis that they could be seriously hurt by a currency change such as the one we are currently experiencing.

Returns are also streamlined where credits are always based on the suppliers current-price-net-of-current-discount. The retailer is protected and will therefore start ordering items that are currently overpriced (because it was printed several months or years ago). Lately, I have passed on way too many great books because of this. I’m sure my supplier would have happily sold to me at a lower cost but I can’t afford the time to phone about a few titles. We all lose, and perhaps the supplier loses the most on the lucrative backlist sales that long ago paid out their initial costs.

The variable discounting can be extended even further for some of the books selected for remaindering. Selling at 60, 70, 80, 90 off (non-returnable) could bring the supplier more value and provide small retailers with high-margin bargain books that will bring their overall margin up. The technology is now in place to make this possible.

PubStock is the key

One trick to make this all work is the PubStock price/availability system. Discounts are sent as part of the daily on-hand/price feed, and the retailer instantly knows their cost at the time of ordering.

Random House started correcting prices via bonus discounts, but because it was very difficult to know which product would be getting the big discount (“this line but not that line, and only if this price is too high, yada, yada”), cost conscious booksellers took the easy route and bought from a US wholesaler because they knew the cost for certain. If suppliers can get their variable discounts into PubStock, there would be a surge of support for variable discounting.

The downside to variable discounts for the supplier is that they won’t be able to take profits when the Canadian currency rises (that’s currency speculation, not bookselling). And, if our currency starts to drop (as some predict), they may be in the jackpot if they put a Canadian price that was too close to current exchange. Reducing the variable discount (to say 35%) would keep their margin but kill the bookseller’s. At the moment, a 1.10 over US should provide enough variance.

So, if we are to continue to be the one-and-only dumb industry and pre-print Canadian and US prices on imported product that is easily accessible through the US by anyone (retailer or consumer), then we had better make sure there is at least a 10% cushion on the Canadian price at the time of printing.

Perhaps we should go to a single price (US only), use a variable discount based on that, and then let the retailer decide what Canadian will be. Of course, no US price at all would suit Canadians just fine, but I doubt an economy of 300 million people will be ready to accommodate us any time soon.

Note: The Canadian dual import rules to protect distributors (something I agree with) are based on Canadian retail prices vs. US retail prices. Perhaps this could be modified to state acceptable net costs (i.e. prices net of discount).

I feel sorry for some of the Canadian publishers who put lower US prices on their Canadian books. I’m sure they regret that today, and in future, hopefully they will just sell at Canadian or sticker a suggested US where needed. They may only sell 10% into the US but today, they are being demanded to sell at US in Canada, meaning they lose on the whole print run! As much as I explain that problem to my customers, they just don’t care anymore, and so we are all losers (writers, readers, retailers, and publishers) because of dual pricing.

On the bright side of this fiasco, perhaps the book industry will finally become a business-savvy industry in addition to being keen on books and authors. That does not mean we should only focus on profit and forget about books, but the current crisis has forced us to become better business people; and that’s a good thing for everyone as we look to the future.

I hope that we can soon clear our minds of the bitter infighting about who is making too much and who is being a traitor and then dumping the dregs back on the supplier, and so on, and so on. We’re supposed to be happily married already!

I think we are ready to move forward as a Canadian team. Some of us will unfortunately be very lean this Christmas. I do bi-weekly net-profit graphs, and the last two weeks of Christmas represents my store’s entire take-home profit for the year. We have to get on board fast. Some stores may need some help in order for them to take their recent crash-course in economics to the future, where they can start making some real money for the industry as a whole. I hope they are still around to prove that they can do it.

After all, who else is going to keep Chapters in check? What if Chapters thinks Rivers Manitoba is too small for a bookstore? Surely someone will else will do it for a small salary so long as they can be part of a larger independent community that is willing to show them the ropes. This is such a unique business that, by nature of what it sells, should continue be diverse and somewhat esoteric . We have a Canadian law that is making it possible to keep it a cultural thing, and now that we have some real business people as booksellers….just watch us grow!

Now, back to this season’s pricing strategy…

There is no right and wrong way to handle this. As, such I cannot and I will not recommend any action that you should take.

Your actions need to consider:

a) There is a tomorrow, and if you cut margins too much now (eg. go to US) without supplier support, you might go broke and also find it very difficult to ween customers off your unsustainable margins. You may also force those with much deeper pockets than yours to play hardball until you are no longer a nuisance, all the while the other little guys are feeling pretty much forced to compete (and possibly lose as well). My detailed analysis of sales for past two weeks revealed an overall 9% drop in margin had I gone that route. That’s my Christmas profit gone. And then what do I do in January and February? Those who got in first will be okay in the short-term from the increased volume through national publicity. For the rest of us, that will be old news now, not worthy of the media’s free attention.

b) If you cut all book prices by 10%, you will achieve the same result as option A. Furthermore, as your suppliers cut Canadian retail prices to more reasonable levels, you will be forced to include those at 10% off, which will further erode your margin. I think someone very big just started doing just that, and hopefully they have a personal relationship with someone who has billions in assets to cover the short-term loss.

c) If you stay with high Canadian prices on too much product, you might loose too many people who will buy a shirt this year instead of a book. The irony is they will probably pay much more in Canada for the equivalent shirt available in the US, but they are still happy because they THINK they were treated fairly. (Did I already mention the problem with those pesky preprinted US prices?)

d) Identify the way-over-priced product and reprice them to perhaps 1.10 over US. Purchase some sale price labels if needed but don’t cover the US / Canada price because you want to tell your customers that you are personally taking action. Bookstores have a loyal bunch of customers and most of them will understand the need to support you while you “fix” the perceived mess.

Option D is my latest strategy and it will support me selling at par (with supplier-support) if the loonie continues to soar and forces the issue. But as I stated earlier and will retstate again: “this might not be the right move for your circumstances!” My community is very price-savvy and we are loaded with every conceivable box store.

Like plans A & B, this plan could also put you out of business (eg. you are too week to restock come January), and so I am in the process of asking my suppliers to consider any form of compensation they feel they can afford to support my action to stay healthy for the future. With the BookManager system, I will be able to generate ISBN-level reports showing my point-of-sale invoice number, the supplier and invoice number I purchased it on, my net selling price and my supplier’s price and discount at the time they invoiced me. From the totals of that they will be able to determine how much margin I lost due to Fair-Canadian-Pricing and then issue credit that will bring my margin up to a sustainable level. There is no monkey business here either…If 5 copies were sold and 3 came from the US and 2 from Canada, the report will only show the 2 copies in the order that stock was received. I welcome any further audits that may be needed.

Hopefully, if this fiasco ever has to happen again, I can report all 5 copies sold to my Canadian supplier because they will have supported me all the way through the industry crisis.

I welcome any comments from my suppliers ASAP on this.

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Booksellers also need to be aware that a number of your suppliers (especially those not owned by US/worldwide publishers) have made serious commitments to their US publishers, and like you, they may have a pile of inventory already paid for. The whole supply chain (booksellers, wholesalers, distributors and original publishers) needs to consider extraordinary measures so that the burden can be spread as much as possible.

If any suppliers are interested in communicating any solutions or actions, I will be pleased to collect them and make them available to the independent booksellers I work with. Communication is key. Your CBA is also working very hard on similar communications, so please work with them too.