Returns are one of the ugliest aspects of the book publishing business. A lot of people don't realize that many (not all) bookstores buy from publishers on a totally returnable basis. It's effectively a consignment relationship and anything that doesn't sell can be sent back to the publisher for full credit. Returns vary by account, genre and title, but rates are anywhere from 10% to 50% or more. So once the trees are killed, the books go from printer to publisher to bookstore and all too frequently, back to publisher.
It's an enormous waste, which is why the recent announcement that Borders is going to buy on a non-returnable basis from HarperStudio is worth noting. In the long run, though, it may be worth nothing.
Why? When accounts buy on a returnable basis they take comfort knowing they won't be stuck with obsolete inventory. As a result, they can be more aggressive with initial buys and avoid out-of-stock situations on a potential hits. A non-returnable buy on that same title is likely to be smaller because the chain buyer doesn't want to risk running into that obsolete inventory situation.
According to the news report, the deal means HarperStudio is giving Borders 10-15% more of a discount than they would in a returnable model. That's a lot of points. It would be interesting to calculate the breakeven level between the two models. If I were the publisher at HaperStudio I'd be sure to track and compare chain and store level orders and sell-thru data for Borders to the same data from the returnable accounts to see whether this pays off.
So if one likely downside is more conservative buys and in-store inventory levels, the upside is more of a commitment to store/chain promotions of HarperStudio titles. After all, Borders will have a have a great incentive to make these books sell through, no matter how many copies they buy!
Just like any other part of a business transaction, there's an equilibrium point that will be reached by both parties. If HarperStudio decides non-returnability isn't worth this deep of a discount they'll eventually push back. Right now, though, both parties have decided the elimination of returns is worth 10-15% of additional points. I'm anxious to see if everyone is truly happy with that range in the long run.