"We like the book business," said Howard Reese, head of the book group at Chas Levy Company. That sentiment is not widely shared by many of Levy's independent distributor competitors, most of whom have abandoned the book market to focus on magazines. In fact, over the last several years, Levy has acquired the book departments of a number of wholesalers. But Levy's results support Reese's conviction.
In Levy's fiscal year ended September 30, 2002, sales in the hardcover/trade paperback segment increased 15.4%; sales in the mass market paperback category rose 5.8%; and sales of audio were ahead 1.7%. Reese estimated that about 70% of the sales gain was due to increases in unit sales, with the remainder coming from price (not only the higher price of books, but customers buying more expensive books). In the first three months of fiscal 2003, mass market paperback sales outpaced the sales gain in the hardcover/trade paperback segment. Reese projects that for the entire year comparable-store sales growth in the mass market segment will be in the 5% to 7% range, with total sales up by more than 10%. Same-store sales of hardcovers and trade paperbacks are projected to be flat or slightly up, with total sales up 5%.
One reason for Reese's bullish outlook for mass market paperbacks is that some of its accounts—which mostly fall in the mass merchandiser category—are slowly giving more space back to the format. When Reese began at Levy nine years ago, 65% of its sales were generated by mass market paperbacks and 35% from hardcovers and trade paperbacks, a ratio that has reversed itself in recent years. The change was due in part to a switch in its customer base—Levy took on Toys R Us, for example, whose book sections are devoted heavily to children's hardcovers—plus the Oprah effect. The launch of Oprah Winfrey's Book Club "introduced more literary titles" to customers who shop regularly at mass merchandisers, Reese noted, and the stores changed their title mix accordingly. The popularity of such lines as the Left Behind and Chicken Soup for the Soul series also played a role in pushing up the hardcover/trade paperback numbers.
But with the end of Oprah's book club and the waning interest in Chicken Soup (and no new Harry Potter yet), space has opened up for the mass market paperback. "Mass market paperbacks have always had more consistent offerings," Reese said. In the first quarter of fiscal 2003, bestsellers and romance did very well, although, Reese said, "there really is no weak area."
Returns have traditionally averaged about 35% throughout the company, and Reese sees no change in that figure this year. Although Christmas sales were a bit soft, because accounts ordered conservatively—some were caught with out-of-stock positions—returns have not been higher than usual. The low inventory at a number of Levy's accounts has them playing catch-up to replenish their stock, Reese said.
Although Reese wouldn't discuss profit margins, he said the introduction of technology, particularly EDI, has helped drop the cost of a book program by about four percentage points over the last several years.
Reese said that the relationship between Levy and the publishers "works well 90% of the time." He said the challenge comes when "publishers see us as suppliers, while we see ourselves as their customers." But for the most part, Reese said, "we're all trying to do what's best for the customer."
