The World is Not Always a Safe Place

PGW's recent bankruptcy has many of us scratching our heads, in a combination of "How could this happen?" and "What do we do NOW?" Although hindsight is always 20/20, the PGW situation underscores for all of us the importance of keeping at least a portion of our inventory in a separate warehouse. Let's talk about how you would go about maintaining a back-up warehouse:

• Find a basic fulfillment house, somebody who stores, picks, packs & ships, but doesn't necessarily do anything fancy. Cataloging and marketing are not necessary. Compare prices and services to see who is offering you the best deal. Remember that some fulfillment houses charge a flat price per order, which can add up if you're mostly shipping onezies and twozies, while others charge a percentage of revenue. You could even consider being your own backup warehouse, using a storage unit or similar arrangement, if you are willing to hire someone a couple of days a week to process and ship orders.
  
  
• Drop ship a portion of each printing to your backup warehouse.
  
  
• For any special sales, or sales made outside the auspices of your distribution, funnel those sales through the fulfillment house. There's no law that says you can't transfer stock back and forth between your primary warehouse and your secondary warehouse, depending on circumstances.

Why this helps

Shipping Charges. You might save on transfer shipping charges. Your distributor will charge you a processing fee or a (hopefully reduced) percentage for shipping books to accounts where they didn't make the sale. Having stock available in a second warehouse might save you on some of these charges.

Feedback. Having your own warehouse encourages your to make your own sales, depending on what your distributor permits. Making your own sales allows you to establish direct relationships with customers in the trenches. You get direct feedback from them, not filtered through an account rep at a distributor. This kind of direct feedback is invaluable for your marketing efforts and for planning future titles.

Cash flow. Sales made outside regular trade channels tend to pay faster than the 120 days most distributors require before they pay you. Getting paid faster allows you to put money back into the business faster, thus funding additional projects.

Peace of mind. This is the most important reason not to put all your eggs in one basket. God forbid your distributor files for bankruptcy, or falls behind in payments, or gets abducted by aliens. But if that happens, you will be in a position to fill orders for existing customers from the inventory stored in the back-up location, as well as perform credit checks, bill, collect, etc.

Bankers. One of the (many) reasons it is so hard for small publishers to get business loans is that, by and large, they have only one customer - their distributor. You are a captive client, and at the mercy of your distributor. Regardless of the industry, it is bad business to rely on a single customer for a majority of sales, or a single supplier for an essential component.

I realize that it's a real pain in the neck to administer a secondary warehouse, especially with the three million other things you're trying to juggle as a small publisher. But trust me, you'll sleep better at night knowing that even if the worst happens, you won't be out of business overnight.

Additonal Articles

To learn more about book distribution, read What's the Difference Between a Distributor and a Wholesaler? and Am I Ready for a Book Distributor? For definitions of various financial terms that regularly occur when talking about publishing, see A Financial Primer for Publishers.

Deirdre and Gary Smerillo are the owners and founders of Smerillo Associates, a consulting firm focusing on the business and financial needs of small and independent publishers. Based outside of New York City, they can be reached via .