Channels: the bookstore debate.

Will bookstores turn out to be an important channel to reach "mainstream" consumers? That's the hope of a lot of developers of multimedia and content titles, especially after the disastrous results many of these developers experienced in traditional software channels this last Christmas (Soft.letter, 3/27/94). And bookstore chains themselves--having discovered that computer books are a hot item--seem increasingly eager to jump on the software bandwagon.

But there are some skeptics who warn that the bookstore channel will be far trickier to navigate than it now seems. One of these skeptics is channel strategist Sy Merrin, who recently described the interaction between book dealers and software vendors as "mutual mystification." Says Merrin: "It became screechingly apparent to us, early in our bookstore research, that these stores do business under terms and conditions that differ mammothly from what PC vendors are used to."

Merrin remains convinced that bookstores in the long run offer "a fabulous chance" to reach technology-averse consumers. "A small but influential group of booksellers believe that media convergence will lead to all information arriving in one type of electronic format or another," he points out. But before we reach that stage, Merrin says, software developers will first have to come to terms with some unfamiliar business practices:

* On product return policies:

"Bookstores expect, and generally demand, the option to return 100% of the products they buy--no questions asked. So they view the PC industry's return policies--30- to 90-day stock balancing, stocking fees, 30- to 45-day net payment--as stringent and downright unacceptable. Flexible product returns are in fact key to a bookseller's survival. Publishers must get as many titles as they can on the store shelves--knowing full well that chunky numbers of them will be marginal sellers at best, and will be returned. Publishers customarily see return rates averaging 30% to 40% for new books.

"What's more, bookstores are teeming with customers wandering in on impulse, largely to browse. Keeping inventory fresh for browsers helps entice them in again--which means regularly purging stock of less-thanappealing titles."

* On pricing and discounts:

"With few exceptions, bookstores sell virtually all merchandise at SRP. Unaccustomed to calculating street price by themselves, many bookstores try to sell Computer software at SRP--naive in an industry as fearsomely competitive as ours. Software pricing is such a thorny issue for some bookstores that they've asked their distributors to guide them in setting proper prices."

* On the margin problem:

"Sluggish inventory turns and steep overhead force bookstores to seek high gross margins. While books typically yield 30% to 40% gross margins, computer software averages margins of 15% to 20%. Understandably, most bookstores shrink from carrying any more low margin products than they need to keep competitive. We've heard several accounts of booksellers that walked away from a deal because software vendors wouldn't meet their margin requirements."

* On timid merchandising:

"Most bookstores tend to begin with best-selling or big-name software in titles that complement the store's high-performance book categories, such as reference, children's and education titles. Most have thus far shied away from highly price-competitive games and productivity software.

"And then most bookstores separate software from books, in hopes of creating higher awareness among their shoppers. As a result, bookstores are not intuitive places to shop for computer software, and most purchases there today are incidental or merely convenient."

* On the bar code glitch:

"To accommodate ISBNs (International Standard Book Numbers), the book industry uses the EAN (European Article Numbering) bar code system--but these 13-digit bar codes are incompatible with the 12-digit UPC variety the computer industry is accustomed to. At least one major book distributor now requires that computer software packages be tagged with EAN bar codes. And, guess what, the distributor charges vendors whose products arrive without EAN bar codes."

Seymour Merrin, president, Merrin Information Services, 2275 East Bayshore Rd., Palo Alto, Calif. 94303; 415/493-5050.