(Comics Retailing) Client Distribution Services, the company responsible for distributing Tokyopop and Marvel (among others) to bookstores, has landed what can only be called a sweetheart deal: the right to serve as "captain" in the Borders book chain's attempt to apply an inventory practice known as "category management" to its graphic-novel selection. ICv2 has the details:
"Focus groups were conducted with purchasers of graphic novels at Borders stores, and that research has been shared with the CDS group, which is now meeting with Borders to develop recommendations on such issues as placement of the graphic novel department within the store, what other departments it should be close to, signage, organizing the merchandise, and ways to highlight the category. No buying recommendations are made, although the merchandising strategy can affect mix. After the committee completes its work, Borders upper management will review the recommendations and determine what will be implemented."
Let's answer the obvious question first: what is category management? Put as simply as possible, category management is a means of tracking sales in a given store based on a given set of variables. As the Grocery Manufacturers of America explain it:
"Category Management, one of the four main tenets of the Efficient Consumer Response initiative, is the management of entire product categories as strategic business units, with assortment, inventory levels, shelf-space allocation, promotions and buying all managed as a whole. The practice has enabled many manufacturers to judge more accurately consumer buying patterns, product sales and market trends of that category. By emphasizing profits and sales for entire product groups rather than individual items or brands, manufacturers and retailers can often enjoy a longer-term, joint focus on marketing and merchandising."
The practice doesn't end at the retail level, however; tracking data is shared along the distribution food chain as well, allowing manufacturers and distributors to better co-ordinate incentives to retailers with those that the retailers use to entice customers to buy a given product. This provides all involved with more information about sales and buying patterns, which in turn allows greater accuracy in promotions and marketing strategies. As Andrzej Gorecki explained in a 1996 issue of Retail Directions:
"Category management also means reaching forwards and backwards within the supply chain. Forwards, toward customers, to understand their preferences and needs, and to align categories with market and customer expectations. It also means targeted promotional programs aimed at improving the performance of individual categories.
"And backwards, toward closer relationships with suppliers, to help them align their activities with the needs of customers, and to assist the retailer in the minimisation of costs within the supply chain. Retailer and suppliers can now cooperate on the basis of category plans, rather than on a short term, deal-by-deal and product-by-product basis."
Here's where we get to the interesting part. To best facilitate this process, one vendor is usually picked to act as consultant for a given category of products -- usually one of that product's manufacturers, who in exchange for paying a fee can recieve marketing data accumulated from the process, and even have a say in which products get preferential treatment on the shelves. A year ago, the National Association of Convenience Stores posted an introductory primer on the subject to their website:
"Brian Harris, co-founder of the Partnering Group, is credited with coining the phrase category management. In 1994, he did the first industry-sponsored pilot at Giant. Harris used a 'category captain' -- a vendor chosen to help select the products that would get shelf space. The category captains used in the trial were Coca-Cola and Procter & Gamble. In those categories, Giant reclaimed market share that had been taken by Wal-Mart.
" 'That really validated the model,' said Harris.
"Business 2.0 writes that, 'Today every major U.S. consumer-packaged-goods retailer, from Albertson's to Petsmart practices category management. Even at Kmart, Target and Wal-Mart, what you see on the shelves is largely the result of recommendations by category captains like Gillette, Nestle Purina and SC Johnson.' "
It goes without saying that given enough power to make purchasing decisions for retailers, manufacturers can find themselves with the opportunity to gain shelf-space at the expense of their competitors; indeed, companies have been busted on such behavior. Writing for the British law website Legal 500, S.J. Berwin examined an American district court case where the Conwood Company claimed that a competitor, the United States Tobacco Company, tried to use its status as a category captain to exclude its competition in the chewing-tobacco market from store shelves. USTC was eventually found to be in violation of the Sherman Act and ultimately fined over $1 billion in penalties:
"Documentary evidence proved that USTC sought to use its position as category manager to exclude the competition by recommending that retailers carry fewer products, particularly competitors' products. In this regard, Conwood presented evidence that the category management programme was used to ensure that outlets only had USTC racks which were dominated by its products. Further evidence of its abusive intent were USTC's attempts to control the number and price of value brands stocked in stores and its suggestion that stores carry USTC's slower-moving products instead of better-selling competitor products. A 1997 report by a USTC regional vice-president stating 'it is imperative that we continue with this category management action plan to eliminate competitive products' was crucial evidence of the company's intent to abuse its position as category manager."
You can see where authors and publishers might get nervous when this sort of regime is introduced into the booksellers' market. And nervous they are; in June of 2002, shortly after Borders Group CEO Gregory P. Josefowicz announced his intention to introduce category management to his bookstore chain, a group of authors and scholars organized by consumer advocate Ralph Nader sent Josefowicz an open letter asking him to reconsider:
"According to the May 20, 2002 Wall Street Journal, you have devised 250 categories for books, each to be captained by a publishing firm. These firms will pay you a large annual fee -- in excess of $110,000 according to the Journal -- which will be hard for most small and medium-sized publishers to muster. In return, the 'captains' will be able to decide which books you carry, how many are bought, and where they are placed. Although you say you will keep final authority over book-buying, Borders will be an agent of the publishers rather than of its customers.
"Under your plans, smaller publishers will be at a big disadvantage, since each publisher-captain will be able to deploy your shelf space to its own advantage. In categories rich in small press titles, the publisher-captain will be able to cut the number of titles in the category, and fill the category with its own titles.
"Denied shelf space in a major outlet like Borders, smaller publishing houses will be hard pressed to survive. The Kremlin would have found it difficult to invent a more subtle and effective way of suppressing original viewpoints and ideas."
Is this alarmist thinking? There isn't enough evidence at hand to tell one way or the other, but it's a disquieting notion nonetheless. Moreover, there is limited anecdotal evidence which suggests that concern may be appropriate. Posting to the message board of the Borders Books Employee Union, a Borders employee using the pseudonym "abbath" (second post) wrote:
"[...] As an employee of the Gurnee Borders since it opened three years ago I have seen the variety in titles decrease. Over a two-week period Borders barely had half the books featured in The Chicago Tribune's Sunday book section. On 3.2.03 Borders had 7 out of 15 books featured in the Tribune's book section, and on 3.9.03 they only had 7 out of 19 of the featured titles. The entire bestseller list was available, and therein lies the rub. If a consumer wants anything outside of a bestseller they will now be forced to go elsewhere to find it, and since the chain stores (Borders, Walden, B & N) move into an area and put independent stores out of business there is nowhere else to go."
Let's freely grant that someone using the contents of a press release to agitate for union membership may not be the most objective witness for signs of trouble. Likewise, given the cacaphony and uncertainty in how graphic novels are currently being presented to the public on bookstore shelves, having someone from within the comics industry offering advice seems like a good idea, at least in the abstract. Even so, it's easy to imagine circumstances where a distributor whose two biggest clients are Tokyopop and Marvel might not necessarily be acting in the interests of other publishers when making recommendations about shelving, promotions, subcategories within the graphic-novel umbrella and the like. Noting the growing controversy over a year ago, comics writer and weblogger Sarah Dyer offered this perspective:
"Whatever your viewpoint, if you read or write material that is sold in bookstores, this will affect you sooner or later. Borders will eventually apply this system to their entire inventory, and you can bet that since it apparently is working for them really well, that everyone will be doing it sooner or later. My questions (this may not make complete sense to you if you haven't read any of the articles): will graphic novels be their own category, or get lumped into a category headed by some publisher who couldn't care less? If they are their own category, will they be a 'destination' (i.e. important) category, or dismissed as a 'fill-in'? If they are a category, who on earth will be offered the captaincy? If certain publishers who are already known for filling up rackspace with garbage to shut out other publishers got chosen, we'd all be doomed…although I think chances are good it would be offered to a manga publisher. The possible goodside to this is that market research into what is actually selling, and what people are really coming in for, could really help keep graphic novels in the stores, rather than going through the whole flameout everyone's expecting (assuming market research doesn't tell them to kick all graphic novels to the crub). And really, you know they'll lump superheros together—will I cry when they say only 12 superhero 'novels' can be in each store? I'm thinking... no."
In the ICv2 article from which we began, Tokyopop vice president of sales Steve Kleckner was quoted as being "very positive" about the deal. I don't doubt it for a moment. With the category captain now having been announced as CDS, it seems likely that Tokyopop's perspective on bookselling will certainly get a hearing. Likewise Marvel. This still leaves some serious questions to be considered. Will CDS and its client companies have access to sales data from other graphic-novel publishers? How seriously should we take the notion that CDS won't be given input into purchasing decisions? If I were a non-CDS publisher, I'd be watching developments at Borders very closely right now.
