help from people like Comerica vice president Patricia Alexander. She really believed in us,” says McGee. The banker revived the loan application and granted the future literary entrepreneur $250,000.
But to receive the bank loan, McGee had to raise the balance of her capital through other sources. She obtained 30% from the Wayne County Loan Fund, a local small business capitalization program in Detroit. She also had to convince the SBA to guarantee her loans.
Even entrepreneurs in a position to borrow bank capital should be clear about what they’re getting into. “Every asset I own is tied up in this business,” says McGee, who put up her home as collateral for the remaining 20%. She notes that her own financial well-being would be affected if Apple fails.
ACQUIRING INVENTORY IS THE GREATEST EXPENSE
Setting up a bookstore isn’t usually as costly as McGee’s. But the entrepreneur decided to locate in a space whose interior had to be constructed-to the tune of $50,000. She confesses, however, that the majority of her costs-one-half of the total-was spent on acquiring her 25,000 title inventory.
While purchasing books directly from a publisher allows retailers to acquire inventory at the lowest cost, most small bookstores don’t purchase enough stock to get the premium discounts. That’s especially true for black bookstores, which are often interested in only one or two titles by a major publisher. Consequently, most independents purchase the bulk of their inventory through book distributors. Although distributors offer smaller discounts, they have a wider selection of titles from a variety of publishers. Purchasing through a third party is one reason indies can’t offer customers the same low prices as the superstores.
Publishers offer the largest discounts; the industry average is 40% on the purchase of 10-24 books, and 47% on 25 or more books. Distributors, on the other hand, offer average discounts of 40%-42% across the board.
“A distributor can give you a higher discount because you can combine your orders from several publishers,” explains Kassahun Checole, president and publisher of Red Sea Press-a black-owned book distribution and publishing company in Lawrenceville, New Jersey, supplying to mom-and-pop stores as well as major chains. “Distributors are faster at fulfilling orders and bookstores can consolidate their credit line,” says Checole. Booksellers can also usually negotiate special deals from distributors with whom they’ve developed good relationships.
But a disturbing problem for independent booksellers has been that even when purchasing large quantities of books directly from publishers, they have not reaped the same benefits-discount rates, terms and return policies-as chain stores. Vlahos of the ABA says publishers have often asked independent sellers to deliver payment of their invoices more quickly.
He says the philosophy is that independent bookstores’ financial stability is more tenuous than the chains. Chains are larger customers, so publishers are reluctant to lean on them for payment, while the smaller indies can be pressured. But Random House’s Barron says terms vary according to publisher, with most store owners having net 30 days from the end of the month in which the order