I look forward to watching the fall-out in the industry over this. When a major market player decides to flex their muscle, they should make sure they are a big enough player. I suspect that at a claimed 18% of the Australian book retail market Angus & Robertson will find it is not enough to succeed.

Bunnings on the other hand does have enough market share. But more on that later.

Update Michael Rakusin has granted permission to reproduce his letter below

6 August 2007
Mr Charlie Rimmer
ARW Group Commercial Manager
14th Floor, 379 Collins Street,
Melbourne, VIC 3000

Dear Mr Rimmer

We are in receipt of your letter of 30 July 2007 terminating our further supply to Angus & Robertson. As you have requested, we will cancel all Angus & Robertson Company orders on 17 August and will desist from any further supply to your stores.

I have to say that my initial response on reading your letter as to how you propose to “manage” your business in the future was one of voluble hilarity, I literally burst out laughing aloud. My second response was to note the unmitigated arrogance of your communication, I could not actually believe I was reading an official letter from Angus & Robertson on an Angus & Robertson letterhead.

My reply to you will perforce be a lengthy one. I hope you will take the trouble to read it, you may learn something. Then again, when I look at the level of real response we have had from Angus & Robertson over the past six or so years, I somehow doubt it.

The first thing I would say to you is that arrogance of the kind penned by you in your letter of 30 July is an unenviable trait in any officer of any company, no matter how important that individual thinks himself or his company, no matter how dominant that company may be in its market sector. Business has a strange habit of moving in cycles: today’s villain may be tomorrow’s hero. It is quite possible to part from a business relationship in a pleasant way leaving the door open for future engagement. Sadly, in this case, you have slammed and bolted it.

More to the point, however, we have watched our business with Angus & Robertson dwindle year upon year since 2000. We had to wear the cost of sub-economic ordering from you through ownership changes, SAP installation, new management, and stock overhang. In summary our business with you has dropped from over $1.2 million at the end of 2000 to less than $600,000 in 2007.

You would be quite correct to question whether our offering to the market had changed in any way. The answer can be derived from the fact that during the same period our business with Dymocks, Book City, QBD and Borders continued to grow in double digits, our business with your own franchise stores has grown healthily, and our overall business during the same period has grown by more than 50%.

Six years ago we were allowed to send reps to your company stores and do stock checks. Then these were “uninvited” and we had to rely on monthly rep calls to your Buying Office. Subsequently even that was too much trouble; your Buying Office was too busy to see us, so we were asked to make new title submissions electronically. Every few months the new submission template became more and more complex. This year, we have been allowed quarterly visits to your Buying Office at which we were to be given the opportunity to sell to all your Category Managers. At the first, we did indeed see all of the Category Managers – but they didn’t buy any of the titles offered. At the second, one Category manager was available, and again no purchases resulted. At the last (only last week), two Category managers attended. Through all of this, your overworked and under resourced Buying Department never got to see, let alone read, an actual book. While one may be forgiven for believing that Angus & Robertson is actually a company purveying “Sale” signs, I do believe you are still in the book business?

That Angus & Robertson is struggling for margin does not surprise me. It amazes me that the message has not become clear to your “management”: there are only so many costs you can cut, there is only so much destiny you can put in the hands of a computer system, there are only so many sweetheart deals you can do with large suppliers. After that, in order to prosper one actually has to know one’s product and have an appropriately staffed buying department. Most importantly, one has to train sales people of competence. You will never beat the DDSs at their cost cutting game, you will only prosper by putting “books” back into Angus & Robertson. And it would seem to me paramount to stop blaming suppliers for your misfortunes, trying ever harder to squeeze them to death, and actually focus on your core incompetencies in order to redress them.

How a business that calls itself a book business is going to do without titles such as the Miles Franklin Prize winning book or titles like Rich Dad Poor Dad (according to this week’s Sydney Morning Herald it is still the fifth best selling business title in Australia nine years after publication) is beyond me. And how in good conscience Australia’s self-purported largest chain of book shops proposes to exclude emerging Australian writers who are represented by the smaller distributors, is an equal mystery.

We too have expectations Mr Rimmer. We have had the same expectations for many years, none of which Angus & Robertson have been willing to deliver:

• That we are treated with equal respect to the larger publishers within the obvious parameters of commercial reality;
• That your Buying Department is able and willing to assess our books with equal seriousness to those of the big publishers and buy them appropriately;
• That you recognise the fundamental differences between the smaller distributors and the larger publishers and stop demanding of us terms that we are unable to deliver;
• That you would support and help develop Australian literature.

Had you made any effort to meet these expectations you would have found the niche we should have occupied in your business, as have all other book shops, and you would have found our contribution to the profitability of your business would have been dramatically different.

In summary, we reject out of hand this notion that somehow, even giving you 45% discount on a Sale or Return basis, with free freight to each of your individual stores, where we make less than half of that on the same book, puts us in the “category of unacceptable profitability”. We have seen Angus & Robertson try this tactic before – about 12 years ago Angus & Robertson decided that unless we gave them a 50% discount, they would not buy from us any longer. We refused. Angus & Robertson desisted from buying from us for seven months. We survived, Angus & Robertson came back cap in hand.

We have seen Myer effectively eliminate smaller suppliers. We survived and prospered but look at the Myer Book Departments today.

We have seen David Jones decide that it had too many publishers to deal with and to exclude the smaller suppliers. We survived and prospered but look at the David Jones Book Departments today.

David Jones and Myer sell other goods; Angus & Robertson does not.

That the contents of your letter of 30 July are both immoral and unethical, I have no doubt. That they probably contravene the Trade Practices Act, I shall leave to the ACCC to determine. (Five percent interest PER DAY !!!)

If you wish to discuss any of the contents hereof you may call my secretary for an appointment at my office in Frenchs Forest. I shall be marginally more generous than you and at least allow you to pick a convenient time.

Michael Rakusin
Director
Tower Books Pty Ltd
Carpentaria, Alexis Wright : Winner of 50th Anniversary Miles Franklin Literary Prize, 2007

Copy: Graeme Samuel, Chairman, ACCC
Rod Walker, Chairman, ARW Group
Ian Draper, ARW Group Managing Director
Rickard Gardell, Managing Director, Pacific Equity Partners
Simon Pillar, Managing Director, Pacific Equity Partners
Barbara Cullen, CEO, ABA
Maree McCaskill, CEO, APA

A friend describes it as “Bookselling, The MBA way”. This is bound to be one of the case studies I’ll use in my MBA.

Here is the text of the letter for the screen readers and the blind:

Angus & Robertson

30th July 2007

Michael Rakusin
TOWER BOOKS
Unit 2 / 17 Rodborough Road
Frenches Forrest
NSW 2086

Dear Michael

I am writing to inform you of some of the changes to the way we manage our business.

We have recently completed a piece of work to rank our suppliers in terms of the net profit they generate for our business. We have concluded that we have far too many suppliers, and over 40% of our supplier agreements fall below our requirements in terms of profit earned. At a time when the cost of doing business continues to rise, I’m sure you can understand that this is an unpalatable set of circumstances for us, and as such we have no option but to act quickly to remedy the situation.

Accordingly, we will be rationalising our supplier numbers and setting a minimum earnigs ration of income to trade purchases that we expect to achieve from our suppliers.

I am writing to you because TOWER BOOKS falls into this category of unacceptable profitability.

As a consequence we would invite you to pay the attached invoice by Aug 17th 2007. The payment represents the gap fro your your business, and moves it from an unacceptable level of profitability, to above our minimum threshold.

If we fail to receive your payment by this time we will have no option but to remove you from our list of authorised suppliers, and you will be unable to complete any further transactions with us until such time as the payment is made.

I have also attached a proforma for you to complete wand return to me, with your proposed terms of trade for our financial year commencing Sept 1st 2007. We have the following expectations:

• All agreements contain a standard rebate, a growth rebate and a minimum co-op commitment to enable participation in our marketing activity.

• Growth rebates activate as soon as our purchases with you increase by $1 on the previous year.

• All rebates are paid quarterly for the previous quarter’s performance, you must make sure that your remittance, with calculations, is received by us by the 7th of the month following the preceding quarter. Any remittances not received by this date will attract a daily 5% interest charge.

I am also including a copy of our ratecard, and our marketing calendar, to enable you to begin planning your promotional participation now.

If you would like to discuss this with me in more detail, I am delighted to confirm an appointment with you at 1.00pm on Friday 17th August for 10 minutes at my offices at 379 Collins St, Melbourne.

Best Regards

[signed]

Charlie Rimmer
ARW Group Commercial Manager

Enc: A&R Ratecard
A&R Marketing calendar
Trading Terms Proforma
Invoice

It is the best-known, English-language suggestion sell. And it works. Every business can up-sell something to a customer who has their wallet open.  It’s just a matter of getting creative enough on your product or service offering.

I tend to favour the suggestion sell cost less than the original item. In the same way that the fries cost less than the hamburger. IT and consumer electronics retailers can sell extended warranties, consumables and accessories. Consultants can up-sell research seminars, subscriptions and evaluations.

This is different from promoting a special, time-limited extra as a call to action. The customer has already made a decision to purchase your product. The cost of acquiring the additional order is zero. It will never be cheaper to offer that customer another product. Seize the day.

If you’ve got a product or service that you can’t find a suggestion sell for, leave a comment and we’ll come up with a few ideas for you.

Now would you like to super-size your meal for only $1?

Given my interest in entrepreneurship, I have strong feelings against micromanaging. Fool that I am I thought there was no way he’d try to micromanage me. Surely I was immune. Ha!

So I chaffed at the bit — I’d left lucrative contracts before when a client attempted such behaviour. I got stellar results: sales were up, gross margin was up, profit was up, costs were lower. I should have got all the freedom to run my division as I pleased.

But my boss comes from a retail background. I think retailers especially like to run things by the book. They love an operations manual which clearly spells out the detail of every step from opening in the morning to closing at night.

I then realised that it wasn’t his problem, it was mine. I try to deal with what is rather than what should be. Once I accept the reality I can start doing something about it.

Then I accepted I’m never going to change my boss. As a matter of fact until we worked together I liked spending time together. So how will I deal with this?

Understand the boss’s priorities. What are the top 5, 3 and 1 items for me to focus on? Reconfirm regularly to ensure they haven’t changed.

Use my communications skills. I am an excellent communicator. Start tracking the list of assigned tasks, negotiating deadlines that I can meet and renegotiating priorities as they change. This involves instigating planning discussions with my boss and organising my calendar to clearly show available resources.

Commit to frequent and regular updates. When I delegate to one of my team, I want to know if the task is on track and I want early warning if it’s leaving the rails. Other than that I don’t need the detail. The micromanager needs to know every step of every task. This means anticipating update requests but at the same time scheduling time in advance for progress briefings.

Document agreements. Followup verbal briefings, requests and agreements with an email to avoid confusion.

Micromanagers fear disorganisation and idleness. The best way to contain their excesses is to be organised. That’s tough as I am not a naturally organised person, but if I want the freedom to run my division I’ll need to meet the boss’s expectations. That’s what he pays me for.

One of the key elements is avoid collecting useless data, and reward the collection of useful data that reinforces the corporate values, empowers the store managers and is an aid profitability through performance measurement.

Obviously the store managers are going to have a say in the KPI.