Lessons from Cork

<p>Four years before Entertainment UK there was Cork International.<br />
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Supermarket supplier Cork went into liquidation in in June 2004, leaving publishers with debts of between &pound;10m and &pound;15m. Random House was believed to be owed &pound;4m, HarperCollins &pound;2m, and Orion &pound;1m. It was reported to have stock worth &pound;5m sitting in its warehouse as the liquidators moved in.<br />
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At the time publishers saw it as an opportunity to &quot;redraw&quot; the map on terms. <i>The Bookseller</i> remarked: &quot;There has developed a dangerous dependence on a customer that has no interest&nbsp; in the long-term good of the book industry, and may be damaging it.&quot;<br />
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Peter Roche, then Orion chief executive, said the collapse had &quot;highlighted the problem of dealing with a middle-man when selling to highly price-sensitive customers.&quot; Tim&nbsp; Hely-Hutchinson, then chief executive of Hodder Headline, said &quot;everyone is concerned at the level of discounting and we will do our best to pull it back&quot;.<br />
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After the collapse of EUK last week, reading back-issues of <i>The Bookseller </i>is like looking back to a different world.<br />
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Four years on that dangerous dependence now looks like an incurable addiction. The big supermarkets share of books sales has grown each year since Cork went down, even as discounts have increased.</p>
<p>One agent told me yesterday that for some authors, almost 50% of their earnings can come via EUK supplied books. His biggest fear was that the supply chain disruption would lead to supermarkets turning away from books.</p>
<p>Given that, the situation now is much worse than when Cork went under. Unlike four years ago there is no ready-made competitor willing to step into the breach. EUK was pretty much it.<br />
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Furthermore, the short term damage from EUK being put into liquidation will be far worse than that of Cork. Cork was small in comparison to EUK, and the administration took place in June, not in the middle of the book market's key season. Supermarkets also sell many more books now than they did even as recently as 2004.<br />
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Estimates have suggested that EUK could owe book publishers as much as &pound;15m, but this looks conservative when measured against the Cork's debts of &pound;10m. Equally if Cork's book stock during June was said to be &pound;5m on annual sales of &pound;50m, then EUK would at this moment be holding considerably more, even if, as it is suggested, it was a lot more efficient in terms of throughput.<br />
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If it's any help, according to EUK's last accounts, made up to 2nd February 2008, the business owed &pound;248m to creditors (up from &pound;77m a year earlier), and had stock valued in its warehouse worth &pound;177m. It recorded sales of &pound;1.2bn, and made a pretax profit of &pound;12m. About 10% to 15% of this business was books, perhaps as much as &pound;150m, with stock therefore in the range of &pound;20m.<br />
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Four years on from Cork there is no talk of redrawing terms or clawing back discounts, just a real fear that EUK will not be saved, supply to supermarkets will be disrupted, and a lucrative market sector will be lost. As one commentor suggested: &quot;It is is the worst news, at the worst time.&quot; This should not be underestimated.</p>