Penguin, the publisher owned by Pearson, organised an "Independents' day" on 4 December, selling certain titles to independent bookshops for a 25 per cent discount. The aim was to make up for the months of late arrivals of Penguin books caused by its opening of a new warehouse earlier this year. "Independents' day" did not go smoothly for some. One shop complained that books it ordered a month in advance from Penguin for the sale did not arrive in time, nor did the posters and bunting promised by the publisher to help advertise the day. Toni Lister, the manager of Halcyon Bookshop in Haywards Heath, Sussex, was so exasperated by the flop, this month she wrote to trade magazine The Bookseller: "There have been so many broken promises of improved service all year. Can anyone give us a realistic date when things may get back to normal, or at least an acceptable delivery time?"
It's a headache that Pearson's chief executive, Marjorie Scardino - the most high-profile female executive in British industry, who was recently made a Dame - could do without, coming as she struggles with a loss-making Financial Times, a mercurial education business and the weak dollar hitting US revenues.
The Penguin problems began in April when the publisher moved its books from its two existing warehouses to a huge new facility in Rugby. But the computer system operating the cranes and robots to locate and retrieve books did not work properly. For the first few months, the warehouse had to be operated manually, and Pearson says, it won't be fully automatic until the first half of next year.
Authors and shops complain that it is still taking two to three weeks for Penguin books ordered by customers to arrive, when it should take no more than two days. At the Booksellers Association's most recent board meeting last month, directors said "this is still a nightmare". Some writers' agents have been so exasperated they have taken vans to the new warehouse at Rugby to pick up their clients' books themselves.
The Society of Authors met the chief executive of Penguin, Anthony Forbes Watson, last month, and asked for higher royalties for writers next year to compensate them for any lost earnings as a result of the delays. The society's general secretary, Mark Le Fanu, said writers were not just concerned about immediate lost earnings. "There is also the potential damage to their reputations," he says. "If sales of important books have been dented through no fault of their own, it may have an impact on their careers." Next month, the society will meet Penguin again to hear its response. But with Penguin only compiling sales figures every six months, the impact of the distribution delays on sales for the second half of 2004 will only be available in March.
Analysts at Morgan Stanley have reduced their full-year earnings predictions for the Penguin division by £15m, as a result of the slowdown in US sales in the third quarter and the UK distribution problems. The delay in getting the new warehouse to work properly also means Pearson is unlikely to meet its 2005 savings target of £20m from merging the warehouses and integrating other businesses, the analysts say, cutting next year's saving estimate by £5m.
Penguin says the situation has improved and that it is mainly the back catalogue - books which have more than one edition - which have been affected. "We have done everything in our power to limit this," one spokeswoman said, citing a hotline for book retailers allowing them to order books within 24 hours and organising deliveries to bookshops directly from printers.
Penguin's distribution problems are are likely to prove little more than an embarrassing short-term blip for Pearson. But Penguin's growth prospects - set against ongoing losses at the Financial Times which sits within Pearson's FT Group subsidiary - are in sharp contrast to the performance of Pearson's education division, which receives far less attention but is the most important part of the Pearson triumvirate.
Pearson publishes school and college textbooks, and develops educational testing software. Most of the education division's sales are in the US, but Asia represents huge potential; Pearson reckons there are more students in China than the UK and US combined. The division accounted for more than three-quarters of total group profits last year.
Pearson announced last week that it was selling its Spanish media group, Recoletos, part of the FT Group, for £650m, prompting speculation that Dame Marjorie was looking to get out of newspaper publishing and concentrate on education. The group publishes Spanish business daily Expansion, sports paper Marca and Spanish language newspapers in America. Pearson said Recoletos did not fit with the core financial information and publishing activities of FT Group, and that the proceeds would be used to pay down debt and for bolt-on acquisitions.
Anthony de Larrinaga of SG Securities says: "Recoletos was never a core asset. The question that remains, therefore, is why it is now selling? Two reasons spring to mind - either the price is right, or Pearson has better uses for the cash, such as acquisitions. If the latter is the case, other non-core assets could also be on the block."
Other assets such as Pearson's 60 per cent stake in Interactive Data Corporation, which provides financial information to fund managers and is also part of FT Group, could also be sold, analysts say. But Pearson insists the stake, worth over $1bn,(£516m) remains a core asset as it fitted with FT Group's financial information focus.
But the fate of businesses such as Interactive Data Corporation demonstrates some of the dilemmas facing Dame Marjorie. Ten years ago, Pearson was an unwieldy conglomerate, owning stakes in businesses as diverse as waxwork attraction Madame Tussauds and investment bank Lazards. Most of these disparate businesses have been sold off, leaving it with the trio of education, Penguin and the FT Group. But the sale of Recoletos shows that Dame Marjorie is still prepared to prune. Whether other parts of Penguin and the FT Group could be the next to go is a question that the City is pressuring Dame Marjorie to answer.Reuse content