I've been a successful manager at a college retailer for over 28 years.
Who's This Article For?
There's much consumer information here, but the article will also help bookstore professionals understand the calculus of online textbook rentals and aid them in being more competitive.
To be fair, Apex Media isn't Amazon's only third-party rental provider. There are several. However, the basic terms of their rental contracts are mostly the same and the appearance of their terms is universal on Amazon.
The Intermediate Accounting book by Kieso costs a bookstore $222 to purchase. Most bookstores sell that book for $296, which is their normal 25% mark-up. Some bookstores that use dynamic pricing may sell it for slightly less. Even Amazon, which sells certain books at a loss, charges over $200 for a new copy.
Through its partner, Apex Media, Amazon rents this same textbook for $39.99 (at least this was the rental price on January 28, 2014). How do they rent a book that cost them $222 for $40 and make money and should you be renting from them?
Understanding the math of making money on this kind of rental from the business side and knowing what you need to avoid paying costly buyout fees are keys to benefiting from these low prices and understanding the textbook rental market. Those who don't understand these things run the risk of being charged some extraordinary fees.
Read the Fine Print
When renting textbooks from any online source, even Amazon, it's critical that you read the fine print.
- What happens if you return the book in damaged condition?
- What happens if you return the book with too much highlighting or writing in it?
- What happens if you ship it back Media Mail and it never gets there?
- What happens if you forget to return the book entirely?
Were you aware that approximately between 10% and 20% of rental customers don't return their rental textbooks in a timely manner? Rest assured that the late fees associated with late returns and non-returns factor into the prices Amazon and Apex Media are able to charge for their rental textbooks. In fact, they have it built into their rental model that a certain percentage of customers will not return those textbooks, and this likely factors into their decision to reject some textbooks as too heavily written in or damaged.
What Happens if You Are Late?
Did you read the fine print on Amazon's site?
"If your book is not received with a postmark of the due date or an earlier date, we will automatically extend your textbook rental period by 15 days and charge you for a 15 day extension, and if the textbook is still not received with a postmark of the extension due date or an earlier date, we will charge you the purchase price (as of the time of rental) less any rental fees and, if applicable, extension fees already paid. Please do not ship the book to us once you have been charged the buyout price – that textbook is yours to keep."
What's the Buyout Price?
In the above example where Amazon and Apex Media are offering to rent this $296 textbook for $39.99, did you notice the "buyout price" of $388.50? Does that seem a bit excessive to you?
If you're one of the 10% or 20% of students who don't return their textbooks on time, you're going to get hit with an additional $20.99 charge for sure. If you're one of those students who just forget to return the textbook entirely, you're going to get hit with an additional charge of $327.52 ($388.50 - $39.99 - $20.99) as noted in the fine print. That's well over $100 more than what the company paid for a new copy of the book.
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While it is not uncommon for bookstores and rental companies to charge heavy fees for unreturned or late returned rental textbooks, Apex Media and Amazon are able to work this into their rental model because they're online companies that are not beholden to any university and rarely if ever has to deal with customers face-to-face. When you write to complain after being charged this amount, they'll simply email you back and tell you that you've violated the terms of your rental contract and there will be nothing you can do about it.
There's no way a brick-and-mortar business could get away with this.
Can I Highlight and Write In My Book?
What happens if I highlight in my book too much?
"As a courtesy to future customers, we ask that you limit your writing and highlighting to a minimal amount. If we determine that the book is no longer in acceptable rental condition when you return it, including because of excessive writing or highlighting, you will be charged the full purchase price, less any rental fees and extension fees you have already paid, and we will ship the book back to you to keep."
Who Defines What is Excessive?
There is a critical piece of fine print in the gray box to the right that basically gives Amazon and Apex Media the right to reject almost any rental book that is returned on time and charge the buyout fee. While it's not clear whether there is a direct relationship between Amazon and Apex Media, if we assume that Apex Media is its own company and attempting to make its own profit, the application of the buyout price may be a critical piece of their business model.
What's known as "breakage" in most rental businesses is used as a pro forma, predictive factor in budgeting. In other words, a company factors in a certain number of unreturned rentals into their budget equation. The secretive nature of the relationship between Apex Media and Amazon means that we'll likely never know anything about this, but it's not uncommon for a company to predict its breakage rate and then reject a certain number of returns as a result of its budgetary needs based on the vague factors explained to the right.
Does "excessive writing or highlighting" mean 10 pages or 20 pages? The fine print allows the company to basically reject any returned rental textbook for any writing whatsoever depending on their need to make money at the time.
Why Can't My Local Bookstore Charge the Same for This Rental?
There are three main reasons that a brick-and-mortar store, or your local college bookstore, can't compete with Amazon's rental prices: the limit on breakage fees, the limit on the number of turns for each rental title, and the limits placed by the university or college (if it's institutionally owned) or business on the amount of risk the store can accept.
Turn represents the number of times a business can expect to rent a particular title. On a title like the Kieso accounting book used in this example, it has an edition life of about two years. Apex Media can expect to turn their rental six to eight times, while the conventional college bookstore can only expect three to four. This automatically means that Apex Media can afford to charge about half of the rental price of a traditional store.
Factor in the high breakage fees charged by Apex Media, and that rental fee can get even lower. If for every 10 books Apex rents at $39.99, they are able to charge two customers $388.50 for not returning it, they will make profit on their investment on the third rental. Stores that have to answer to a university and deal with real customers simply cannot charge the same high breakage/non-return fees.
Finally, with a virtual guarantee on increased turns and a final sale of their book at the end of its rental cycle, the risk for Apex Media is considerably lower. Institutionally-owned stores are traditionally risk-averse, so it's almost impossible for them to offer competitive rental prices. The institution won't allow it. Corporate-owned stores are more risk-tolerant and have a wider network, so their turns are usually higher, but even they can't charge those high non-return fees, so their rates are also going to be higher on average.
How Does Apex Media Make Money and When?
Although non-returns can be as high as 20%, let's assume that Apex Media's non-return rate is 10%. That means for every 10 books they sell, one doesn't come back. 10 books cost them $2220. They rent those 10 for $40 each, making $400. One doesn't come back, so that customer is charged $388.50-$40-$21, for a total of $327.50. After one turn, the company has recouped $727.50 on their $2220 investment.
The company now has nine books left. They rent those nine again for $40. They're going to have one book not come back either in the second rental or the third. For argument's sake, we'll say it occurs here. So again, they charge one customer $327.50. Their total revenue on this turn is $687.50. So far, they've taken in $1415.00.
On the third rental, they have eight books left and rent all eight for $320. All eight come back and they now have revenue of $1735 on their investment.
On the fourth turn (remember, they could get 2-4 more turns), they rent eight books for $320 and have one non-return for which they charge $327.50. Their total revenue on the fourth turn is $2382.50. They've turned a profit!
Now consider two things, Apex Media can get two to four more turns on the remaining seven books and can likely sell them at the end of their rentable life for between 25% and 50% of their original cost.
The profit is quite impressive.
Who's to Blame?
The bottom line is that it's the consumer who is to blame when a rental textbook is returned late or not at all. The consumer is the one who knowingly and willingly enters into a contract with the rental company and agrees to the return dates. When those dates are not met, there is nothing the customer can do.
While the rental prices Apex Media offers through Amazon are very attractive, there is a steep price to pay for those who don't meet their deadlines or condition requirements. Know what you're getting into when you rent from Apex Media through Amazon.
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What's Your Experience Been Renting Textbooks?
PDXBuys from Oregon on January 05, 2016:
Pay $388.50 for a buy out? I sold my 1991 Subaru Legacy wagon a few years ago for only $350 in Los Angeles - that was the best I was offered. How can a running vehicle be worth less than a single textbook? Freakonomics...
universitymom on October 07, 2015:
My son has on occasion rented textbooks and has never had a problem. Just take reasonably good care of the book and return it on time. Another great option from Amazon is to rent the e-version of the textbook when available.
Allen Donald (author) from Colorado on March 03, 2014:
Apex Media and Amazon offer great prices on their rental textbooks, so people who return their textbooks on time and in good condition are getting a great deal. However, people need to know what the consequences are for violating their contract, like in any endeavor.
FlourishAnyway from USA on March 03, 2014:
This is even worse than when I was in school, much much worse. Thanks for writing on the topic.