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Another example of a broken magazine distribution system

pigeons.JPGWe received Pigeons & Peacocks yesterday for the first time.  While an interesting looking title, I doubt that supply was warranted based on any sales data from our business.  We received two copies and would need to sell both in four weeks to recover our costs.

Just who made this decision to send us this title and why did they decide to put my money at risk?  This is the fundamental question I have about every new title sent to us by magazine distributors who think they are better at putting my money at risk than I am.

If it sells out I will be thrilled.  If it bombs I will be out of pocket.

Magazine distributors cannot have it both ways – controlling what titles we get and at what volume and making us financially responsible for their allocation decisions. yes, this is as it has been forever.  Well, in today’s marketplace something has to give.  I think we are seeing that with newsagency closures on the rise.

One source told me that there have been more newsagency closures in the first four months of 2010 than in all of 2009.  If true, this would be alarming.  I am not seeing any change in behaviour by the magazine distributors to indicate that they are concerned.

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  1. Graeme Day

    Mark,
    Are you by any chance alluring your thoughts on the blog of oversupply or better stated undorded stock (it’s not oversupply until it is not sold and that can’t be determined if it is not for sale – catch 22) that any closure of newsagencies has something to do with this situation?
    It couldn’t be that these newsagencies were in fact in anyway overborrowed and and/or mismanaged could it?
    Please, would it not be more responsible to ascertain the cause of this catastrophie rather than contaminate one subject without clear definition of what is what.
    If this is what “going” public will do for a good, well run newsagency, to those that are loaded to the giunbarrels with debt, to their goodwill then it’s a disgrace and a disservice to the majority in this industry.
    I propose to you (don’t get excited) that the level of leveraged debt and the GFC are the biggest single factor of small busines closures more, much more than any other cause. This is the area that a lot of small businesses are in trouble and the one that they need help with.
    To present your view on the supply of magazine scale out for discussion is one thing, to even associate let alone malign it with newsagencies closing without qualification is another.

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  2. Peter

    Graeme,

    Excuse me, isnt the single biggest factor that cause businesses close is their inability to generate sufficient cashflow to pay their obligations?

    Anything that places a drain on cashflow will impact ones ability to pay debt. After all I have never known a business that is profitable and liquid to go broke.

    Yes, highly leveveraged companies are more susceptable, however anything that drains cashflow is not positive for any business, and the supply model is and would be a contributing factor – ask any insolvency practioner.

    Cheers

    Peter

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  3. Mark

    Graeme I can’t really make sense of your comment. I stand by the blog post and my comments about a sick magazine supply model.

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  4. john M

    The final comment on the rapid decline of newsagents is the most concerning for consumers and for magazine publishers if it is true.

    Longer term without newsagents, magazine publishers will just represent a very minor category in a major supermarkets who will “offer” unfavourable trading terms and ask magazines to earn every retail inch they are offered. Almost everyone here does know, except I don’t think the penguins (magazine publishers) realise their ice-berg is melting under them!

    If they did, they would build a channel partnership by giving Newsagencies the choice to stock any new title, and the quantity of their first order, they would be confident for payment upon sale or in arrears. They would be equal partners.

    People may not want to hear this, but the fundamental benefit of removing ACCC authorization is to improve supply arrangements, improvement in payments and margin, and to control what you get shoved through your back door for sale out of the front door. The newagencys of the future will be like this, if authorisation was so valuable, newsagents should be wealthier than pharmacists who don’t enjoy such “protection” . Time to leave the store and visit the car-park and compare cars, who has the newer car the pharmacist or the newagent?

    Confronting yes, but its time to leave home be exposed to the big wide world, and then you can say no to crappy publisher decisions that are one of the most frequent topics here, you can say do better or face relegation, its is the principle that makes soccer work.

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  5. Graeme Day

    Mark,
    Ofcourse you undersatand it We both agree that you are not stupid.
    You linked magazine supply with the foreclosure of newsagnecies of late.
    Read your comments.
    Mine are also clear.

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  6. Aaron

    Just in regards to what John said, if newsagents and similar just all closed shop who would stock magazines?

    Supermarkets only stock a small range, and Magnation is not found everywhere.

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  7. shauns

    Graham , what is your view on the magazine supply model do you think it needs to change ? for me personally some months it is a disaster when it comes to pay magazine bills .Every other supllier be it cards ,cds , gifts , drinks ,smokes , lotto , Paper , rentals , loans , what ever there is i can handle only because i can 100 % manage what i get in but when it come to mags that a whole different story . just from my own personal experience i would definantly think tat magazines would contribute to a newsagents down fall . When waws the last time you have had to deal with a magazine supplier ??

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  8. Aaron

    what exactly is stopping newsagents from saying “i want x number of this magazine and i am only paying for x number of said magazine.”

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  9. ED

    aaron,

    to answer your question. what is stopping us from saying we want X amount of Y magazine.

    Good example is NETWORK. on their website where they say you can change supply allocation. That is one of the biggest B**% ever.

    if you have ever sold 1 magazine of any title and then not have another sale of that magazine for months and months and months. then you go and try to cancel it, you get “you cannot cancel a title that has an average sale greater than 0.” even if the average sale of .000000001

    that is just 1 example of how our hands are tied down and some don’t even know it.

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  10. Aaron

    would a pre-paid model work?

    so a business can allocate money for mgazines and know how much they are paying, etc.

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  11. Mark

    Graeme you with your comment here as is so often the case being difficult for the sake of it.

    People who work actively with newsagents understand the the impact magazines can have on cash flow. Has the model played a role on the downfall of some newsagents? Yes.

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  12. Mark

    John, newsagents I talk with are working on their businesses, taking responsibility for their future. There is some excellent innovation going on out there.

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  13. Graeme Day

    Mark,
    More than anyone else here on this blog you know the work I have done with newsagents – receivers and Banks over 20 years- It is not questionable that you can say I am being difficult. THERE IS A PROBLEM WITH ANY BUSINESS THAT CAN’T CONTROL ITS STOCK! and its understandable that this problem increases dramatically when liquidity is tight. What is the base cause of this liquidity problem is not the contributing factor of the sale or return of model of magazine distribution system (although it certainly doesn’t help) it is the tightening of credit by all parties involved in business,.
    In 20 years I have been actively participated in over 50 bank foreclosures one way or another over 20 receiverships 30 direct appointments from Banks and and more than 50 fire sales.
    In most cases -there are exceptions it is a lack of financial working capital- most newsagents buy wrong- by that I mean they aren’t told how much working capital is required to commence trading properly.
    I sat with the Recovery Division of one of the major lending to newsagents banks in the ’90s going over their actuarial figures and kpi’s for newsagents in “the recession we had to have” we worked together on “mass” re cash flow and newsagency’s financial particulars. The model developed is current today, problem is nobody wants to know they all know what the problem is it is the magazine problem-well my learned freind -excuse me that’s BULLSHIT! No Mark I am not being too clever I am not being difficult for the sake of it and NO I am not trying to drum up business- (the latter doesn’y pay for they have no money when I get to them-yes its done because it has to be done-and it’s heartbreaking to see people lose everthing) I am trying to tell you, whom I shouldn’t have to that the magazine distribution is a fact of our being – like it or not it’s like the Men’s wear marking up 100% or more to take care of what doesn’t sell so it can be specialled out at cost or less to reinvest in some stock that may sell-or the fast food outlet that can’t afford to over buy for tey then have to throw out their profits at the end of the day.
    Our industry, yes I’m included, it doesn’t belong exclusively to newsagents , in fact everyone providing to or receiving from this industry is affected by what happens to the newsagent, our industry enjoys a sale or return process – no dead stock a net 25% G.P. What we need to do is understand how to handle that process better- cash flow wise -space alloocation wise-(speakingof which -in my literally hundreds of sq metre comparisons of space allocation I have actually got an example of a very good profitable return per sq metre for magazines -yes it can happen-are we sharing this information-not really-shouldn’t we be when we are one of the most stable industries in retail?
    Why are we knocking our suppliers when we should be sitting with them showing them the problem -seeking co-operation-
    Small businesses evrywhere ahve the same problem if they are leverage high enough-interest rate rises -suppliers tighteneing credit, for they too have had banks on their backs and last but not last customer underconsumptiom.
    So Mark, to dismiss my comment so easily as being deliberately difficult is just so far off the Mark-so to speak it isn’t taken seriously let alone people who work actively withnewsagents understand……..What do you think I just described isn’t avtive?
    My concern is genuine and productive in making this industry better but not by alieniating suppliers who are a part of the problem, not the cause of it.

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  14. John Kirkham

    Geez Graeme, for crying out loud… start your own blog; if your own opinions are going to be so damn strong.

    Give Mark a break.

    Why the hell are you so combative/contrary ?!

    I haven’t even read you’re post Graeme. Filled with ornate delivered assertions dressed up as knowledge !

    If you have a strength, make sure it ain’t surliness.

    GD, paragraphs were invented for types like you, use them once in a while… white space is your readable friend.

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  15. Mark

    Graeme,

    Your comments are often off topic, jumping at shadows which are not in original posts.

    You also bring up history about what you have done as if to bring weight to your comments.

    My concerns are today’s situation for newsagents and the path of our tomorrows. Given the changing plates on which our businesses are built, history will not be a big guide in what we should do.

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  16. PETER

    did anyone else notice that network (in NSW anyways) have a super clean out. re-distribution of titles, over supply of others.
    we are sending back 60% of what we recived today -early returns, because we just will not sell it, and we dont have room.

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  17. MC

    Graeme,

    Why cant you just go away and stop leaving unwanted comments on this blog.

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  18. rick

    graeme,

    stick your 25% GP on sale or return, give me 100% on mags and let me decide on what i want and how much i want, and let me deal with what i cant sell, under those conditions i dont need sale or return. Ask any newsagent how damaging the mag supply model is to their business when the mag monthly bill is MORE than total mag sales for the month!!! Think you will find a lot of newsagents were struggling with this model long before the GFC.
    The super retailers (ie big supermarkets) have the clout to tell mag distributors what they want (top mags only) and under what conditions they want them (no returns required)because thats the only way that mags can generate positive cash flow, give us the same model

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  19. Y&G

    Rick, I doubt all newsagents would want to lose the ‘safety net’ that exists in the event of unsolds, even though it could be highly advantageous, provided we had control of the titles and supply amounts.
    I also doubt distributors (regardless of what many publishers might want) would want to give up this cash cow, and use the returns provision to sweeten the ‘deal’.

    Having said all that, I think you are correct. Unless mag distributors make supply policy uniform across the board, say, the same sweet deal supermarkets have, newsagents will continue to be abused.

    I have always been a little bemused by the often seemingly blind defence of The Channel by some. It simply doesn’t pay its way, neither with papers, nor mags.
    The current newsagency distribution model is as much an imposition on agents, as is the paper delivery model, in terms of the harm they do to newsagents’ operations.
    Again, it’s about control, and protection of income.
    As an entity, The Channel only serves to increasingly highlight the big grey elephants gathering in the middle of the loungeroom.

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  20. Graeme Day

    Mark,
    I pumped for a private forum and you saw the light Best of luck I mean it. I hope it bears the fruit that you are seeking.
    I believe that the problem will remain it has been there fopr well over 40 years it is all about how you get to handle it that counts.

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  21. Graeme Day

    rick,
    do your sums and handle the cash flow and you will think differently By the do you mean 50% insteed of 25% because it’s impossible to get 100% G.P. on cover price.

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  22. rick

    graeme
    have done my sums and know the answer, stop mag companies from sending me more of what i cant sell, i have to constantly and VERY AGGRESSIVLY early return to manage my cash flow, i would not have to do that if the supply model was fair. the 100% was tongue in cheek in reference to you use of menswear marking up 100% to cover lines not sold.

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  23. Mark

    Graeme,

    What I am doing with the forum is what I planned more than a week ago before I blogged about it.

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  24. Brendan

    Wow, what a passionate thread. And so it should be. What would I like to see? Cancellation of any title as I see fit regardless of sales. Obviously if its profitable it will stay on my shelves. Immediate return AND credit of titles I fell unsuitable for my shop which would trigger an automatic stop of supply for that title. A firm sale OPTION would be handy (with an appropriate % for firm sale. If the mag companies intist on titles beig supplied and want them displayed, maybe they should rent the appropriate space from us one month in advance (helps our cash flow for once) and we could take 25% as a service fee with the distributors being more responsible for the profitability of the range they supply. I think there may be some solution in this for some of the previous issues. I must state that at present I am satisfied with my mags but being relatively new to direct supply, haven’t struck any major oversupply issues yet.

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  25. June

    Graeme and Mark you are both right. We can’t always blame the suppliers for our woes but as Mark says, when our cashflows are impacted adversely by unwanted and unsolicited titles being added indiscriminately to our accounts it is well nigh impossible for us to meet our monthly commitments and (as Graeme said) pay our commitments to borrowings etc.
    However, I place the lack of knowledge of industry required capital fairly and squarely at the feet of the state and national federations who have taken the newsagents’ money and never gone to bat for him with the suppliers over the oversupply issue.
    The associations have always known that it is a huge problem and those of us who are now lucky enough to be retail only after selling the distribution part of our business are proactively eliminating a lot of our core product and adding gift lines and upmarket stationery lines to increase our profitability.
    I think newsagents should be treated like the airport model. We should be able to choose the titles for our own demographic and only add what we want when we want it but that would turn the industry on its head because we (newsagents, not supermarkets) are the traditional space to flog all and any product that the suppliers wish to dump on us.
    For that to change the ANF needs to lobby the government (with real lobbyists not part-time ego driven
    newsagents)to change
    the unwieldy, unyielding system that has been in place for the 33 years I have been in this industry

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  26. Graeme Day

    Good comment June I wish the Associations had the resources (HUMAN AND MONEY) to fight for you guys. It was all spent fighting each other…….

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  27. Chris W

    To Peter (#17), its the same story here in Tassie. I’m returning 50 % of Friday’s Network distribution (received today, Monday) for the same reasons. All the redistributed titles seem to be ex NDD and I received in some cases more than the double the amount originally received and already returned due to lack of sales.
    There has traditionally been a “saving grace” with Network in that user cancelled titles don’t seem to reappear several months later or get replaced with even worse junk as happens with the other mob, but this may change now that they have taken on a lot more magazines. Unfortunately, redistributions get their own title code, so there’s nothing to be done about them except early return.
    Too many problems revolve (as in Friday’s case) with the same three Australian publishers. Look at the number of #1s received from Express (three the previous Friday one this week) also necessitating early returns of their other publications to make room, and the number of their “specials” which “cannot changed due to [their] frequency”. Otter Press’s comics are continually reissued and impossible to control due to their unique title codes. I’m also cheesed off about having to return three magazines instead of one so much of the time with Express because of their “bonus” offers and have concerns about the reasons why so many of their publications have recently had their title codes changed.

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  28. amband

    Question!

    Is any newsagent allowed to give away a free magazine edited by some poor devil ( me ) who think he may have a title that will be interesting to the public?

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  29. Mark

    Amband, newsagents can give away magazines if they wish.

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