Australian retail newsagents is a direct account with magazine distributors make 25% of the cover price of a magazine.
Distribution newsagents make 25% and have to share that with retailers they supply. The share they make can range from 12.5% to as high as 5% depending on terms negotiated.
Newsagents want more than 25%.
While some cover prices have increased, overall they have not kept up with CPI – meaning in real terms our gross profit is lower today than last year and prior.
The gross profit from magazines has not kept pace with the increases in rent, labour and other business costs. Rent increases at least 5% a year and labour closer to 4%.
The freight cost of handling returns has also increased.
Many newsagents say that while magazine sales have been declining on average by 8% year on year for the last three years, their magazine bill remains the same. The reality of the sales decline should be that magazine supply bills decline. That they are not declining in line with the decline in circulation speaks to the unfairness of the magazine supply model to newsagents.
Distributors would say that newsagents knowingly signed their contracts. Fair enough – but since then they have started supplying new channels and they have changed how they deal with other retailers that benefits other channels and disadvantages newsagents.
Magazine publishers would say that they have no financial capacity to pay newsagents more. To those who supply supermarkets I’d say you do have capacity given rack fees, promotion fees, zero returns and other costs of handling the supermarket channel. To those not in supermarkets, I’d say our channel offers the most cost effective way of reaching new eyeballs even if you were paying us 40% of retail sales.
Paying newsagents more could open up more certainty around shelf life, in-store promotion and overall shop floor engagement. It stands to reason … let’s say I have two product categories generating roughly the same in revenue but one delivers 25% gross profit and the other delivers 55% gross profit, both have similar space requirements and similar labour requirements. High will I focus on? 55% GP of course.
Magazine publishers should embrace our channel, give us a better margin, eliminate the need to return unsold stock and free us from the restrictions of the current supply model. Do this and entrepreneurial newsagents would emerge with a focus on magazines. I suspect they would drive sales increases.
Magazine publishers who want newsagents to be more commercial with their products need to treat us more commercially. This is what it comes down to.
Magazine Publishers Australia has been working on a code of conduct which they think will make newsagents happy – I have written about it here and I have written about it here. If you compare this code of conduct to my suggested magazine supply KPIs you will see the MPA draft is biased to serve the publisher whereas mine is biased to serve the newsagent. I think the MPA code needs some more work but it is a start. For example, the financial viability of a title in a newsagency has nothing to do with the size of the print run … the ideal sales efficiency has nothing to do with the size of a print run.
I’d also note: early returns are essential to cash-flow management in newsagencies. If Network and Gotch want to be paid they must allow early returns. If a title has not sold in two weeks it ought to be a reasonable candidate for early return.
The challenge for newsagents is what to do about magazines. If you decline your range too low you stop being a destination for the shopper who likes to browse and this could have a knock-on effect for other parts of your business, you stop being a newsagent. You would need to be bringing traffic in for other reasons.
Take a look at stand-alone businesses around you like gift shops, toy shops, stationery shops and card shops. They struggle with this single category attracting traffic. One thing that works for newsagents is the multiple reasons people come through our door.
Our businesses are very layered with different departments relying on each other for support. This is why cutting magazines too far is a serious danger for us. Magazine publishers and distributors know this and I suspect that is one reason they have not moved on offering fair compensation for our services.
The magazine supply model which makes newsagents the least competitive of all channels and the compensation paid to newsagents for magazines are issues the ANF could have and should have owned. They have failed us over and over. Most recently the ANF represented newsagents at a magazine publishers conference and if what I am told is right – they failed us abysmally. The ANF handling of the matter is a reason newsagents should stop funding the organisation in my view.
What’s the answer, what should newsagents do?
While I don’t have the answers and am not in a position to tell newsagents what to do, where is what I’d suggest are reasonable action items:
- Trim your magazine space to what is financially viable in your shop but not lower than 650 titles.
- In appropriate categories display three titles where you would in the past have displayed two. Get more value from your real estate.
- Write to your distributors with a copy of your own sell through rates report showing their gross oversupply over a twelve month period and put them on notice that you will act.
- Lodge a complaint with a government authority and ask for mediation. See my previous advice here.
- Write to publishers explaining what you would do if you received higher margin. Be specific.
It’s on you to act as no one is doing it more you. Complaining about it achieves nothing. Act, and act now.
Careful what you wish for though as we are dealing with businesses that have bullied our channel for many decades. They can be spiteful and bullying. Approach this in the wrong way and you could find yourself without magazines and what does that business look like?
I have written about this topic many times in my team years of blogging and which there have been some changes, they are not sufficient. I really do think that achieving a good outcome for newsagents depends on newsagents acting themselves.
Bit of a concern that no one has bothered to comment on such a topical issue. Maybe a case of the publishers and distributors have left the gate open and the horse has bolted.
Mark your biggest challenge is leading the charge on this issue only to turn around and find that no one is behind you.
Hi Mark, Just wondering about what margins does the super markets get on Magazines ?? Couple of weeks ago I saw an offer in Coles Express, Preston which said Buy Fuel and Get the weekly magazines like NW, Womans day , OK and others for half Price.
What Mark has put together is a lot to take on board.
As a Distribution Newsagent, I am almost envious of the fact that Retail Newsagents now have a 5 point plan to work with. In fact I’m happy for them and wonder what of the Distribution only Newsagent.
I have been vocal on other threads about getting 20% margin on all sales, I doubt that’s sustainable for the industry, nor an achievable aim for Distribution only Newsagents.
Whilst the number of Distribution only account holders with say Bauer may well be less than 10% of all Newsagents accounts, I would suggest that the sales $ figure is the salient number to compare and that percentage would be significantly higher, thus earning Bauer’s attention to this sector.
As pointed out by Mark, given the amount of concessions available to Supermarkets I don’t accept that an increase in margin can’t be put on the table.
For Distribution Newsagents it could be a margin increase with a twist. That has consequential benefits for Publishers and won’t cost them a cent
For Distribution Newsagents, that could come in the form of suggesting a sliding scale of margins that can be paid to SOME Sub-agents. For example; sales of less than $200 per week commission to the subagent could be 10%. This suggestion would mean the Publishers or the major Distributors would not be asked to put any ‘skin in’ to ensure sustainability of this sector.
The first thing to understand is it is the small corner deli’s and snack bars that are the most costly to service, individually these outlets have low sales but collectively it’s a different story. That’s why they are the most costly to service, but at the same time (collective sales) they could make a difference (along with other small initiatives) as to whether the Distribution only Newsagent can sustain the service he/she provides to Publishers provided the margins are addressed accordingly.
So we need to consider what is the risk to Publishers and others in agreeing to such a suggestion;
Would a small deli with a fixed number of ‘put away’ clients really give up magazines and replace them with less variety and more of the same confectionery if margins were slightly lower on <$15, <$30, <$50, <$100 or <$200 total weekly sales.??
I think there are cases where user pays ideology has to be considered. Sustainability of the distribution process and ensuring the widest reach of consumers for Publishers would be one of them.
Such a proposal would I believe make Sug-agent Managing Newsagents try harder to lift weekly sales in small Delis etc up from <$15 per week. The incentive would be there and may introduce a degree of new life-blood for Publishers. So I believe Publishers would in fact be advantaged by introducing this at no cost to them.
In addition to this benefit, some Distribution Newsagents would also be encouraged to open/re-open additional outlets if the margin were better for them.
So I am suggesting to Publishers that an expansion of sales over a wider range is possible, rather than a reduction in sales to a reduced number of Subagents as is thought will happen if nothing is done to address the sustainability of Distribution Newsagents business.
The sliding scale is not new, it's not my idea. Gordon & Gotch had a draft proposal that was going to be implemented in the year 2000 but was canned because of the much higher than 12.5% margins to be paid to larger Sub-agents sales out of Distribution Newsagents pockets. 15 years on life is different for all parties faced with direct distribution costs and any thought to increase margins to any sub-agents at the expense of Dist Newsagents would see it all fall over.
Hopefully the magazine powers that be will listen to this story/suggestion along with other initiatives that have been put to them and engage with all Distribution Newsagents.
Gary, on magazines, newsagents have a track record of complaining and not acting. Sad.
Chandra, 25% but better ‘other’ terms such as shelf fees and no returns.
Dennis,I like your suggestions and their commercial focus. These are points to be made at a run table negotiation if the publishers and distributors ever agreed to such a thing.
It also surprises me that suppliers don’t respond as I know many read the blog every day.
Mark, suppliers will not respond as it is not in their interest to let this topic gain momentum.
Remember the attempt by Fairfax media to force newsagents to put the Tv Guide into newspapers? That was quickly shut down after your blog started the momentum.
40% margin would be ideal.
It is definitely possible judging by the terms of trade currently with Woolworths group, Coles Group, NewsLink.
Newsagents sell more magazines than these retailers yet receive inferior trading terms.
If any newsagent retailer has any doubts about 40% being a realistic option, simply go to the iSubscribe magazine website and see for yourself.
Amanda, I think they will respond, but perhaps because of internal policies, not on this media venue. Which is a pity because it could go a long way to setting a good tone for the start of a process which they will have to address sooner rather than later.
Call me a whack job, but I feel a sense of optimism about the magazine side of the business. I think if suppliers engage with Newsagents on this issue, they should feel a sense of willingness to fix a range of issues. If they don’t get that sense of willingness and desire from newsagents, then we are just doing more of the same navel gazing and belly-aching about our sad lot.
Having said that, willingness and desire are of course a 2 way street.
This is all pie in the sky stuff unfortunately. There would be some basis if the distributors were making a mozza. They ain’t. GG and Network have no margin to give. GG didnt make a cracker 2 years ago and generated a tiny profit from cutting out one delivery day last year.The system is stuffed from top to bottom. The amount of energy resources and money that currently goes into magazine logistics from the moment it leaves the printer presses is staggering, and guess what?? – nobody makes a cent from that moment on. To think that evolving the current system will rectify this is an exercise in futility and to me a but Quixotic. The whole thing needs turning on its head starting back at the publishers themselves – and they are operationally and financially committed to digital, so that wont happen either. We are the buggy whip distributors when the Model T was invented.
Looks like the discussion has stalled again. And right at a time when someone has broken through the brick wall that we are all banging our heads against. Is the question now is how are we going to squeeze out a larger margin from a system that does not have the capacity to give anything? And if we can’t where to from here? As someone posted earlier thread, we have to short circuit this “ground hog day” response somehow.
Then again, from unofficial sources, the supermarkets and Newslink may have done the impossible.
James, @post8,
For me, being hopeful and optimistic doesn’t mean lacking in a ‘down to earth’ approach.
My gut feel is that paper-based magazines will be around in solid numbers for decades to come.
I doubt that Publishers are, at this point in time, solely committed to digital in an operational sense.
Of course Publishers are committing funds to digital, I would in their position, but you’d be a mug to commit everything to digital this early in the transition.
If your assertion that no-body makes a cent from the moment magazines leave the printing presses is correct then why didn’t it all fall over yesterday?
I understand about the frustrations involved with magazines. My good lady sighs when I do the odd rant about ‘bloody magazines’ and ‘why are we still doing this’.
I think Publishers and major Distributors are aware there are serious issues with magazines, including the distribution sector. Will the issues be addressed?, well it probably depends upon the amount of push back from those impacted.
As well as Mark, I am aware there are good Newsagents doing work behind the scenes to push the powers to accept the challenge that has been ignored for too long.
The time to push back is now. The desire and willingness has to be available now. Once WW & Coles get the upper hand it will then be game over re magazines, not just for Newsagents, but also for the other parties.
Tis a far worse thing to remain passively silent and do nothing but accept your lot in life.
So how is it that ‘Magazine Publishers Australia has been working on a code of conduct which they think will make newsagents happy’
And the only place I’ve heard of such a thing is here? Sounds as though we will be presented with an old (agency) style take it or leave it contract that complies with the mysterious new code of conduct and as usual receive no support from VANA, ANF, ACCC etc.
If the MPA are serious how about engaging with us?
I’m negotiable on many things but early returns are a deal-breaker. It would be unthinkable to relinquish inventory control to an outside agency who could break a small business in one month through oversupply. The ACCC should (ha) prevent this happening anyway.
Early returns should not be on the table, starting point is NO returns, and only invoiced for mags sold (as per sales data) if your not compliant, sorry, your on your own. I don’t want to expend energy on a half arsed solution, I can live with 25% if I don’t have returns and only pay for what I sell, after I sell it. Not happy with that then give me full control over supply and 50% and I’d look at firm sale. But I’d be dropping as shit load of mags under that model.
I would consider no early returns for a 40% margin and a few rules on supply such as maximum 4 week on sale and all new titles are opt in.
i just want no physical returns