The traditional retail newsagency business has, for many years, delivered a GP% of between 28% and 32%. As I have noted here before, growing this is key to sustainability of and value from the business. I continue to suggest 40% as a reasonable mid-point goal.
GP% is a good indicator of the position in evolution of a retail newsagency.
Looking at data for a small group of individually owned newsagencies, 13 businesses, it is terrific seeing GP% at just above 40% of non agency turnover. In each case, the business has deliberately pursued GP% growth.
Growth in GP% offers a cushion for any business where sales of lower GP% items are falling. In the case of our channel, it helps with falling sales of newspapers and magazines.
Growth in GP% is achieved buy selling higher GP% items and achieving growth in the sales of these. The core of this sits with what you buy, the inventory you source for the business, as well as the price you can purchase for, and, finally, the price you can achieve for the inventory. Each of these 4 points matter in equal measure in my view:
- Sourcing good higher GP product.
- Buying at the best possible price.
- Selling at the best possible price.
- Driving sales of higher GP% items.
This is harder that it looks. Take point 2, for example. It is easy to be forceful in a price negotiation. It takes more care to achieve a good price without damaging the long term relationship with the supplier.
Point 4 is about re-casting your business to attract new shoppers. This is part social media, part online and part in-store. It takes time to achieve and has to be done in a way that does not harm the core traditional products in the business.
This discussion is really about being a retailer, which is different to being and agent. It is about being deliberate about business decisions, being focussed on the goals of the business in terms of profit, sustainability of the model and value as would be assessed by any possible purchaser of the business.
At the core of all of this, in the context of a retail newsagent, is change … leaning into change, chasing it, in fact, change in terms of product mix so as to achieve a change in terms of shopper mix and through that growth in GP%.
Back to the 13 businesses I mentioned earlier. In each case, GP% is growing because they are selling higher GP% items, more of them and less of lower GP% items. Their business are financially healthier as a result. This is happening because of deliberate decisions they have made.
Congratulation to these businesses who achieve high and healthy GP.
I had visited many these type of newsagents, and find their success based on their unique resource, such as historical/geographic importance, supplier support, early investment in business properties, early adapting the technologies, early adapting in sourcing product and outsourcing online operation overseas. I admired the talents and adventure from these colleagues. One of the most important factor is that they are happy and fearless to make mistakes, the more mistakes they made, the smarter they becomes. (of course, their resource are good enough to ensure their rapidly recover, regroup, and relaunch fresh advance).
Here is my question, for a newsagent with limited resource, should we focus on more GP or more sales volume? Should we make as many mistakes as possible and happy to advance to unknown territory, or act as followers to safety secure the sales volume. (in the other words, Risk taken means high GP, best cost, best retail price, and best sales growth in early stage.)
Sunny, none of the businesses are in high traffic or unique locations. Their success has come from modest and prudent evolution of the product mix.
Massive capital is not required.
Thanks Mark your comments and advice here are spot on. The future of our channel is dependent on us making the conscious strategic decision to transition to higher margin product lines. As a channel I strongly believe we are all well positioned to do so. The traditional lines will still remain but perhaps in a lesser form.
Understanding margins and the labour cost attached to each product line is the 1st step.
In my own store we made a conscious decision approximately 18 months ago to expand our Toy and Game lines (50 per cent GP) and to move into Books (40 per cent GP) We have found these 2 lines to be very complimentary both with each other but also with our card, gift and magazine sales. Today 40 per cent of our former magazine floor space has been replaced with kids books . Interestingly our magazine sales have only declined by 0.2 per cent year on year.
Whilst we are yet to launch an online store our strategic decision has provided us with triple digit growth in the 2 product lines and every month our sales in these 2 lines continues to grow. Greater turnover is also now providing us with greater buying power and is providing us with cashflow to reinvest in our business.
Importantly what we have discovered is that the new lines are also far less labour intensive than say lotteries or newspaper sales so we have been able to achieve our triple digit sales growth with reduced labour hours.
Understanding our margins and making and focusing on the original strategic decision is the key. We now look forward to the next step of launching our new online store focusing on these higher margin growth product lines.
And, Steve, with the new lines you have more control and I think that plays into how retailers see themselves. The feeling you get from success with a conscious decision you have made is wonderful.
Sunny, I think you have missed the mark in your assessment of how newsagents have found success and I think your list, whilst maybe partially true for some, would not apply to the majority.
You need to be prepared to step outside your traditional comfort zone one step at a time. The success of these newsagents is not because they are brilliant, have an inside running on products or are backed in by suppliers – it is because they have had the courage to have a crack at something new.
You want to join those ranks – then network with newsagents, join a marketing group, talk amongst your colleagues and see what they are trying. Look for a niche in your area – and don’t be afraid to step completely outside the “norm” and test the waters.
My wife and I set each other a challenge at every gift fair we go to. We each have to find a new product for our business, something we have not done before, something we can get 55%+ margins on and something that our customers would not expect to find in our store. We don’t need to spend a lot of money on it – we just need to try it. Some works very well, others not so, but every time we do it we learn something new about our business and it continues to evolve. For example, last fair we bought novelty metalwork drinks coolers with a retail between $450 and $900. We got a pallet of them, and sold the lot in a week. We hesitated to make the purchase, went back and forward and in the end just bit the bullet never expecting the results we got. You just never know what will sell.
IMO, to solely chase volume over margin can make you dangerously reliant on that product or supplier. By all means look after your bread and butter volume line (lotto etc) but never stop looking for high margin product.
Yes, what Mark said.
Volume over market is usually a temporary supply and demand situation whereas the newspaper and other newsagency products are in decline.
Cornering these makets of decline by chasing sales is futile.
Use the customer violume of declining sales and other customers as well to introduce new product as has been outlined here time again.
Not rocket science, just hard work as Glenn worked through one oustanding excercise. It’s not constant or conveyor belt repetitive style selling it’s a fresh outlook, customer orientated and exciting for some and very rewarding for you have achieved it.
It’s the difference between “making sales” and someone just buying something from you because they know you stock it.
I had discussion with Mark over years over the volume and GP, and fully support his view that retailer has more control the new lines. The only difference is that Mark focus more on the GP of new lines, I focus more on the volume of new lines.
Steve, from my own experience, suppliers can make you his best friend, or restrict your access due to nearby existing top shops.
Glen, you are correct that solely chase volume over margin can make us dangerously reliant on that product or supplier.
Graeme Day, I have a question for you. Our channel in history, was in the model of make some money from everyone (volume based), and later transfer to precision marketing, and make more money from certain customer groups (GP based).
What do you think of Pinduoduo model?
Sunny,
I am not sure if you want me to answers this or the question is for someone else.
you have answered each person here which inturn will give you your answweer as to what suits your store. Maybe, but I don’t think so the Pinduaduo Model will work as it is based on high turnover market conditions in very low socio economic areas. lower,than we have here in Australia and especially where you are based although you do have very large Asian community.
Basically trying to sell a huge turnover of selected and not mass produced service or consumer based goods, such as Gifts or personal items at huge discount prices (if this is what you are trying to do) is not going to work for you are duplicationg a KMart -Target type of merchandising,
this requires very high volume discount buying ability which single outlets don’t have as well as huge display areas which they also don’t have Dollar shops at 300 sq. metres are the closest to this. There were 4-5 of them at Coolangatta/Tweed heads 10 years ago and te only way to compete with them was to go up market -quality goods reasonably priced with say 50% margin at laest preferrably 60% plus with carefully selected products to match your clientele.
thes should be supported by an excellent range of Cards (not $1 cards on a spinner out the front of the store or next to your best presentation.
look at your best sellers in Greeting Cards for inspiration and buy for that age group.
Glenn really summed it up with his experience in his post of the “suck it and see” as well as perserverence in continually trying new stuff and being prepared to job out your mistakes and move on.
There is no perferct solution except to say that Pinduoduo is not the answer for small operators especially in upmarket suburbs and again not with selective personal items.
I think the history of the channel is not relevant to what retailers need to do today or into the future. Retail has fundamentally changed.
Sunny, what you should do is what you decide is best for you. That is the approach I am taking in my businesses and have done since I started in business in 1981. It’s worked for me so far.
Pinduoduo ‘s Australian version
https://www.temu.com/au