Author: Mark Fletcher

Newsagents arrived at their businesses in the early hours of this morning to, in some cases, two and three times the usual Friday magazine delivery. Like fuel goes up on the weekend and on holidays, the quantity of magazines supplied to newsagents increases on the last Friday of the month. Magazines delivered today have to be paid for in full in three weeks. Any which do not sell (usually between 50% and 80% of what is supplied) are returned four weeks later and a credit provided (often) a month after that.

Today’s oversupply is seen by many newsagents as a grab for cash. Magazine distributors will say they have no control over when publishers release titles. It does not matter who is right about the reasons, the fact is that the last Friday of the month sucks a ton of cash out of newsagencies and newsagents are the losers.

The titles of concern are those well out of the top 200 sellers. They are titles supermarkets, convenience stores and petrol outlets refuse to sell, titles which newsagents are forced to carry because of the out of date magazine supply model which the government did not fix when it deregulated newspaper and magazine distribution in 1999.

The oversupply today drains cash and resources from small businesses newsagents. It makes it harder for newsagents to actively promote magazines in the top 200. Publishers like ACP, Pacific, Time, FPC and Emap suffer because of the junk newsagents have been overloaded with.

A barcode. The issues of the Barbie magazine (published by Emap and distributed by Gordon and Gotch) and Windows XP magazine (published by Derwent Howard and distributed by Network) which were released Wednesday have the same barcode.

On June 7 I wrote to the Communications Minister, Small Business Minister complaining about the increasing competition aimed at newsagents by Government owned Australia Post stores. A copy of the letter can be found here. The Small Business Minister has responded with a brief letter handballing the matter to the Communications Minister and reminding me that Australia Post must act commercially. My complaint was specific and legitimate, drawing attention of the reader to three key clauses in the Act under which Australia Post operates:

I refer to my previous correspondence on the matter of Australia Post operating outside the provisions of Sections 14, 15 and 16 of the Australian Postal Corporation Act 1989.

I draw your attention to the June Relax…at Tax time with Australia Post catalogue published by Australia Post and ask the government to consider whether the sale of these items promoted within that catalogue is within the provisions of the ACT

In the letter I list sixteen items I consider fall outside the provisions of the Act.

Government owned retail outlets are taking revenue from small businesses like mine. They have given over 80% of their retail space to carrying stationery and other items which newsagents have sold for more than 140 years. Australia Post has been in this space for ten or so years and they have leveraged their government protected Post brand into excellent retail sales.

Newsagents are losing revenue and the government is not taking any notice. Their ownership of Australia Post and permission of it to compete with newsagents in this way makes a mockery of their small business policy.

The government line that Australia Post needs to operate to ensure its commercial viability really says that the government puts its ownership of these retail businesses ahead of the needs of small business taxpayers.

That they do not even have the guts to discuss and or debate policy with the channel their Australia Post business targets every day demonstrates a profound lack of interest in mum and dad businesses in Australia.

We were offered some product from China, really cheap stuff. Some items a little off the usual newsagency range. and others a good fit. After months of saying no we took the plunge. In just two weeks we have all but sold out. With a GP of 80% and a sell out in two weeks it makes one wonder about whether worrying whether products fit my view of a newsagency matters. Of course, the temptation is to take the China product drug again and again after that. But where does one stop? I suspect when it is too late. My feeling is that I will resist the temptation to turn my newsagency in to a $2 shop and use this imported product at selected times in the year to lure new customers and reward regulars with a good deal.

Many newsagents would not agree with me. They are pursuing more and more cheap product from China. This dilutes what newsagencies are and devalues the network.

If too many front their shops with cheap product from China we will nose interest to suppliers as the premium channel we are today for greeting cards, magazines, newspapers and lotteries. Suppliers like us for our focus and an addiction to cheap imported product puts that at risk.

When asked, Tattersalls says that pursuing online lotteries sales is not a key focus. They tell their Accredited Representatives that their bricks and mortar network is their key focus. This email from Tattersalls last week to registered online players suggests otherwise. It illustrates their preference for promoting online purchase over the local Tattersall’s Outlet.

I accept that Tattersalls needs to promote the purchase model which best suits their share price. I would prefer more open disclosure to their outlets so that they, too, may plan their business development accordingly.

Consider this for a business practice. A magazine title is distributed to newsagents and copies not sold are returned for a credit. Some weeks or months later, the same copies which were returned (or new copies printed) are reissued, even if the sales of the original issue were low. This happens regularly to newsagents. Occasionally sales are such that a reissue is warranted. Usually this is not the case. Reissue titles cost newsagents cash, real-estate and time. They are another barrier to newsagents spending time on the growth titles in their businesses. I saw an example of a reissue today where the newsagents initially received 20 of a title and returned 15. Now, a few months later, the same issue is back with 25 copies. Where is the logic in that?

Our online classified start up, Find It, has been attracting strong interest from newsagents with many already agreements in advance of our launch later this year. Many more have booked for launch events commencing next week. Newsagents are important to our business model as we see an opportunity to leverage their footprint to extend the reach of an online business.

Two or three of the 100+ calls from newsagents have concerned me. They say that every supplier is out to rip them off at some point so we must be no different. Our pitch is that they can become a Find It newsagent for no cost and they can opt out at any time. They see this easy approach as demanding a catch. While this response is in the minority, I had not expected it at all. One person I spoke with today says they prefer the sale or return over supply under supply tough trading terms approach of a magazine distributor because it’s what they have grown up with. They worry about Find It because “you want me to take initiative, at least with magazines I just put them there and if they sell they sell”.

While I am confident that Find It will deliver to newsagents new traffic and new revenue from a unique online classifieds model, the launch process is uncovering some newsagents who have lost the enthusiasm for building a business.

I own Tower Systems, software provider to over 1,300 newsagents. I also own one of those newsagencies. For more than 20 years my company, and other major IT companies in the industry, have been consulted about newspaper delivery fee changes well in advance of any change – to ensure newsagents can cope with the change. For the first time in almost 20 years Fairfax has released new delivery fees without consultation. The new fee structure operates outside the agreed IT standards. Either the software companies have to change their software to accommodate the Fairfax surprise or newsagents have to significantly bend their systems to cope. However, by bending their systems it means they use the system in a way that other data flowing from those systems back to Fairfax is unusable.

We are changing our software and providing an update without cost to our newsagent clients. We have taken developers off other work to do this. The total cost to us will be between $5,000 and $10,000. Given the lack of contact from Fairfax on this I see no point in asking for a contribution toward the expense they have imposed upon us.

The Australian Newsagents’ Federation announced the Fairfax delivery fee changes as they were involved in consultation about the matter for some time prior. It is a pity that they, too, did not consider that any newspaper home delivery fee change needs to work with well established IT standards.

If this were a change being imposed by Fairfax on a major trading partner then Fairfax would have approached the matter differently. It is disappointing that Fairfax and the ANF have been ignorant of the operational needs of newsagents.

It is worth noting that the folks at News are well organised when it comes to interfacing with newsagent software systems. Just a few months ago they took us into their confidence on changes before they were announced to ensure that existing systems work. This is how such changes should be handled.

Tattersalls is a regular advertiser on the Herald Sun website. If you click on the Tattersalls ad you are taken to their lotteries online service. Newspapers and lotteries are by far the biggest traffic generators for newsagents and newsagents have returned the favour with more than 100 years of faithful low cost service. Tattersalls grew in Victoria on the back of newspaper driven traffic to newsagencies. Newspapers are repeating history in redirecting offline lottery sales to the Tattersalls online business.

Gordon and Gotch has surprised many newsagents with a letter this week advising that they need to pay Gotch by the 20th of the month.

Historically, Gotch has been flexible when it comes to payment, acknowledging the challenges of cash flow for newsagents who have to pay for all stock received even though often half or more received and paid for by newsagents does not sell and is sent back the next month for a credit. Newsagents have been grateful for this consideration.

The letter from Gotch this week represents a change to the terms implied by Gotch’s own trading practices. Many newsagents will see this as an attempt to alter accepted business terms.

When you remove the popular Pacific Magazine titles (New Idea, That’s Life, Famous and Better Homes and Gardens) delivered by Gotch, the Gotch returns rate jumps to above 60%. We know from the magazine cash flow research that Gotch supplied (non Pacific Magazines) product is cash flow negative in 50% of newsagencies. Given this, it is unreasonable that Gotch takes away payment flexibility it has offered newsagents for years since it would force newsagents to pay for product they will loose money on.

At least Gotch ought to have approached the change to terms with greater sensitivity and at best they should not change their practices.

Newsagents make 25% from magazines. They lose around 3% in theft, 11% in wages and between 8% and 11% in rent. The numbers do not add up. This is why the pain of any change in trading terms will be significant.