Author: Mark Fletcher

Our eight month old online ink and toner business, Inkfast, did ten times the whole stationery revenue of our decades old shopping centre newsagency in May. This is better than we expected. We created Inkfast to experiment and the learnings have been significant. Online you’ll find better margin business – certainly in the ink and toner category. People are browsing for a smaller range than you get asked about in your shop. Online you connect with more corporate and government customers than you get walking through the doors of your newsagency. By specialising on ink, toner and a few related products we can build better product knowledge and better pricing whereas in the general stationery department in a newsagency the stock turn is lower, customer theft higher and, as a result, your price offering less competitive.

Eight months in my feeling is that newsagents need to urgently re-jig their stationery offering. Newsagents bemoan the competition from Big W, K-Mart, Officeworks and Australia Post. The bigger challenge is from the unseen – online businesses. I’d bet that Officeworks online is getting close to 50% of online stationery business. This is traffic which newsagents just don’t see – traffic which they are not competing to attract.

This is their challenge – to get online and fast and in a smart way.

Newsagents have no one but themselves to blame for missing the online opportunity.

It was announced yesterday that newsagents can increase delivery fees charged for home delivery of Fairfax newspapers. However, the announcement was more spin than news:

– While the fee increase takes effect in NSW next month, Victorian newsagents will have to wait a year.

– Fairfax rejected a claim by newsagents for permission to charge a fuel levy.

– Fairfax will not pay any increase to newsagents who pay outside their credit terms.

– Fairfax rejected a claim by newsagents for compensation of late newspapers.

– Fairfax rejected a claim by newsagents that very heavy newspapers being delivered in two parts are classed as two papers for fee purposes.

– Fairfax refused to increase handling fees paid to retain newsagents for assembling Fairfax newspapers despite labour costs increasing in some of these outlets by more than 25% over the last two years.

By my reckoning newsagents lost 85% of their log of claims.

It’s unfortunate that newsagents are shackled by newspaper publishers – they have no control over wages and operational costs nor do they control the cover price for newspapers or the delivery fee charged. In fact, publishers discount home delivery offers and expect newsagents to take a commission cut as a result of their promotional campaign. Who would go for a business model like that?

Australia is regarded by many publishers as having the best newspaper home delivery model in the world. This is, in part, due to the thankless efforts of newsagents delivering day in day out for ever shrinking fees. The increase announced by Fairfax yesterday still leaves newsagents worse off than they were 20 years ago.

I’m told that Fairfax representatives at the annual newsagent conference last week made it very clear that they want newsagents to restructure their businesses. Restructuring in this context means newsagents selling their home delivery and distribution businesses to others. The benefits for newspaper publishers are fewer accounts, fewer delivery points and specialised newspaper distribution businesses. In the current situation a newsagency is part retail, part home delivery and part distribution. Some at the conference have told me that Fairfax even said additional commission could be on the table for achieving restructuring.

My understanding is that News Ltd is supportive of such a restructuring but is publicly less demanding on newsagents than Fairfax.

The publishers must be getting frustrated since they have been pursuing restructuring for several years. Newsagents have been slow to get to the table.

I am in favour of restructuring, freeing retail specialists to focus on retail and distribution specialists to focus on distribution. Newsagents need to move on this or risk the publishers taking control.

The challenge with restructuring newsagent businesses is how the exit from one side of the business is managed. Newsagents have, for the most part, paid premium goodwill – anything from 3 to 5 times net earnings where ‘net earnings’ is a figure including net profit plus owner wages and a bunch of ad backs. In some restructuring scenarios I have seen play out recently the seller has no choice but to take a hit on their investment.

The Federal Government, ACCC, newspaper publishers and newsagent associations – all parties to the 1999 deregulation of newspaper distribution – could/should have foreseen the restructuring and resulting financial hit of today. If newsagents were farmers or miners the government would have put a compensation package in place to ease the burden of change. Because newsagents are not farmers or miners their families will take the hit.

It is not too late for the Federal Government or the ACCC to revisit their role in the hardship being felt by small business newsagents today. Nor is it too late for Fairfax or News Ltd to reconsider how they might assist those under pressure to restructure their businesses.

Newsagencies with a lottery agency will do stellar business today thanks to the $27 million superdraw. The smart operators leverage the 50% – 200% traffic boost into good sales of magazines, newspapers and greeting cards. We need better co-ordination between newsagents and their non-lottery suppliers to make better use of the superdraw opportunities. A special newspaper or magazine deal built around the super draw could have delivered a perfect win win. In my shop we hired a spruiker for four hours, created some specials of our own and were run off our feet.

A good example of a deal would have been an offer today for WHO. The new issue was out yesterday so it’s fresh on the shelves. Buy a ticket of a certain value and get WHO for, say, half off. Reintroduce people to the title on the back of super draw traffic. The same would work for newspapers.

The opportunities for leveraging this traffic are endless. The next opportunity is Tuesday next week. OzLotto is $10 million and that means Tuesday traffic will be up 25% in many stores.

I’ve been talking with Gary Larsen of Larsen’s News and Bookshop in Innisfail, far north Queensland. Innisfail was devastated by Cyclone Larry. Gary uses my newsagency point of sale software. Comparing May 2006 with May 2005 one can see the impact of Cyclone Larry on this small business. On the surface you see amazing sales growth. 25% up overall. Magazines up 31%; stationery 13%; school text books 94%; drinks 41%. Categories which are down include cigarettes -7%; gifts -45%; cards -16%; newspapers – 4%. Gary and his family are long term Innisfail people. They have not price gouged as a result of Larry even though their operational costs and business challenges are up as a result. Just getting a stationery shipment in has been a significant challenge. The service they have been providing in Innisfail in the wake of Larry has been invaluable and more power to them for achieving growth in such challenging circumstances.

They get my vote for Newsagent of the Year.

Newsagents in NSW are putting up a fight to stop clubs from being allowed to sell lottery products. My understanding is that the NSW newsagents association (NANA) has made robust representations to the NSW Minister for Small Business, David Campbell, and that he gave the delegation a fair hearing.

Newsagents rely on lottery traffic to support the sale of other products such as newspapers, magazines and greeting cards. Ten years and more ago lotteries played a lesser role since newspapers and magazines were sold in fewer outlets. Now, with deregulation, newsagents in NSW need the lotteries point of difference to maintain a point of difference.

This is a big issue for newsagents as losing anything more than 10% of lottery traffic would challenge the viability of some businesses.

One could argue that change is inevitable and if a move to clubs better serves consumers so be it. On the other hand, newsagents sell many items for low margin on the basis of the range. To lose such a key item as lotteries would affect the rest of the items they carry and publishers and consumers rely on newsagents offering low cost distribution services.

The UK Office of Fair Trading has announced the release of a new draft proposal for newspaper and magazine distribution arrangements in the UK. The draft opinion indicates that the OFT is not prepared to back down on plans to change newspaper and magazine distribution – this after indicating earlier this year that they would re-think their earlier announcement to shake-up arrangements.

MediaWeek demonstrates lazy reporting in its page two story this week about the Australian Newsagents Federation. What should be a story about newsagents is a story promoting ANF CEO (and former publisher executive) Rayma Creswell.

MediaWeek says Rayma took over the ANF several years ago. Rayma was employed fifteen months ago.

MediaWeek says Rayma “has just been on a national road show visiting members in all major population centres”. This is not true. Rayma has done a tour of NSW/ACT city and regional centres. These meetings were used by Rayma (rightly) to promote the ANF cause and (unfortunately) attack the state newsagent association (NANA) and any newsagent who dared ask her a difficult question.

MediaWeek says that “the challenges to retailers (newsagents) continues to be the growth of supermarkets…” While one could have this perspective, I suggest it is not shared by newsagents. The biggest challenge newsagents face is the supply of magazines outside the top 200 titles on terms which are not equitable. Newsagent sales of top selling titles are growing. Supermarkets have had these titles for years so why Rayma or the ANF would have concerns now is odd. It is with titles outside the top 200 that newsagents have higher real-estate and labour costs. These titles have a sell through rate of 50% or less in many cases. Call any newsagent in the country and I am sure that they will say the magazine supply model is the biggest challenge.

MediaWeek also says that newsagents have long complained about publishers selling subscriptions in their magazines. Rayma was (last I checked) a Director of Luna media, the publisher of Cosmos. Every ANF press release ought to declare this interest. Cosmos engages in this subscription strategy. It is among the worst performing titles in newsagencies by the cash-flow contribution measure.

It seems to me that MediaWeek has been fed a Rayma press release and run with it as a new item. The item does newsagents a disservice.

Many newsagents are complaining today about hefty invoices from Gordon and Gotch for magazines. It’s the 30th and What Gotch has supplied today makes it on to the May statement. Newsagents have not ordered this product – it has been scaled out by Gotch. Most of the titles delivered today will have sell through rates of between 35% and 50%. That is, more than half the stock supplied today will be returned by newsagents in a month or two at their cost. Newsagents will get the credit for returned stock a month later.

So, today’s oversupply only serves to suck cash out from newsagent accounts for use by Gotch for a few months.

Not one newsagent competitor (Coles, Woolworths, 7-Eleven, BP, Shell, Mobil) has to put up with this.

The magazine supply model for these titles hurts small business newsagents and those employed by them.