Author: Mark Fletcher

When rent is 13% of your turnover, if you own a newsagency, you’re in trouble. Given that newspapers and magazines (60% of what you sell) have a fixed price and GP (between 20% and 25%) the challenge is to sell better margin product and increase sales overall. Consider the 25% for a moment. 13% goes in rent, 11% in wages, between 3% and 5% in theft and 3% to 6% in operational overheads. No one factor creates the challenge but unless you get your rent right your foundation is weak. This has been on my mind as we absorb another 4% rise. This is on top of the 17% last year. Traffic in the centre is flat at best yet we’re being asked to pay more. The price of most of what we sell (newspapers and magazines) has not kept pace with inflation over our ten years owning the business. Wages have risen at a rate well above inflation. So, we’re being hit on several fronts.

This is why newsagents, especially in shopping centres, are challenged. Operating alone, it is difficult to address the rent, range and management issues. At least by getting together through groups like newsXpress we’re able to leverage numbers in our favour in dealing with landlords and suppliers.

Based on sales performance we returned $8,000 worth of magazine stock last month which was not due for return at that time. We had given the titles a good shot keeping the product on the shelves would have held us back from better displaying more successful product including product from the distributor in question.

The distributor disallowed our credit and said we would get the refund next month. They have the stock and the paperwork and our cash. The reaction from one of their call centre people was that “early returns are a privilege”. It took three levels of escalation and some pleading on our part to get the $8,000 credit allowed this month.

This happens all the time to newsagents. Payment for oversupply and a huge battle to get a refund for underperforming stock returned early.

No wonder newsagents complain about magazine cash flow.

Newsagents are awash with traffic from punters buying tickets in the various lottery jackpots. The Tuesday game, OzLotto Super 7’s is often jackpots now that the game has bee ‘tweaked’ and sales grow with each jackpot. Powerball on a Thursday regularly jackpots. This makes Tuesdays and Thursdays stronger traffic days than they were in the past for newsagents – something which publishers, and magazine publishers in particular, could leverage. In the case of my shop, for example, our customer traffic was up 100% yesterday on an average Thursday because of the Powerball jackpot of $15 million. That didn’t go off so next Thursday we have a $22 million jackpot. While I have plenty of product to to up-sell with, maybe a fresh women’s weekly would do well on a Thursday – leveraging this increased traffic.

The Trading Post is a recent addition to the stacks of free papers available for anyone at Qantas Clubs. While I understand that this could be a promotional outlet for the title, it’s frustrating to see such a giveaway.

NSW newsagents are facing losing lottery business to supermarkets, pubs and clubs if my information is correct. It’s been suggested to me that supermarkets, especially, stand a good chance of getting lottery business which until now has been the almost exclusive domain of small business newsagents. Newsagents rely on lottery traffic to sell other items. Lottery purchases are part of the habitual newsagent visit each chip away at that risks consumers forgetting about newsagents and purchasing their newspaper, magazine, greeting card, stationery and cigarettes elsewhere.

The Government owned New South Wales Lotteries needs to consider any move away from newsagents very carefully. Newsagents have built the lottery brand and it is only through their efforts and exceptional customer service that lotteries is as strong as it is. To then take a chunk of that business and gift it to supermarkets and others would be a huge blow against small business. What government would do that?

I launched this loyalty program in 2004. Customers who purchase 11 magazines in eight weeks can choose a magazine up to the value of $10.00 free of charge. The average magazine purchase is $4.50 and the average redemption $5.00. This equates to a 10% discount.

Over at Coles, if you purchase $49.50 worth of magazines, you accrue around 10 FlyBys points. FlyBys points can be redeemed for gift vouchers. You need 13,500 points for a $100 voucher. That equals 675 points for my free $5.00 magazine. So, I need to spend $3,375.00 to get a free $5.00 magazine.

Which deal is better? The Magazine Club Card I offer in my small business newsagency and has been rolled out across newsXpress stores or the FlyBys offer from Coles?

State Governments ought to regulate to force businesses to prominently publish in store and on receipts a present value for each point accrued.

Small businesses, like mine, ought to promote the benefit of their loyalty campaigns by directly comparing the reward per dollar with the likes of FlyBys. While occasional bonus offerings make FlyBys points more attractive, this is not happening enough. Most small business loyalty programs I have seen reward sooner and with more value than their big business counterparts.

Newsagents deliver newspapers and magazines to many other retail outlets. These outlets have long been called sub-agents. For a 50% share of gross profit newsagents deliver the stock, carry the account and refill stock as needed. It has been an important part of the newsagent business model and a low cost way of getting magazines into more outlets. In 2004 ACP delivered a blow to newsagents by going direct to many national brand petrol and convenience outlets. Much was made at the time of the fact that their main magazine publishing rival, Pacific, was not going direct.

I’ve been told by several people now (a newsagent and two people on the petrol side) that Pacific is a week away from going direct. If true, this will be a bigger blow to newsagents than the ACP move in that newsagents have drawn considerable strength from Pacific and their support for many years. The emotional impact will be considerable.

I don’t begrudge the ACP decision in 2004, nor the Pacific decision (if my sources prove to be correct). Their masters, Coles, Woolworths and national petrol chains are powerful and demanding. They want full commission on the sale of a magazine and if you are told that your national weekly title will be off the shelf in a matter of days unless you agree to a direct account then you’d make the decision. Coles and Woolworths are large, fat and hungry and they don’t care how many independent small businesses they push to extinction in their pusuit of a higher share price.

ACP copped a huge bagging from newsagents and some commentators for their move in 2004. It will be interesting to see the reaction of newsagents over the next few days to Pacific. To their credit, ACP delayed the financial impact for six months and put a compensation package on the table to mitigate the impact of the change. Pacific will need to at least be as generous as ACP.

Newsagencies in Australia were created by publishers in the 1880s. Our businesses are complex and finely balanced. The chipping away which has occurred, especially since the Howard Government driven deregulation in 1999, has harmed the model and made business challenging. The biggest challenge is that newsagents are disadvantaged by magazine supply arrangements which hark back to pre-deregulation. The problem is with the titles newsagent competitors refuse to carry – titles outside the top 100 sellers. An average newsagency has 1,000 titles – 65% of which are cash-flow negative. A smarter move by all involved in the 1999 deregulation would have been to negotiate new magazine supply arrangements.

If Pacific does go direct to major petrol and convenience outlets, magazine distributors must address the issue of supply arrangements for titles outside the top 100. Newsagents cannot sustain the continued challenge to their business model and sustain inequitable supply arrangements for unprofitable titles.

Some reading this will say boo hoo to newsagents. If you’re one of them. pick a newsagent, any newsagent and take the time to find out about their business. Look through their financial data. Then decide if you would invest your own money in the channel?

Newsagencies are unique and socially important businesses. They provide a personal community connection which only chemists come close to. To lose them would play into the hands of Coles and Woolworths and one day, down the track, you would realise what has been lost.

Further to my earlier report about the industrial action by some magazine delivery drivers this week, I note the action was apparently due to rising fuel costs and refusal for them to pass on these costs.

Also, I have heard that some outlets affected seem to have been treated differently than others. For example, one retailer received replacement stock by courier while others nearby had to wait almost 24 hours. In another case, a newsagent, even though on a round affected by the action, reportedly received their stock on time.

In another case, the same driver delivers for two courier companies to the one area. One courier company has the contract for newsagents and the other for major outlets such as supermarkets and convenience chains. This is why newsagents were without magazines in some places while their competitors were fully stocked. It begs the question of why publishers did not use the alternative company to get newsagents covered.

Newsagents cannot afford to be without Take 5, That’s Life or Australian Women’s Weekly while their major competitors have stock. The industrial action this week has hurt many small businesses.

Industrial action by delivery drivers stopped magazines getting to many newsagents yesterday. Many newsagents in many shopping centres were without current stock while competitor supermarkets had stock – magazines are delivered to supermarkets in different runs and were far less affected. The harm of this action is that in newsagencies more than 50% of sales of weekly titles occur on the day of issue. This means that newsagents will have lost hundreds of dollars in sales for Take 5, That’s Life. I don’t care about the grievance the drivers have with their employer, it is appalling that they hurt small business newsagents and give a free kick to supermarkets.

I would expect a knock on effect from the action since future supply figures are based on sales data and the fall this week will not be understood by computer models unless someone intervenes and quarantine data.