Author: Mark Fletcher

The UK Home Office and the National Federation of Retail Newsagents have reached agreement that Zoo, FHM and Loaded should be placed on according to this report at M&C News. It will be interesting to see if self regulation works for these titles.

Here in Australia, Zoo, People, Picture, FHM and Ralph are regularly browsed by boys under sixteen and it’s a challenge for newsagents to police. While it’s not our job to be censor, that boys can so openly browse the material is offensive to other customers. Explode is another title posing challenges for newsagents. I hear of complaints each week from customers offended about it and while from a publisher perspective any controversy is considered good for sales, the reality is that sales are not good. Any title upsetting customers have to be profitable to remain in public view.

As I have documented here recently, newsagents are being hurt by a magazine supply model which is inappropriate for the more competitive environment of today. The cash-flow data shows that 65% of all magazines are cash-flow negative. This drain impacts on the ability of newsagents to properly service top performing titles. So, it is in the interests of publishers of popular titles to address the issue and over the coming days I will discuss here several recommendations. The first relates to how newsagents manage magazines themselves. Rather than trying to be all things to all titles, newsagents need to pursue low hanging fruit, that is, top selling titles.

Here is a list of things I’d have retail newsagents do to better leverage magazines for profit:

1. Focus more on your top 50 titles and less on the rest. More growth will come from top selling magazines.

2. At your high traffic magazine area promote, left to right, with a full column each: Woman’s day, New Idea, NW, Famous, TV Week, Aust Woman’s Weekly. (Change two columns to Take 5 and That’s Life on Wednesday)

3. Use the lottery counter, create a second display for women’s weeklies. Display a full covers.

4. On the wall above newspapers install a acrylic pocket to promote weekly titles for the first two days of their on sale period only.

5. Create a magazine of the week area at the lotteries counter. Separate to anything any other marketing program drives. On days 1 and 2 of the on sale for weeklies promote them and on day 1 of major monthlies promote them (AWW, Better Homes, Family Circle).

6. Create a feature magazine display space near newspapers – use this to promote your range, craft one week, dogs another week and so on.

7. If a title is to be in more than one pocket only ever do this vertically. Do not display horizontally. If you are short of room only double up titles (displaying part of the masthead) in the middle section of a tier.

8. Anchor categories with well known titles. i.e. put Wheels and Motor in the top0 3 or 4 pockets of two columns in the cars section; Your Garden, Burkes Backyard and Gardening Australia in the top 3 positions (at least) of three columns in gardening. I call this signposting. Choose titles with common words. For example, four Golf magazines will look better in a waterfall display than spread through sport. The mastheads must scream the signpost word.

10. Once your magazines are out on a Monday, Wednesday and Friday, step outside the shop and look at the message, make sure it is consistent. Then walk in and make sure that it is consistent at each key place in the shop.

Many newsagents do this work already. Their only compensation is 25% of cover price. Newsagents receive no retail display allowance or any other compensation for providing additional coverage to a masthead. I’d like to see newsagents paid bonuses for sales growth. This would treat them an business people rather than process workers.

I have been contacted by several magazine executives who claim I am unfairly attacking their businesses in this series on cash-flow. The reality is that I am reporting what the data shows and nothing can colour that. Magazine distributors created and manage an unfair model. Publishers support the model.

Below is a graph showing the sales decay for the major women’s weekly magazines in Australia as recorded over a common month in 10 newsagencies.

Consumers shop early in newsagencies compared to other retail outlets (petrol, convenience, supermarket) based on comparative data I have seen.

The newsagent decay data demonstrates the importance to newsagents of having weekly titles on display on day one of the on sale period. There is no value to newsagents in promoting any of the weekly titles beyond day three of the on sale period.

Comparing this data with data from the same stores from a year ago underscores the importance of day one with 75% of sales growth in 2005 compared to 2004 was achieved on day one.

In my own shops we manage to leverage the decay to our advantage. We actively promote weekly titles in three key traffic positions on days one and two and roll back for the rest of the week to a single position. Whereas we used to actively promote weeklies all week, we have freed up real-estate for other uses later in the week. The sales results speak for themselves.

Early in the week is when we can reach the low hanging fruit and this is what newsagents should focus on.

The following table ranks the cash-flow impact of nine titles for each of six newsagents in my research into the cash-flow impact of magazines. Positions 1 through 5 are the worst performing titles by the cash-flow measure. I have included positions 20, 30, 40 and 50 to illustrate the distance between these and the worst titles.

This cash-flow research has uncovered the bottom performing titles as the problem. While newsagents complain about the impact of competition t the popular title end of the marketplace, these titles are strongly cash-flow positive. It is at the end of the marketplace which newsagent competitors do not touch where the cash-flow problems occur.

In the six case study newsagencies, the annual cash-flow of the bottom 50 titles ranges from $-3,739.00 for the rural newsagency to $-16,655.00 for one of the suburban newsagencies.

The bottom 50 titles account for between 18% and 20% of all negative cash flow. Put another way, eliminating the bottom 50 titles in the case study newsagencies would cut negative cash-flow by between 18% and 20%.
Given the way newsagencies are valued, a cash-flow savings of $4,000 conservatively equates to a $12,000 increase in the sale price sought for a newsagency by between $12,000 and $60,000.

There are some titles which the data suggests ought to be eliminated altogether and others which will need to be considered on a store by store basis. Network wide title elimination cold be undertaken by analysing consumer satisfaction within categories. Newsagents carry too many magazines in the Wedding, Hair, Computer and Car categories. Titles cold be eliminated without consumers noticing. Newsagents would save millions in cash-flow terms over a year.

These numbers are an indictment against the magazine supply model and the companies in control of that supply model. Newsagents cannot sustain such losses from a small number of titles.

Newsagents need to consider cutting the bottom 50 titles from their product mix. Doing this would not impact their range point of difference. Magazine distributors have an obligation to work with newsagents on this. I would be interested to hear what the ACCC would say if a magazine distributor continued to supply product in a situation where a newsagent has proven that continued supply creates a loss situation for them.

Magazines are important to newsagents, especially the range they carry which no other retail outlet carries. However, equity has to return to magazine supply arrangements and I content this begins with elimination of the bottom 50 titles from each shop or at least supply on terms which are equitable than those imposed by distributors today.

Considering a full year of data from six representative case study newsagencies I have been researching, on average, 31% of all titles supplied over the year analysed were found to be cash-flow positive, 1% are cash-flow neutral and 68% cash are flow negative.

The following table breaks down this data by each of the case study newsagencies and indicates the associated cash-flow (operational profit and/or loss). The difference between most of the stores, in percentage terms, is not as great as one might have expected.

An immediate question is why would newsagents tolerate such a situation? The data suggests that concentrating only on the top performing titles would be the most logical course of action. Of course, this is common practice in supermarkets, petrol outlets, convenience stores and other retail outlets selling newspapers. They do not take anything more than 10% of the range of magazines in a newsagency and focus only on the cash-flow positive titles.

These non-newsagency magazine outlets usurp profits from top performing titles without sharing the burden of the bottom performing titles, thereby reducing a newsagent’s ability to offset the cost of loss-making titles. This leaves successful departments of newsagencies to cover the losses incurred in the magazine department.

I doubt that any newsagent has calculated the full cash-flow impact of magazines, certainly not to the extent of this study. For the first time, my research includes the cost of real-estate and the cost of magazine-specific labour to reach an accurate cash-flow impact position for each title.

So, the answer to the question why would newsagents tolerate such a situation is: because they never knew the extent of the cash-flow problem for their magazine department as it has always been hidden by other successful departments and by the complexity of the magazine supply model.

Newsagents cannot sustain the current magazine supply arrangements for titles outside the top performers.