Author: Mark Fletcher

We launched a new online business four months ago. We set out to create a sustainable business focusing on one category of product and with our entire marketing spend to be focused online. Four months on, our monthly marketing spend as a ratio of sales is falling nicely, repeat business is growing and new customers are landing on our website each day as a result of effective keyword advertising partnerships. We could not have achieved anywhere near the same result through advertising in more traditional media of newspapers, radio and TV. This is why newspaper publishers are reinventing themselves. It is also why newsagents need to reposition themselves. Our online experience is helping refocus our retail newsagency so that it is more relevent for the over the counter opportunity.

First I noticed it in data from my shop and now I’ve seen it in several newsagencies. Magazine sales are down more than 20% in the special interest category. Special interest magazines cover: buses, woodworking, railways, family history, UFOs, horoscopes and westerns among other interests. These titles account for around 15% of all magazine sales yet they take up around 35% of shelf space. So, there will be a tipping point where the real estate, labour and logistics costs are such that they are eliminated from allocation.

There was a time when these specialist titles were crucial to the success of retail newsagents. Our stores were the only place where such specialised information could be obtained. Of course the Internet has changed all that.

I’m thinking that I’ll be better off cutting some of these titles than have then fade away slowly and cost me more money in the meantime. I could sure use the space to better promote the magazine categories where I’m seeing significant growth.

Australia cannot afford the luxury of 4,600 newsagents carrying such a vast range of specialist magazine titles any more.

At 2 pm today in my shopping mall the government owned PostShop, where more than 70% of floor space is dedicated to Christmas gifts and the like, closed for the day. Small businesses like mine are not allowed to close. Our lease precludes it. The PostShop can close because it’s government owned and an essential service. While I doubt I would want to close, my point is that the management of Australia Post uses its essential service facilities when it wants and ignores them when it wants. Independent businesses do not have that luxury.

The Herald Sun ran a promotion last month – a free Kath and Kim DVD with the paper. They provided newsagents what they thought would be enough stock and told us to take orders if we needed more. Today, more than a month on, we are still waiting for the new stock. This is a free service we provide the publisher and the consumer. The people coming into newsagencies every day asking for the DVD are getting angrier and they are taking it our on newsagents – especially since the Herald Sun reported that additional stock was not available.

Rather than adding value to the masthead this promotion, or the way it has been managed, is damaging the masthead and the reputation of newsagent retailers who are at the coal face. It’s taking some of the shine off the season.

The Kath and Kim DVD promotion is the type of promotion you need to under promise and over deliver.

Spare a thought for small business newsagents in Victoria and South Australia who are being forced to open on Christmas Day to deliver and retail Christmas Day editions of News Corporation product. This is despite News deciding to not publish in New South Wales on Christmas Day and despite some newsagents facing $55.00 an hour in wages for people to work on that day. Thanks to the News contracts newsagents are not in a position to pass on additional Christmas day costs whereas News can charge a holiday loading for advertising. Most newsagents will lose money for their Christmas day efforts.

Newsagents are happy that fairfax has decided to not publish on Christmas Day.

We have a killer magazine loyalty program in our store and which is driving well above average sales growth. It’s also causing problems with sell outs and near sell outs to the extent that customers cannot see the product.

This week is a good example of the problem. Woman’s Day is out, same with Take 5. Despite early please for extra stock we can’t get it. We ordered Woman’s Day stock Monday evening and were told Tuesday that they were out of stock. Yet there is excess stock in supermarkets around my shop – so much stock that I am certain they will return this.

My magazine customers want to purchase from me because of the Magazine Club Card. Some will miss Woman’s Day this week because they don’t want to pay the price ast Coles or Safeway.

This is where there needs to be a mechanism to move stock 100 metres or so from Coles or Safeway to my stock so I can satisfy my customers and so the publishers can get sales they might otherwise miss.

Our magazine distribution system is too inflexible and the silo supply chain approach does not allow cross silo support. Publishers and small retailers like me are the losers.

Lottery sales account for considerable traffic in Australian newsagencies. While this traffic is not as efficient as I would like – 60% of lottery sales include no other products – it is important core traffic and revenue for our businesses.

It seems odd to me that the lottery commissions do not work together on seasons. For example, take Christmas. People like giving lottery tickets and scratch tickets as small gifts – you know how it is, an opportunity to dream what if?

I’d like to be able to sell scratch tickets which can be redeemed interstate and regular games which can be redeemed interstate. Making this available would increase sales. I know from my own newsagency that possible lottery sales as gifts are lost when customers realise that product sold in one state cannot be redeemed in another.

This is the net cash flow month by month for one newsagency for the three magazine distributors (Gotch, Network and NDD) and two main magazine publishers. We have separated these publishers out because including their data with that of their respective distributors skews the results.

The summary and magazine title level reports which feed data to this graph run to 80 pages. For each month for each magazine there are four columns of data: sales this month; stock expenses this month (last month’s invoices less last month’s returns; operational expenses this month (reflecting the cost of real estate and labour at the title level); and, net – which is graphed. Supporting this is magazine sell through data – so there are many angles from which the situation can be analysed at the newsagent level.

The graph and associated reports are produced by software created by my company.

I have analysed cash flow using this new approach for two newsagencies with another eight to be considered this week. I suspect that many more than this will need to be analysed for reasonable conclusions to be reached.

This project began because too many newsagents were reporting being in a cash crisis. Good newsagents of long standing. While they suspected and complained about magazines, none had hard evidence. Sell through rates alone do not provide the full picture – at least not the picture their respective bank managers required. At least one of these newsagents now has evidence crucial to making a case of attention from their suppliers.

While most businesses can manage their cash because of the operational controls they have, this graph demonstrates the considerable swings month to month experienced by newsagents. Newsagents have inadequate control over supply and return and therefore over the cash impact. These huge swings make it challenging for newsagents to manage their cash well and they are heavily penalised by some companies when late – setting in chain a domino effect which can take months to recover from. The graph also demonstrates a considerable negative cash flow – to an extent that many newsagents have to borrow to cover cash requirements.

I am hopeful that once the report is finessed we will be able to sit with the magazine distributors and discuss the cash flow implications of current arrangements and consider more equitable arrangements which take into account labour and real estate costs for low selling and long shelf life products as this is where the most cash damage is done.

After an extremely busy time at my newsagency today I noticed ten A5 booklets on the floor promoting magazine subscriptions. Art first I thought a marketer had come in and spread brochures from a competitor about. Some investigation revealed that these 15 page brochures are in Woman’s Day today. So while we’re chasing hared for retail sales, our top selling magazine is chasing just as hard to pull retail sales out of our shop.

While I understand the need for publishers to pursue whatever sale and distribution model is right for their business, I am disappointed that I am not able to offer discounted subscriptions (with fair compensation). The right offer would help me boost sales, help the publisher achieve more subscriptions and give customers a good over the counter Christmas offer. This is a good example where partnership would work.

I cleaned up the 15 brochures and another 20 from the magazine rack – happy that they fell out of the magazines when customers picked up product for purchase.

Washington Post chairman Don Graham has been reported as saying for the first time this week that the future of news is on the Internet, not in print newspapers. Graham’s keynote address for UBS Bank’s annual Global Media Conference focused on how the Internet is dramatically changing the way he runs his company.

Courtesy of washingtonian.com, here are some key quotes from Graham:

“Our Web competitors, Google in particular, are coming up with clever new products which are designed to make our life harder,” Graham said. “Young readers are less inclined to read us than I would have guessed.”

“The business is changing faster than I expected,”

“This year for the first time I have come to believe that we will be able to tell you about certain subjects better on the Internet than we will be able to in print,”

I am certain that newspaper publishers in Australia hold similar thoughts. They must pursue the revenue model which is best for their business. This will impact their over the counter and home delivery product. The speed of impact will depends on many local factors. But we are only talking about time here.

I would like to see publishers engage in dialogue with newsagents – not their industry associations who will filter and confuse the message – direct with newsagents so that they (newsagents) might develop appropriate business plans.

While newspapers and newspaper traffic is important to Australia’s 4,600 newsagents, unless there is a dramatic reengineering of the product, it faces becoming non core in terms of traffic and revenue generating for newsagents).

The newsagent channel in Australia was created by publishers. It would be respectful for them to engage with their child one more time to discuss what looks to be a challenging and confusing future. Too many newsagents have no knowledge of the impact of the Internet on newspapers overseas.

The impact of the Internet on newspapers presents an opportunity for newsagents. While I accept there will be a downside, I see more upside as we re-invent and re-invigorate our businesses to a model for the future. And while this will have a place for newspapers, it will also have a place for other traffic generating products and services which ensure relevance of the locally owned operation into the future.