I moved house this week and the real estate business, Belle Property, gave me a copy of Belle magazine as part of their welcome gift hamper. It makes sense given their name. The magazine reinforced their brand.
The experience reminded me that local businesses can buy magazines for all sorts of reasons.
Local newsagents are well positioned to leverage these opportunities.
Magazines are selling well in newsagencies in recent weeks. Home and living, crossword, crafts, special interest and food magazines are all doing well.
Comparing 2020 to 2019 and then 2019 to 2018 for the category for a few newsagencies, in this dataset, 2020 is performing very well. The average unit sales growth I am seeing is 7%.
Of course, the growth could be at the cost of other retail outlets, such as those in shopping centres, or even outside the newsagency channel. The growth could actually be net growth for magazines overall, which would be appreciated by retailers and publishers.
Talking with some retailers, there is anecdotal evidence of magazines being bought as Christmas gifts. While this is not unusual, it does feel, to some, that it is more the case this year than in the past.
I hope that what I am seeing from the small dataset is a trend for the channel more widely. It would be encouraging to see magazines end 2020 on a high note after the wild ride that 2020 has been.
Galah sounds like an interesting niche new magazine. I found a story about it at the Brisbane Times site. This, from the creator, Annabelle Hickson:
“I want to reflect all the amazing, smart, interesting people I would see when I looked around me but I also want it to be a bridge between the country and the city, to educate city people that these are not second rate lives.”
Regional media did not escape the impact of bushfires which ravaged much of the rural landscape at the beginning of the year. News Corp Australia and Australian Community Media, the two biggest newspaper outlets in rural areas slashed costs dramatically and closed the print editions of some publications due to sharp falls in advertising spend.
At the same time, Australia’s magazine industry was on its knees. The country’s biggest magazine publisher Bauer (now known as Are Media) closed titles such as Elle, Harper’s Bazaar NW and OK!, but already their demise has prompted the creation of new titles with alternative business models.
Hickson is determined to create her own green shoots and with the coronavirus pandemic prompting some to think about relocating from the city, she kicked her plans into gear. Galah, which has more than 140 pages, will run three times a year and be sold in boutique stores and newsagents across Australia.
This, from the Chairman’s address at last weeks (Nov. 26) Ovato AGM indicates that the company is restructuring in such a way that the financial responsibility to a chunk of employees who will lose employment is shifted to the Australian taxpayers.
In my opinion, it sucks. But … I don’t have the time to lobby on this. If I did, I’d say that in my opinion the trajectory of the company was set well before Covid, that those running the company should have known for years that restructuring was inevitable and that, for these reasons, the shareholders in the company should be responsible for funding employee entitlements, and, if they can’t, the whole business should collapse.
The restructure appears to be movements specifically designed to shift the liability for employee entitlements to taxpayers, and retaining, for shareholders, a smaller and, I guess, more profitable business.
But, hey, these are just my opinions. I am no expert.
I am, however, a long-suffering customer of the Ovato business, a business with inadequate infrastructure and inadequate strategic planning. It is my experience with these that feed into my wondering why Ovato is making the moves it is making and whether the reasons put forward as to justification for the restructure stand up.
Now, to be clear, I respect the folks working at Ovato. In my experience, they are professional and committee to Ovato customers. My issue is that the company does not provide them the resources they need to deliver the level of service we (customers) need.
But, more broadly on the restructure, I am curious as to the motives and long term plans of Are Media in all this.
I think it is important that employee entitlements are protected. However, I do not think companies should be able to shift things around through various structures controlled by essentially the same body for the purpose of avoiding the obligation of fully paying employee entitlements.
To me, what is happening at Ovato, the transfer of employee entitlement responsibility from the company to the taxpayer, could be considered through the lease of social responsibility. each time I see Ovato in the news, on social media and in emails touting business, there will be the reminder of how much taxpayers invested in remnants of the business so that the remaining business itself could trade.
Down here in small business land, most of us are not structured so that we can slice and dice and manoeuvre such that we keep the good bits and have others fund the funeral of the bad bits. I appreciate that sounds dramatic. Maybe I am missing someone but it is how it reads to this non accountant.
Newsagents continue to be treated poorly by Ovato., We do not have control over our level of indebtedness to the company, we carry considerable costs for wrong decisions by the company, we make bugger all margin on their products. Yet, we do it because magazines are a core category. That we do it, and they know we will, allows them to by inefficient and maybe that is a factor in getting them to the point of needing the restructure.
Who knows.
What I do know from the Chairman’s own words is that Ovato plans to restructure such that us taxpayers pay money towards the costs that will be a consequence of the restructure.
We are actively promoting the latest issue of Better Homes and Gardens, which comes with the free bake mould for baubles.
It’s a terrific premium gift and we know these premium gifts work this time of the year. Our promotion is on social media as well as in-store where tactical placement for impulse purchase is the key.
This issue will easily sell out.
From the ABC:
Crown Resorts banned from opening new Sydney casino at Barangaroo next month
Crown Resorts has been banned from opening its new Sydney casino next month, after NSW’s gambling regulator said it was “not comfortable” with the company operating the multi-billion-dollar venue at Barangaroo.
More, here.
A major announcement impacting Ovato released this afternoon with the company announcing a rights issue to be backed by mercury Capital, owners of Are media (formerly Bauer).
Click here for the creditors’ scheme of arrangement document as lodged with the ASX.
This line from the release release is telling: The plan would provide a viable future for Ovato and prevent possible insolvency.
Ovato announces plans for $40 million rights issue and restructure
Ovato Limited, one of Australia’s largest print and distribution businesses, today announced a plan for a $40 million rights issue and restructure aimed at saving 900 jobs in the Australian manufacturing industry.
The plan would provide a viable future for Ovato and prevent possible insolvency. The plan includes 300 redundancies primarily through the closure of the Clayton printing plant in Melbourne.
The majority Ovato shareholder, the Hannan family, and a Mercury Capital entity Are Media Pty Limited have agreed to underwrite $35 million of the rights issue.
The Scheme is subject to completion of the rights issue and approval by creditors and the Supreme Court of NSW.
The Managing Director of Ovato, Mr Kevin Slaven, said:
“Print-based industries have been significantly affected in recent years and the COVID-19 pandemic has increased the pain this year for many parts of our group.
“Our industry has gone about as far as it can with mergers and consolidations in the last five years. Ovato has suffered losses for several years because of the costs of measures to meet the reduced demand for printed communications. This restructure allows for the company to get back to profitability and a sustainable future.
“Unfortunately, it means that over 300 employees will lose their jobs. However, the restructure will save 900 other jobs because the company would be facing an uncertain future without the restructure we are proposing.
“The proposed new equity, underwritten by two significant players in the printing and media sectors, together with the indicative support of our major suppliers and financiers to restructure our balance sheet, provides the foundation for a viable, sustainable and exciting future for our Group.
“Critical to the implementation of the Scheme, there will be no impact on our customers or all other suppliers outside of the Scheme, other than the positive impact of providing the Company with a stronger balance sheet and a viable, sustainable future. Our view, and the view of the independent expert, is that without this Scheme, the outlook for the whole group is unpalatable. We have searched for alternative solutions to the massive disruption in our industry, but they were unworkable.
“The Scheme will reduce our cost base, make us more sustainable and provide customers, suppliers and the 900 remaining staff certainty around a viable and profitable future.”
Ovato, which operates in Australia and New Zealand with print, distribution and marketing services. Ovato made a net loss after tax of $108.8 million last financial year, on revenue of $539.3 million. Creditors will meet on 30 November. All Ovato businesses outside of the Australian print operations are unaffected by the restructure.
UPDATE: November 13, 2020:
My view is that we need to consider what is happening with Ovato in the context of my recent post: What if the most important stream of revenue for your business was cut off overnight?. Okay, this may not be overnight, and it relies on a truckload of assumption … but what if Mercury get into a position of significant influence over Ovato? What if they saw a brighter future for top selling magazines through Australia Post, Supermarkets and Convenience, with newsagents way down the line?
I know the folks at Ovato will say that is hot a consideration. I accept that in their offices it would not be a consideration. But, what if Mercury gained a position of influence. It is what Mercury wants that would matter more.
Ovato is two main businesses print and distribution. I suspect that given the pivot of supermarkets and mass retail away from catalogues and flyers the print business is challenges. I suspect the magazine distribution part of distribution is doing well. However, that business is currently tied to the print business.
While I am no accountant or business strategy expert, what if the magazine distribution part of the business was spun out of a Mercury influenced Ovato, what would that look like for Mercury, their Are media business and for magazine distribution.
This is all speculation.
I have read a chunk of the Project Walker document. While it is considerable, 624 pages, it does not address how this may ultimately play out. It certainly speaks to the immediate need. Does it speak to what actually matters to us.
Ovato has a cash challenge brought on by decay within its core businesses and accelerated by Covid. In the print part of the business especially it appears the company did not have a solid plan b in the event of the lost of an important revenue stream.
What was lodged with the ASX yesterday represents an early step. The next few weeks will be interesting for all involved with the business.
From a newsagent perspective, I am keen to hear what Mercury Capital has to say, in particular about the future of the magazine distribution side of the Ovato business. Had Are media not pursured the Australia Post trial I would be less concerned.
The publisher of the AFL Record has consistently promoted newsagents on social media through Covid. They have directly promoted our channel as the place to purchase their popular title.
I wish more magazine publishers would promote our channel direct directly and consistently.
Kudos SEN for your support of our small business channel with posts like this on twitter:
Your complete recap of @Richmond_FC’s glorious season. Available now at newsagents & through the club for just $10. @1116sen @AFLNation @craighutchy @hashbrowne @MichaelCWillson pic.twitter.com/nZ7ebHesxi
— AFL Record (@AFLrecord) October 30, 2020
And posts like this on Facebook:
Someone broke into the storage cage near our Southland newsagency in Victoria, when no one was around and before we open, cut open bundles of magazines delivered to us and stole almost all of our delivery that was due on sale yesterday morning.
We have the thief on camera doing this and removing a considerable value of stock.
We have reported the matter to the police and provided the security footage.
It’s clear from the evidence what they were doing and what they were looking for.
Given that the volume stock taken would only be of value to a retailer, we are considering putting the evidence in the public domain. It’s something we are discussing with the police.
I hope the police identify and catch the person involved. We will do everything possible to support them.
In another move against print media in supermarkets, the UK Kroger group has removed free newspapers and magazines from its stores. Check out this report from earlier this year.
Kroger will be removing free newspapers from all of its stores, effective Oct. 15. Locally, those publications include The Memphis Flyer, Focus, Memphis Parent, Memphis Health & Fitness, and Best Times.
“We are removing the publication racks from our stores because more publications continue to shift to digital formats, resulting in less customers using the products,” said Teresa Dickerson, corporate affairs manager of Kroger’s Delta division.
Even so, the move may hurt local news organizations.
“It’s a huge blow to Health and Fitness because we move 20,000 magazines a month out of there,” said Amy Goode, the publisher of Health and Fitness.
Free publications rely on a paid advertising business model: Advertisers buy ads with certain assurances that their marketing messages will reach a certain number of customers. This is why having a reliable, wide-ranging distribution point such as Kroger is so important.
I say it is another blow because of moves announced earlier about a branch of Aldi getting out of newspapers.
The last few months have been particularly stressful for some newsagents in Western Australia due to problems with magazine delivery.
The issue is not magazines at all on the on-sale day. Sometimes, they come the next day and sometimes two days late.
This is a relatively new problem, something that has happened in the last few months.
Newsagents impacted are frustrated as their calls for help, they say, fell on deaf ears for many weeks. They think the issue has come about because of more cost-cutting.
I am writing about this today to draw attention to the problem, to ensure publishers know of the break in the magazine distribution system that is affecting some in Western Australia.
The good news is that Ovato advised a couple of days ago that they think the issue is resolved. We will see what Monday and the days that follow bring.
I hope it is resolved as the newsagents involved would appreciate less stress.
On November 2, 2020, Are Media (formerly Bauer) commences a trial placing 10 of their top magazine titles with 28 Australia Post retail outlets. Woman’s Day, New Idea, Take 5, That’s Life, Better Homes and Gardens, Australian Women’s Weekly, Home Beautiful, AWW lifestyle title, Puzzler – Woman’s Day, Puzzler – AWW are the titles in the trial from Are Media along with a Bluey title.
The only need for this trial is to test whether Australia Post retail outlets offer a viable alternative to the newsagency channel.
Here is a short video from me this morning with some of my views on the trial.
Looking at magazine sales in areas not in lockdown in Australia I am seeing sales volumes on track with the pre-Covid trajectory.
While there are some differences between product categories, the majority are on track for decline. Weeklies are especially vulnerable. I expect that now they are all under the one roof, there will soon be significant shake-up as the trajectory from newsagency sales, if reflected across all retail, would be unhealthy for ad prospects.
As has been the case for years, crosswords are strong as are special interest titles. Both of these categories are differentiators for the newsagents who actively engage with them.
While I hope to have the benchmark analysis completed early next week, the magazine situation is interesting because of the planned expansion into Australia Post and the ownership change of Pacific and then of Bauer.
As shown in this tweet to 36,000 followers:
Issue 109 is on sale now!
🚀Available from all good supermarkets and newsagents
🚀Get it on our app: https://t.co/DotBndry92
🚀Get our print & digital offers: https://t.co/umjl7sbQX7
🚀Retweet and follow us by 30 October to #win a copy pic.twitter.com/lHJYF5Xyro— All About Space (@spaceanswers) October 12, 2020
The publisher of the official Bathurst program has been promoting newsagents on social media, which is terrific to see…
The 2020 Supercheap Auto Bathurst 1000 official program is on sale in newsagents now! The print and digital editions are also available from our online store. Details here: https://t.co/rEq7104XZf #VASC #Bathurst1000 pic.twitter.com/kGweFVXTw8
— SupercarXtra Magazine (@SupercarXtra) October 9, 2020
How much space do you suggest I allocate for magazines in the newsagency? This question came to me last week from someone establishing a new newsagency.
My standard answer today is that you need between 300 and 500 titles to offer a reasonable assortment today. The more accurate answer will depend on your situation. In regional locations, for example, the number would be higher, around 700.
In capital city shopping centre locations, like this photo that I took in one of my Westfield businesses Thursday last week, we are on the low side for range.
In this business, however, this space does well. It is rare we are asked for. title we don’t have. The sales declines in the store are not outside the channel average.
This store used to have three times as many titled two years ago. That space has been given over to higher GP lines such as gifts and collectibles, better traffic drivers than magazines.
Magazines do have their place and having a reasonable range to satisfy local demand is key.
The other question people ask is display. I like the fun face approach we have in this Westfield store. It is easily shopped. The full cover gets to sell the title. Titles can be ‘browsed’ without being picked up, which matters today.
I like placement on the back wall as browsing does not interrupt other shoppers, and it acts as a beacon – it can be seen from outside the shop.
Anyone establishing a new newsagency needs to make sure they do have space allocated for magazines and appropriate shelving for pitching product. While the margin is paltry, it is a category that has some value for the shingle.
Ovato wrote newsagents with an update on magazines…
Firstly we are pleased that only a handful of stores are still closed due to the impact of COVID-19 and the general feedback is that newsagents have performed well during this period considering the varying circumstances in each state, region and location.
Magazine sales in newsagents over the last 6 months from the XchangeIT data indicates there has been a significant slowdown in the overall decline year on year from -11% to -5%. With people moving around less they are relying on their local businesses within their suburb to do their shopping. There is little doubt this is contributing to strong magazine sales results, especially in local shopping centres and regional outlets. We have posted a short article on our social media outlets to re enforce the popularity of magazines over this period if you are interested.
https://ovato.com.au/ContentHub/Article/Consumers-turn-to-magazines-for-inspiration-148
Magazine categories showing strong growth in newsagents during COVID-19 are below and we will be sending an updated Magchart in Oct highlighting the top selling titles in each category to see if you have any ranging gaps.
Children +33%
Craft +16%
Food and Drink +36%
Home Interest +23%
Puzzles +19%Although magazine sales have performed well the advertising market continues to be challenging and some publishers, both locally and internationally have had to make the difficult decision to close or reduce frequency of their magazines. Also given the closure of international travel in March we also had to halt the importing of air-freight magazines. We don’t expect these 200 magazines to return until July 2021 at the earliest.
We are also currently seeing an impact in reduced supply of our UK and US sea freighted titles. Initially we had good levels of supply due to the delay in shipping times, but in recent months we are seeing a reduction in supply levels as many international publishers suspended titles or reduced supply through March to June. This was most evident in the UK as most high streets and shopping centres were closed for an extended period and publishers hibernated titles.
Although we are now seeing a return to normal supply levels ongoing industrial action at Port Botany in Sydney is impacting our delivery schedules and we are now experiencing delays of up to 3 weeks on receiving containers and this is impacting us replenishing new titles to you. We are currently reacting to these changes and unloading some containers down in Melbourne to help improve supply levels through October.
From Mediaweek today, Are Media CEO Brendan Hill on a move that will harm newsagents.
Hill revealed that the business has been working on expanding its retail partnerships. “We have just done a deal with Australia Post to trial magazines after all the foot traffic increase from people picking up parcels. We have also done a deal with Aldi to sell the kids’ magazine Bluey. It’s the first time Aldi has sold a magazine and hopefully it might be the start of further opportunities with them.”
Here’s what we know, magazine sales are in decline. While there was a Covid bump, it is shown to be over in states where there are minimal movement restrictions. Last year, unit sales of magazines over the counter in newsagencies were down around 12%. We know from Ovato’s annual report that the decline was considerable across all magazine retailers.
Outside of Covid, based on current basket data, magazine sales will decline this year too.
Newsagents were essential, remained open all through, serving magazine customers and publishers. Many remained open and losing money. The timing of Are Media bringing on yet more retail outlets is disappointing.
Newsagents have put up with years of minimal change to magazine cover prices, meaning that the real GP contribution from magazines has been falling even more than the decline in unit sales.
But that has not stopped the experts at Are Media from thinking magazines should be in more locations. This is a move that will harm newsagents no matter how the Are Media people try and spin it. It does not make sense to me.
Thanks for supporting local small business retailers in Australia Are Media!
Now we know where we stand.
Is it reasonable to wonder if the Australia Post move is the company considering a move away from our channel. I ask because we know that magazine distributor Ovato wants fewer accounts, not more.
Retail newsagent who stock the 40 years of State of Origin magazine from News Corp. will make 7.5% of the cover price for each copy sold.
Shame on News Corp. for this.
For a company that shouts daily from its print and digital platforms on many matters including telling others what to do and how to lead, here they are giving newsagents not even a living wage to support this title.
Retail newsagents will make 37.12 cents from each copy sold. For this compensation, they will have to:
37.12 cents a copy for all of this investment by newsagents!
A few newsagents I have spoken with expect they could sell 10 or 12 copies of the magazine. For that they will receive around $4.00. They also said that handling everything necessary that is associated with the title will cost around a man-hour, maybe more.
$4.00 an hour is appalling. The current, non Covid, unemployment benefit paid by the federal government calculates out at around $4.87 an hour. With this 40 years of State of Origin magazine from News Corp., the company is paying less than the unemployment rate.
That’s how much News Corp. values small business newsagents, that’s how much the company cares for them.
On the from cover of The Courier Mail, News Corp. claims we’re for you. They are not, though, they are certainly not for newsagents and all who rely on a newsagency business for income.
So, how much should newsagents be paid to offer this title? The gross profit from the 40 years of State of Origin magazine should be at least 45%. While that would not make it profitable for newsagents, it would at least demonstrate respect for newsagents and their investment of labour and retail space in supporting the title.
The current low margin arrangement for print product continues poor and disrespectful treatment of newsagents by publishers. Newsagents putting up with this treatment allow it to continue.
Newsagents only make money from what they sell. Publishers make money in a range of ways from a print title.
Publishers will complain that they don’t make enough to give newsagents a better margin. That is not the fault of newsagents. Newsagents have fixed labour and space costs. They increase yearly. Publishers need to respect this if they want the channel to continue. They current approach to compensation is a factor in some newsagents quitting the channel.
Click here to access the investor presentation slide deck from Ovato’s FY2019/20 report. Click here for the full year results. Unfortunately, the reports on the ASX website do not provide much detail related to our channel.
Through my POS software company I get to connect with suppliers across 11 specialty retail channels. From what I see, the cost borne by newsagents to access electronic invoices is higher than any other channel. It is a commercial disadvantage for newsagents in my view.
As an owner of newsagencies since February 1996, as the owner of a software company serving newsagents since 1981 and as the owner of a software company serving other retail channels …
XchangeIT roots date back 30 years ago as a different product, quite removed from what we have today. While the world has moved on, XchangeIT has not. It does not serve newsagents well.
Now, before folks at XchangeIT clutch their chests crestfallen by what I have written, this is not personal. The world has changed. EDI has changed. What is imposed on newsagents through the XchangeIT, supplier controlled, platform is out of date, it makes newsagents less competitive.
These days, we should be spending less and less time on back office tasks, especially for meagre margin products such as magazines.
