What is the optimum magazine range for your newsagency? This question is more important in 2011 than ever before.
With magazine sales flat, publishers actively pursuing other distribution channels (tablet computers) and with the cost of retail space increasing, newsagents need to carefully consider their space allocation for magazines.
Magazines are vitally important to newsagencies in that the range we carry is, for many of us, our only point of difference. The challenge is that the point of difference comes at a considerable cost.
The poor margin on magazines, the continued gross over supply, the challenging rules around returning unsold stock and the poor business processes of the magazine distributors leave newsagents with a cost for the product category which is higher than for most other items in the store.
The financial and operational terms around magazines is one reason newsagents in shopping centres pay too much rent.
In considering whether to adjust the space allocation for magazines, newsagents need to thoroughly assess the following for their business:
- The return on investment delivered by magazines.
- The return on floorspace for magazines compared to other departments in the business.
- The shopper traffic generated by magazines.
- The efficiency of magazines – what else do you sell to magazine customers?
- How you would use space reclaimed from magazines?
The 2010 model of magazine supply increasing while retail sales are falling is unsustainable. Now is the time for newsagents to consider their space allocation plans for this year.
In my experience, the best way to reduce magazine supply is to reallocate space. Magazine distributors must respond if you advise that your magazine department is not as big as it used to be. In some states, there are channels through which newsagents can pressure the distributor to be compliant.
I would consider 600 titles to be the minimum range necessary in a newsagency to offer a point of difference over a supermarket. This would need around 700 pockets to reasonably display. Of course, there are newsagencies where the minimum range, given their location, should be 1,000 (or even more) titles.
The challenge for the newsagency channel is that if many newsagents do cut magazine range, magazine distributors may look elsewhere (Australia Post?)to keep their trucks full. They are freight companies more than they are magazine specialists. Having full trucks is the central goal of their business plans.
We each need to make the decision on the basis of what works for our business rather out of fear for how a supplier might react.
The space freed could be used for better margin products which are complimentary to existing newsagency product categories. Products like gifts, ink, books, a service centre or toys.
What magazine distributors will rely on is that most newsagents will not re-evaluate their magazine space allocation. These newsagents are happy with not having to take control of this part of their business, risk bringing in stock on a firm sale basis or to refit part of the store for what they will most likely see as risky business. They like the magazine model because they are told what to do and when.
Newsagents who do make a fact-based decision to cut magazine range and floorspace can expect to achieve a higher return for the magazine department as a result. This is good not only for the newsagency but also for magazine distributors and publishers.
Unfortunately, magazine distributors and publishers will not see it this way based on their past inaction on the magazine range and oversupply issues. There will be the usual fights over local titles versus imported titles, specialist titles versus spoiler product from larger publishers and the wringing of hands between the distributors who say they cannot work together to create an efficient title assortment for newsagents.
This is what has happened in the past. It is why newsagents need to take control of their own destiny as our suppliers will not do it for us.
The start of 2011 is the time for newsagents to act on the floorspace allocation in their business. I’d be happy to talk with any newsagents considering this, to look at the data necessary for guiding decisions and to share experiences. I have done this in two of my stores with success.
If I can help in any way I can be reached on 0418 321 338.
Mark
“We each need to make the decision on the basis of what works for our business rather out of fear for how a supplier might react.”
This is a key paragraph for me as Demographic, business location, business size and general type of customer base we have will determine some of the decisions that need to be made.
It may of been a different story if Distributors used Newsagents with POS systems to pay only what they sell, this would alleviate the cash flow burden that Newsagents have, however is 25% GP commission enough now with cost pressures from rent, utilities and shop fitting. The horse has bolted for the Distributors now I think.
The first issue of Girls Inked (Tattoo) mag has a subscription offer for 12 months with a 30% discount. I know what direction Publishes and Distributors are looking too and I do not believe it is Newsagents.
Derek, your point about paying only for what is sold, scanned based trading it is called, is interesting. This has been my preference for years. It would have defined the channel and made all of us – newsagents, distributors and publishers – only focus on selling magazines.
Exactly Mark.
Mark,
We cut our magazine range back to 568 pockets (plus enough co-location spaces for between 17 and 25 different titles) over 3 years ago and still mange to offer a significant point of difference to a supermarket. In this space we manage to turover in excess of $330K per year.
About 10 years ago I was involved in some trials with Woolworths on scan-based trading. Given that this was a strategic objective for both them and Coles back then (and I would imagine others) I would lay odds that this is how they are dealing with magazine distributors today hence no need for returns.
If this is the case, and given that a large number of us are already providing electronic data for the distributors, then the only conclusion one can reasonably draw from the distributors reluctance to go down this path is that it does not, and never will, suit their cash-grabbing mentality. It’s that conclusion that is driving me down the early return / space rationalisation path.
Exactly Jim.
Jarryd- I am no expert however they are very good figures for the number of pockets.
If you had say 1000 pockets would your turnover over be the same? I would personally like to know what your thoughts would be.
I my previous retail experience, paying only for scanned sales was the standard. Magazine distributors will never agree as they are not sales focused. As mark says they are freight companies.
Derek.
We cut this back from 800 odd pockets just over 3 years ago and achieved double digit growth for two years running. We would probably turnover more if we had more pockets (not that we have the space for this). We have a relatively strict KPI of 3 units per month that magazines must meet and this helps us keep a higher than average turnover per pocket. If we had more pockets we would certainly turnover more, but the space would be less efficient.
Thanks Jarryd
It sounded like a silly question but I was curious to see if you thought more would be the same.
Derek
You can also garner sales with a greater Margin from the space you free up.
So in Jarryds case it was a massive win win.
Chris
Yes it is, and he should be congratulated on how he has balanced his business.
The Model is good business, my thinking was if he did have 1000 pockets I did not think his turnover would be much more than the 600 he has now. I am using Hyposthersis of course, my reasoning is being a magazine specialist is very hard to achieve in business today due to overheads and the current distribution model (Cash hungry).
Must use more space for generation of 40 – 50% GP to survive in todays Newsagency climate.
My thoughts only.
I am sure Jarryd would not mind me reminding readeers that Jarryd’s store is quite unique compared to a normal newsagent. His store is a top up supermarket and as such may not be a good comparison for standard newsagent. Having said that, I have hunch that Jarryd’s store may well be a terrific model for the future. In our case we cut from 1600 pockets to 1100 hundred 2 years ago and grew sales by 10%. I can see room to take out 2 x 1200 bays again. This space will be used to stock some other higher margin product.My store does not have the location for Jarryds model (I am surrounded by 3 supermarkets in walking distance)A paper based retail outlet seems to fit well for us. ie. Specialist Mags, cards & gifts, stationery and specialist papers, Art Supplies. We are also dabbling in toys with some success. Our biggest success for 2010 was getting involved with Monte Marte Art Supplies.
The challenge is the supplier engagement. They appear to supply to a budget unless you are big and ugly enough to scare them off. The oversupply data I see for some stores is appalling. Hence my recommendation to do a ‘refit’ and ‘reduce’ magazine space.
Rowan,
Your right. Our station is not comparable to most newsagents. Having said that I would still have reduced magazine space by almost the amount had we stayed in our previous location in a separate store. The space we released has allowed us to get into categories like ink and giftware and expand our stationery and card offerings. Our demographic is also mainly young families so a wide variety of niche titles is not naturally in high demand in our area.
If Publishers and Distributors want my retail footprint, then I WANT BETTER TERMS AND CONDITIONS !
We went from 1400 pockets to 1000, and i too can reduce by a further 200 – 300 without much loss of turnover.
If we lose some turnover then we can balance out the savings on the labour cost.
More and more agents, and supermarkets are reducing magazine space, so Publishers and Distributors TAKE NOTE.
Your days fo an easy buck by loading us up will come to an end unless you engage in meaningful discussion with your greatest retail footprint!
Cheers