At what point are newspapers not profitable

Talking to a newsagent yesterday, more days than not they sell 2 copies of a daily newspaper. Allowing for labour, retail space and other costs, you have to wonder why bother with this level of loss making.

The numbers for retailers will vary based on retail occupancy cost. The question for everyone days to be: at what point is a newspaper not worth caring in the shop?

This is a critical strategic question that newsagents are grappling with.

The core economic challenge of low-velocity staples, like newspapers

The scenario outlined is a classic example of a product line’s viability erosion. When a product is sold, its profitability isn’t just the sticker price minus the wholesale cost. A more accurate calculation involves:

1. Direct costs: The wholesale price of the newspaper.
2. Allocated overhead:
   • Occupancy cost: The retail space is a business’s most valuable asset. That newspaper stand or shelf space occupies square footage that has a specific cost per day. If it’s in a prime location (like the front of the store), its opportunity cost is even higher.
   • Labour costs: This is often overlooked. It includes the time spent receiving the delivery, setting up the display, handling the transaction, and, critically for newspapers, managing the complex and time-consuming returns process for unsold copies.
   • Capital cost: The money used to purchase the stock (even for just a day) is capital that could be used elsewhere.

When sales volumes drop to such low levels, the gross profit from those two sales (which is typically minimal on newspapers) is almost certainly eclipsed by the daily allocated costs. This turns a traditional staple product into a consistent financial drain.

The strategic question: why bother?

If it’s a clear loss-maker, the decision to continue stocking the product moves from a purely financial one to a strategic one. Retailers often continue for several complex, and increasingly debatable, reasons:

• As a “Destination Driver”: The primary historical justification. The newspaper was a “destination” product, an item that drove guaranteed daily foot traffic. The business model relied on this customer coming in for their paper and also purchasing a high-margin greeting card, a magazine, or a lottery ticket. The newspaper was a loss-leader that generated profitable, ancillary sales.
• Customer habit and loyalty: A small-business retailer, especially one embedded in a local community, builds long-term relationships. There may be a small cohort of elderly or long-time customers who expect the paper. The retailer may choose to absorb the loss simply to retain the loyalty of these patrons, fearing that if they go elsewhere for their paper, they will also move their other, more profitable purchases.
• Brand identity: For a business named “XYZ Newsagency,” there is a powerful brand-identity component. Removing newspapers can feel like a fundamental betrayal of the business’s name and purpose.

The tipping point: when is it not worth carrying?

This is the central question, and the answer is different for every retailer. The decision to delete a product line like newspapers is reached when the strategic justifications no longer outweigh the financial losses.

This tipping point often arrives when:

1. The opportunity cost is quantified: The retailer calculates that the same physical space could be dedicated to a product with a better sales velocity and a higher margin (e.g., gifts, collectibles, coffee, and more), and the potential profit from that new line is greater than the total profit from the customers who buy the newspaper.
2. The “Destination Driver” Fails: The retailer observes that the newspaper customer is no longer buying those ancillary products. They are simply buying the low-margin paper and leaving. At this point, the product is no longer driving traffic; it is simply serving traffic at a loss.
3. Labour costs become untenable: The time spent managing the administrative burden of returns and distribution becomes so significant that it physically pulls staff away from more profitable activities, such as customer service, merchandising, or managing online sales.
4. The customer base dwindles: Eventually, the small number of loyal customers who demand the product either moves away, stops purchasing, or transitions to digital, at which point the retailer is absorbing a loss for almost no tangible benefit.

The question for each retailer is no longer How do I sell more newspapers? but How much am I paying to keep this product line, and is the benefit it provides in foot traffic and loyalty still worth that price?

In more newsagencies than not these days newspapers are loss-making for the retailer.

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Mark Fletcher founded newsagency software company Tower Systems and is the CEO of newsXpress, a marketing group serving innovative newsagents keen to evolve their businesses for a bright future. You can reach him on mark@newsxpress.com.au or 0418 321 338.