Newsstand Squeeze Play
With a generally flat or declining newsstand market for magazines, publishers continue to turn to optimizing the retail channel for sales efficiencies. A long history of pushing product into the market coupled with the difficult distribution logistics of moving product to and around the store level is making progress slow. Relief, however, may be forthcoming;or not;as Costco, poised to launch 50-pocket units in some 370 stores, is being watched with more than a pinch of hope.
It’s no secret that the celebrity bubble has been carrying the newsstand. Retail sales of audited publications in the first half of 2005 (ABC’s Fas-Fax report for second-half 2005 had not been released as of this writing) were flat. Baird Davis reported in Circulation Management in August that unit sales were up .2 percent to 474 million and retail revenue was down .1 percent to $1.6 billion, continuing a several-year trend. Celebrity titles are the wrinkle in this otherwise ho-hum performance: "It appears the market has entered a phase in which a few titles can have an inordinate impact on aggregate sales," wrote Davis.
Indeed, four titles had a pocket-clearing impact on overall sales;People Weekly, US Weekly, In Touch and Life & Style. Combined, the four titles accounted for $295 million in retail revenue;18 percent of total revenue, according to Davis who based his analysis on first-half 2005 ABC Fas-Fax and BPA Consumer Trac data. Subtract those four and a gloomier picture appears. Newsstand stalwarts women’s-service titles, for example, fell a combined 22 percent, says Davis.
In response, some publishers are turning toward money saving tactics by improving distribution and sales efficiencies. "It’s not easy when for over 35 years you’ve been pounding magazines into the marketplace," said David Algire, vice president Pegasus Sales, the distribution arm of Reader’s Digest Association, at the February DMA Circ Day event. "We have to reduce our draws. We push copies through the system. We’re guilty of ratebase pressures and a low barrier of entry into the market."
Comag Marketing Group vice president of client marketing Mike Herrington said at the event that there are 100 million copies that are in a zero to .1 percent sale per issue range. "That’s 100 million copies that aren’t selling and the handling cost is a big issue."
For his part, Algire says Pegasus has reduced Reader’s Digest’s draw by ten percent over the last year, with more to come as he works with another 10-15 titles. "It’s really almost a balancing act," he later told Folio:. "You want to have the proper draw in the marketplace to leverage the sales percentage for that title. If you’re able to reduce the distribution that’s not selling, that literally falls to the bottom line. It’s beneficial all the way through the channel."
But reducing the draw is only part of the solution. Inventory at the store level has not been most efficiently handled, but that’s beginning to change. Carol Kloster, executive vice president at magazine distributor Source Interlink, said at the Circ Day event that her company is "currently figuring out how to get more field reps into stores more days of the week." More field reps;Source Interlink currently has about 3,500 reps;means lower return rates, but Kloster said the company has yet to figure out a cost-effective way to add more to its ranks.
"Publishers are getting pressure that there’s too much product out there. The big thing right now is subs have gone down for ten years and retailers are looking for more service and return rates have risen and distribution costs have gone up. It’s almost an impossible squeeze situation," said Kloster.
Costco to the Rescue?
The impact that big-box discount stores such as Costco and BJs have on supermarkets may be lessening as Costco rolled out its newsstand units in February. The 50-pocket units will be displayed in approximately 370 outlets.
"I’ve heard Costco is expecting three copies a week per pocket," says periodical distribution tracker Harrington Associates’ John Harrington, who also edits The New Single Copy newsletter. "Outside of weeklies, monthlies are sharing pockets, so there will be more than 50 titles displayed. And it’s not a check-out fixture."
The big question, however, says Harrington, is what kind of impact the Costco sales will have on overall newsstand performance. "I don’t think there’s any doubt that there will be good numbers in those stores. So will they generate additional sales, recover sales, or just move sales around?"