FEATURE 

Newsstand: if you can’t beat it, hone it

Faced with a long term decline in newsstand sales and increasing signs of consumer resistance to price increases, what are US publishers doing to make money? Some are successfully looking at the area of supply management to reduce costs, whilst maintaining sales. The BPA’s Karlene Lukovitz explains.

By Karlene Lukovitz

It’s been many a moon since there was much to celebrate on the US newsstand front. However, it would appear that 2004’s performance, while not causing publishers to dance in the streets, was respectable.

Preliminary estimates from newsstand consultants Harrington Associates (based on data from the International Periodical Distributors Association) project that total 2004 newsstand unit sales were up by under 1%. Being even slightly in the plus column is not to be sniffed at, given that overall newsstand units dropped by 6.5%, to 1.4 billion, in 2003. In addition, it looks like last year’s total newsstand dollars were up by about 2% - again, substantially better than 2003’s $4.5 billion, which represented a loss of 3%.

Still, no one with a firm grip on reality would predict that this is the start of some sudden reversal in the downward newsstand trends of the past several decades. Given the tangled web of factors that determine overall single-copy performance — the economy’s influence on discretionary dollars; the significant impact that even one or two "hot" launches (or lack thereof) can produce; the effects of major news stories (or lack thereof), etc — it is far more likely that these vacillating, uncontrollable events happened to work in publishers’ favour last year.

The longer-term, mega-challenges have not gone away. These include: the need to compete with family, work, the Internet and other media for people’s precious time and dollars; the ever-escalating clout of major supermarket and discount (aka Wal-Mart) chains; rising magazine manufacturing and distribution costs; and shrinking magazine display space.

Since UK publishers share most of these challenges to one degree or another, an update on some recent developments in the US relating to these might be of interest.

Consumer price resistance

Let’s start with costs. If there’s no ready way to significantly increase unit sales, publishers can at least try to improve their margins on the copies that are selling. But this will take real discipline, now that paper costs are on the rise, increasing cost per copy. The average cover price has been rising a bit each year, but there are now signs that some magazines may be hitting a barrier of consumer price resistance. If costs go up, and prices can’t, something’s gotta give.

Fortunately, there is growing evidence that the ancient saw, "Cut the draw, cut the sale" is no longer necessarily true. With the much timelier by-store sales data now available through scanning and services that consolidate retail data, publishers are finding it possible to hone distributions, save significant money, and still maintain sales (or perhaps lose just small numbers of sales).

In addition to wasting publishers’ money without producing incremental sales, flabby distributions damage the magazine category. Retailers are increasingly unwilling to deal with the labour and costs involved in processing huge numbers of returns. In fact, some large chains will no longer take any title that doesn’t have at least a 50% sell-through.

BusinessWeek’s honing results

"It used to be that when magazines tried to cut their draws, it was done with a hatchet approach — and yes, sales generally suffered," observes Will Michalopoulos, who recently moved from being newsstand director for BusinessWeek (BW) North America to being consumer marketing director, retail sales for Ziff Davis Media. "But with today’s data, you can surgically cut the draw and improve your bottom line, without undermining your sales. You take copies out of those lowest-rung stores, and put them in stores where they will sell." At the Direct Marketing Association Circ Day, held in New York in February, Michalopoulos shared BW’s impressive distribution honing results, noting that its basic strategy could be used by any mature magazine.

BW used store-level data to categorize the business into two distinct segments, each with its own goals and action plan. Analyses revealed that 40% of the draw was going to stores where zero or one copy was being sold. These stores represented just 17% of total sales — and had a lowly 11% efficiency. BW pulled copies from specific stores (reducing by 28% the number of outlets in which zero or one copies were being sold) and shifted some of these copies to stores where its competitors were selling well.

The results: BW reduced copies printed per week by over 700,000, for annual cost savings of approximately $400,000. Unit sales have been maintained, while overall sell-through rose by four points.

BW also analyses its in-store promotions on an ROI basis. For example, in one retail chain, BW determined that, if it ceased one of its promotion programs, its net revenue per copy would remain at $2 (the same as with the promotion program) even if its sales were to fall off by as much as 50%. "Promotions produce incremental sales, but we’ve found that those copies almost never pay for themselves," Michalopoulos notes. "It becomes a matter of comparing the net revenue per copy on that source to the net on other types of sources, to determine if the program is worthwhile."