Shattering illusions

Alekhine, the world chess champion, once sat down to play a stranger in a Paris café and immediately handicapped himself by taking one of his castles off the board.

"But you don’t know me, so why do you think you can beat me without a castle," said the innocent.

The unrecognised world champion replied: "If I couldn’t, I would already know you."

Getting acquainted

There was an element of that contest at MagSell 2007 when Tom Fender, director of HIM, the retail consultancy, and something of a grand master on the very latest in consumer behaviour went on the attack in the opening speech of the conference.

He was very well known to most of the leading retail and manufacturing companies in the UK, who respect HIM’s knowledge of "the moment of truth" – the moment in the shop when a purchase is – or is not - made.

Over the years, HIM has accumulated data on the behaviour of more than 15 million consumers and also become something of a specialist in the continuing rise of the convenience store.

Fender has however remained a virtual unknown in one important industry that is totally dependent on selling its wares to the general public – magazine publishing.

"We really are broad but we don’t work on a continuous basis with any magazine company. Interestingly enough we do work with two newspaper groups," said Fender.

The HIM executive’s approach was neither arrogant nor bombastic. But, rather like Alekhine and the Paris unknown, the fact that the assembled ranks of magazine publishers, distributors and retailers did not know Fender became increasingly like an accusation as his presentation continued.

For fairly obvious reasons, the HIM executive confessed he in turn knew little about magazines – except for two things.

When he checked out the criticisms he was about to make at MagSell with some of his retail contacts - they said his observations were not critical enough.

And recently when he went into WH Smiths at Waterloo station to buy Running magazine, he couldn’t find it, partly because of the confusion of the display, and left empty handed.

Lost sales

"Not many magazine purchases are life and death and anyway there is a 40% failure rate in consumers being able to buy the things they want. More often than not, the product is in stock but is not visible or accessible. How is the signage, how is the merchandising?" asked Fender.

"The number one priority (with consumers) is product availability. Price is not the number one, or two or three in any retail channel we work in. Consumers are getting critical and harsh. You may get a second chance but not a third," the executive warned.

There were many other home, if not harsh, truths for the magazine industry.

Retail space in convenience stores is coming under increasing pressure as new categories such as juice, coffee and food emerge, most with considerably higher profit margins than magazines.

A typical convenience store will have three metres of magazines space for about 400 titles with around the same space for up to 120 types of soft drink. Yet 3% of people buy magazines, with profit margins of 22 to 25%, while 30% of shoppers buy soft drinks which have 50% profit margins.

"Why should retailers continue with magazines?" inquired Fender.

HIM routinely polls retailers with anything from 20 to 3,000 stores on everything from category development to partnership and merchandising skills. According to the consultancy, the magazine industry is consistently amongst the lowest scores.

The data also shows that those who buy magazines tend also to buy confectionary and vice versa, so why are the two products not put next to each other.

"From the publishing point of view, you should be talking to Nestle, Rowntree, Cadburys or Mars. By putting the products together, you could get a great uplift in sales for both categories," suggested Fender.

The MagSell audience was also asked why, when newspapers were sold outside 6,500 petrol stations and through secondary sites such as Starbucks, there were no magazines to be seen in such venues.

As far as retailers were concerned, the answer seemed to be - no particular reason. The conversation with publishers simply hadn’t happened.

The indictment rolled on.

Just about every drink, food and consumer product manufacturer have been getting up to speed with the Shop Scan Save system which allows special offers in the form of bar codes to be transmitted to mobile phones - bar codes which are then presented at the till.

"No magazines have signed up or even approached the company responsible to find out more," said Fender.

HIM has also done work with 5,500 customers in pubs and 27% say they would be willing to buy a newspaper or magazine there - a finding underlined by the fact that the same percentage of respondents are alone when they go into a pub.

"Why not magazines in coffee shops or pubs. There may be restrictions with wholesalers, but just let me say Mars never tries to restrict the sale of Mars bars," Fender argued.

"If you realise that your category is no different to any other in the minds of retailers and consumers then I think you are in a very exciting place," he promised.

Potentially exciting developments could include theme weeks which take the emphasis away from price, the sale of magazine gift subscriptions in convenience stores for desperate last-minute shoppers, mainly men, and discounting – a very serious retail trend largely ignored by magazines.

Some things to consider

As the MagSell audience started to look thoughtful and take extensive notes, the HIM director finished with a flurry of questions capable of keeping the magazine industry occupied for a week or two.

The challenges included:

* Did the industry know the value of the magazine customer to retail outlets and the extent to which magazines drove footfall and spending?
* What was the core range of magazines and did it vary by region and time of day?
* Was the industry adopting a retail focus able to promote magazines above other categories given that there were anything from 50 to 70 other categories?
* And what about the worst-case scenario? – delisting by stores. Was the industry ready with rebuttal arguments?

Afterwards, Tom Fender acknowledged that it might have come as "a rude awakening" to some in the industry that it was more likely to be a case of magazines having to justify their space on shelves rather than having any realistic hope of winning more.

It was not too late to act. The key was to take a "partnership approach" like Coca Cola, Pepsi or Walkers Crisps, and understand what magazines can bring to the table, what consumers want and what is happening in retail.

"They can then very easily present a strong case for why magazines should be retained and actually there should be a huge number of opportunities for growth," says Fender.

The News on the Wharf experience

His tough presentation represented music to the ears of at least one delegate – Peter Wagg, managing director of News on the Wharf, which runs seven outlets in London’s Canary Wharf.

"I thought at last someone is banging the drum with me. It’s not a drum solo any more," says Wagg who first argued in 1993 that every till should have EPOS systems. Only then would you get the right magazine in the right place at the right quantity at the right time.

In fact, since then Wagg has been championing SBR - sales-based replenishing – because only then could you get away from a push down supply in favour of a pull through supply chain.

Since 1998, when Menzies took over as News on the Wharf’s magazine wholesaler, the company has been sending in its sales data.

Wagg’s stores have been receiving their magazines on a combination of net sales distribution – supply based on previous month’s averages - plus fulfilment, basically monitoring sales and sending more if you are about to run out.

Then this year, Menzies started providing some very useful information. Wagg got to know what magazines he would have received under the original computerised allocation system. For the first time he was able to compare his EPOS-based working methods with the standard allocation system and the outcome was clear.

The Wagg way of doing business emerged as an unambiguous winner.

It produced a 3.5% increase in net sales, an 11% increase in availability from 84% to 95%, and this was achieved with just under 2,000 fewer copies delivered.

Wagg believes the results would have been even better but for a mix-up involving data from two of the stores.

He now believes that "just maybe" the magazine industry is about to start catching up at last with modern electronic methods of fulfilment.

"It’s only because Tesco decided they wanted to do it, so the industry moved. It’s not because I have been banging the drum for 14 years," says Wagg who was himself visibly moved at MagSell when he was the first recipient of the PPA’s Lifetime Achievement Award for Retailing Magazines.

And what has happened subsequently to Fender, the retailing grand master so little known in the magazine industry?

He has already had talks with one leading magazine publisher and two main distribution groups and HIM is likely to be working with at least one of them in future.

"Maybe they felt there was some truth in the case that the whole industry was a little bit inward looking at a time when so much is going on in retail," says Tom Fender whose afternoon out at MagSell in the British Museum has at the very least ignited a debate on magazines, the retail industry and the future.