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The right fight?

The industry is fighting tooth and nail to preserve the supply chain status quo. Yet, says Ian Love, the current system is far from perfect and a more imaginative approach is needed. An inability to be flexible, he says, will result in major changes being forced on the industry.

By Ian Love

I was just sitting down to put pen to paper when the September / October issue of InCirculation arrived and I found myself nodding in agreement with Martin Ashford’s article on the UK newstrade.

If the "status quo is no longer good enough" for newspapers, the argument for change is even stronger when viewed from the perspective of magazines. Yet magazine publishers along with other members of the Block Exemption Initiative Group (an alliance with the NPA and the ANMW) are engaged in a focused effort to maintain the status quo.

Professor Dobson

The defence is based on the impact the removal of exclusive territories would have on smaller retailers. PPA chief executive, Ian Locks, is reported as saying "By our estimates 20,000 retailers are put at risk and so are at least 1,000 magazine titles". A report, commissioned by the PPA, from Professor Paul Dobson is used in support of the claim regarding retailers. It is inferred that this in turn puts the magazines at risk.

In 2001 Professor Dobson’s earlier report was used to great effect by the newspaper publishers to mount an attack on the supermarket groups. The PPA is now trying to pull off the same trick but this time they seek to influence the DTI. The case in the mouths of magazine publishers seems less convincing.

According to the PPA’s estimates the loss of these retailers will result in a loss of up to £50m or 3% of all magazine sales at retail. Yet most of these magazines would simply be purchased elsewhere. The maximum risk is more likely to be £25m or 1.5% of all magazine sales at retail. The titles most exposed to these lost sales will be high circulation weeklies and it is hard to see how this translates in to the loss of at least 1,000 magazines.

An additional 10,000 retailers have entered news and magazine retailing in the last decade, largely as a result of undertakings given to the OFT by the news and magazine wholesalers regarding the basis on which newspaper supplies are granted, an approach recently reviewed by the OFT. A good number of these would previously have been refused supply as they were deemed not financially viable for the wholesaler.

Ironically, it is reasonable to assume that a significant proportion of these new outlets now form a significant proportion of those now identified as at risk and worthy of protection.

Pattern of sales

The magazine supply chain remains too reflective of shopping patterns that have long since ceased to exist. With its standard service level and significant levels of cross subsidy its one size fits all approach no longer sits comfortably with today’s, and tomorrow’s, pattern of sales at retail.

The risk is that by steadfastly praising the status quo and making only token changes to the supply chain those important elements of the supply chain that are still relevant to today and tomorrow’s needs will be lost.

Focusing the industry’s arguments on leaving things as they are seems the surest way to ensure change will eventually be forced upon it, bringing in its wake the full commercial relationship with the major retailers that the magazines publishers so fear.

Yet, recent history shows that the magazine supply chain is at its best when it recognises the opportunities change can bring. Ironically, it often has to be pushed into taking these opportunities.

In the late 80 and early 90’s members of the Block Exemptions Action Group were resisting supplying newspapers and magazines to supermarkets and convenience stores on the basis of the area being adequately served. It took successive reviews by the competition authorities to persuade them to loosen up their approach to granting supplies.

Until Bauer and Gruner & Jahr entered the UK market with their mass market woman’s weeklies on a fully SOR basis the UK market was a confusing place of firm sale and a variety of SOR concessions. Yet many of the members of the Block Exemptions Action Group resisted to the last the use of full SOR to gain distribution and develop sales. Yet, arguably, these two significant shifts in magazine circulation were responsible for the dramatic growth in the retail sales of magazines during the 1990’s.

The new deal

The supply chain’s answer to today’s changing times, along side a ringing endorsement for the status quo, is what it calls "The New Deal" for retailers that only seems to give them some one new to complain to.

Despite all the words about new performance standards and complaints procedures and independent arbitration the truth is that performance standards are likely to be undemanding and unambitious.

What is needed, if the existing supply chain structure is to have a future, is for it to demonstrate its ability to more effectively match the shopping patterns of its customers by meeting the differing service requirements of the different retail groups that serve them.

Surely the magazine industry, one of the UK’s most creative and competitive industries, can rise to this challenge. By doing so it might yet avoid that which it currently most fears, an end to exclusive territories and a full on margin relationship with the major retailers.