Top-to-top means CEO-to-CEO,and we are finding this can mean a very different,more strategic discussion than the magazine industry has had before.For me,these meetings have been an eye-opener into the retail community's perspective on magazines.
*For many,we are a low priority category,a blip on their radar and it's been tough getting through.
*It was startling to hear the COO of the nation's third largest magazine retailer tell Nina Link and me two weeks ago that our meeting was the first time a publisher had crossed his threshold.Nonetheless he was thrilled to see us.
*At another top-to-top,the president told us how critical the magazine industry's high level support was to his chain's repositioning and turnaround.We're working to help him further his goals.
These meetings are invaluable.We are listening carefully,communicating the strengths of magazines,learning a lot,and critically,we are being heard.
4.Emerging Channels
We are rethinking our traditional business model for important new channels where magazines are not sold today,in particular price clubs like Costco and Sam's,limited selection retailers such as Trader Joes,and dollar stores like Dollar General.
The team has profiled key players,focusing in particular on understanding how their business model compares to the standard retail formula;developed hypotheses for magazines'potential role;and generated practical options to break through.
For example,Costco,one of our primary targets,operates about 435 warehouse stores worldwide serving 41 million members(who renew at an enviable 86%rate).Revenues of$48 billion are growing at 13%annually.Costco is now the fourth largest food retailer in the U.S.,behind WalMart,Kroger and Safeway.This is a retailer we need to be in.Servicing Costco stores through the traditional wholesaler delivery and service model is problematic.There is no permanent mainline or front-end display with assigned pockets as in supermarkets or other channels.There is no established mechanism to process returns.
In Canada,Costco stores do sell magazines,a very limited selection(32 SKUs)packaged on specially designed pallets delivered direct to the stores.Here's a picture of the Canadian pallet rack.
While Costco rejected the same idea for the U.S.,other tests are in progress,and we are energetically pursuing this critical new channel.We are exploring all the strategic and operational variables at our disposal-beyond the single copy model-to assure magazines are not left behind as Costco and these other channels grow.We've begun a dialog with them-and are optimistic as to the outcome.
5.Benchmarks
Next,Benchmarks.
The purpose of this work is to level the playing field when we visit with our retail customers:to shift their often negative perceptions with fact-based reality.
*Retailers'perception is that magazine profitability is no better than average.The reality:once you add in the trade allowances that local store management does not see,magazines'true gross margin is at least 6 points higher than chain averages.
*Retailers'perception is that magazines'inventory turns are no different than average.The reality:frequent wholesaler service guarantees freshness,and direct store delivery eliminates the need for warehouse or backroom inventory.Magazines turn almost twice as fast as average.Retailers'return on investment is very very high.
*Retailers'perception is that magazines are labor intensive.Checking in deliveries plus checking out returns.The reality:wholesalers supply the merchandising,so little or no store labor is involved in stocking shelves and displays.In fact,labor costs are 2 points lower than the average.
*Retailers'perception is that magazines are only moderately profitable.The reality:putting above-average gross margin and below-average labor costs together,is a contribution margin for magazines of 25%versus 17%for the total store,and that's pretty impressive.
*Retailers'perception is that magazines are irrelevant to the rest of the store.The reality:magazine purchase is associated with incremental sales throughout the store.Recipes lead to the produce aisle.Beauty tips lead to the cosmetics aisle.Product reviews lead to equipment purchases.Advertisements and coupons drive product trial and repeat purchase.
*Finally,retailers'perception is that the magazine category is a“no-growth zone”.Not true.The reality is that there are many rising thermals,magazine segments that have been exhibiting very impressive growth.
Here are some of those segments:
-Teen Girls,
-Hispanic,
-Gamers,
-Modern Men's Lifestyle,
-Shopping.
There are many growth stories to be proud of.
6.Shift Paradigm
We are aiming for a fundamental shift in magazine retailing.We need to change the magazine experience in retail stores from Display...to Destination.
Our goals are crystal clear.
1.Stop magazines competing for display space with commodity categories,
2.Reposition magazines as a destination department that drives customer traffic,enhances customer satisfaction,and strengthens store loyalty,
3.Promote the entertainment value of magazines,
4.Establish the magazine department as a high value mainstay of every supermarket.
Destination Department
We have research to support this shift.We know that magazine departments generate store traffic...and provide entertainment.
In best practice supermarkets,75%of magazine purchasers surveyed pre-planned their visit to the magazine section before entering the store.Of these,80%entered looking for a specific title or type of magazine.The same piece of research showed that for every magazine purchaser,there are as many as six customers who browse but do not buy.
