Retailers Want Free Choice Of Magazine Suppliers

A new market research study indicates that most magazine retailers want freedom to choose the wholesalers they do business with, rather than have them appointed by publishers.

A national survey of magazine retailers, conducted by leading market researchers MORI and commissioned by wholesaler WHSmith News, shows that almost three quarters of independent retailers feel their businesses would benefit from the choice they would get arising from open competition in the wholesaling of magazines.

Pressure to end publisher control over the magazine supply chain is also building among the large retail groups. T&S stores, the UK's largest group of convenience stores with approximately 1300 outlets, have joined Tesco and WHSmith retail newsagents in declaring their support for an open market and other retailers are expected to declare their support in the very near future.

Other magazine wholesalers are also demonstrating active support for the open market. Turners, the Yorkshire based wholesale group, North-West news based in Preston and Bussells of Derby are positively embracing the open market as they go outside of their contracted areas to win business from WHSmith and others.

Tesco and WHSmith Retail outlets recently entered into an agreement with the wholesaler WHSmith news to supply magazines to their stores on a national basis. This is opposed by publishers, who control the magazine supply chain. They claim that introducing open competition to magazine wholesaling will raise costs and harm independent retailers. But this view is at odds with the overwhelming majority of the 500 independents interviewed in the survey who felt they would benefit from an open wholesale market.

• 72% of independent retailers say their business would benefit if they had a choice of which wholesalers and distributors deliver magazines to them.
• 82% of independents want more control over which magazines they stock.
• 84% want more control over how many copies are delivered to their shops
• 66% feel they spend too much time on the administrative burden of dealing with different wholesalers and distributors appointed by publishers
• 52% often run out of particular magazines they stock.
• 76% say there are occasions when they cannot get a magazine they want to stock. 22% say this often happens
• 80% often have to return over-stocked magazines.

Robin Dickie, Managing Director of WHSmith Retail Channels said, "It is now clear beyond dispute that the demand for change to the present publisher controlled supply chain is widespread. It is far from being a case of WHSmith and Tesco upsetting a system that everyone is happy with. T&S stores have now come out in support and despite publisher's claims independent retailers also feel that their businesses would benefit if they had the choice that would arise out of an open market."

Technical details

Newspaper distribution is not included in the proposed changes to the supply chain. Both WHSmith News, as the leading wholesaler, and their retail customers have made it clear the need for change is in magazine distribution. They accept that the present "regional virtual monopoly" which applies to daily newspaper distribution is justified and they should continue to be regarded as an exceptional case because there are is a limited number of titles and they are time critical, measured in hours not days. By contrast the retailer may carry 300 to 1,300 magazine titles.

Under the present structure, magazine publishers appoint wholesalers with exclusive distribution rights for their titles in a geographic region. The publishers decide which magazine titles will be supplied to each store. Publishers decide how many copies of each magazine will be supplied. Publishers decide the selling prices and supply terms. The retailer has little or no choice. The retailer may currently have to deal with three or four different wholesalers appointed exclusively by publishers. This creates an unnecessary administrative burden and additional costs.

Cost of inefficiencies in the present system

Many retailers have little say over the magazines they stock. They cannot obtain sufficient copies of some titles. These lost sales opportunities represent up to 16336 million annually. Retailers' time spent in the administrative burden of dealing with up to three or four different wholesalers appointed by publishers and processing returned magazines costs them about 16354 million annually.

According to the publishers' own figures, a third of all magazines printed are returned for pulping - waste costs the publishers 163160 million every year. Wastage in the system also costs wholesalers over 16324 million - for example, in the cost of processing and collecting returned magazines;

WHSmith rejects Dobson report

WHSmith has rejected a report, commissioned by the Newspaper Publishers' Association and produced by Professor Paul Dobson, who claims that ending publisher control of the magazine supply chain will result in mass closure of retailers. WHSmith has found the report is fundamentally flawed in its assumptions and unrealistic.

Professor Dobson makes heroic assumptions. Because many of these are simply wrong and others ignore the reality of what is happening in the marketplace, this undermines all of his subsequent analysis and his conclusions about increased costs. He is also wrong to assume that wholesalers would be able to pass any increased costs on to independent retailers. But, even if we accept Professor Dobson's worst case scenario, his estimates of the costs of change, are insignificant compared to the cost of lost sales, unnecessary administration and wastage inherent in the present magazine distribution structure.

A press release detailing why WHSmith rejects the Dobson report has been issued and copies are available.

Erosion of wholesaler and retailer margins by publishers

In the past 10 years magazine publishers have squeezed margins out of the supply chain which they control. They have forced wholesalers to absorb costs of some 16345 million annually, or to pass these on to retailers. During the same period newspaper publishers have deprived retailers of margins representing an annual loss in revenue of 16380 million and wholesalers of margins of 16352 million.

WHSmith Commitment of Continuing Support For Independent Retailers

WHSmith News is to meet with the National Federation of Retail Newsagents and the British Retail Consortium to discuss a set of commitments to give assurance to independent retailers. As a wholesaler, WHSmith News is committed to independent retailers for good business reasons. They represent over half of WHSmith News total sales and a strong independent sector provides a healthy balance to the multiples. The company has already invested over 16320 million over the past year in projects to ease the administrative burden and improve efficiency for independents

Methodology of the retailer research

MORI conducted five-minute telephone interviews with 500 independent magazine retailers, on 15th and 16th August 2000. The majority had five staff or fewer including the manager. The retailers were randomly selected by MORI from a list of several thousand newsagents provided by WHSmith. No WHSmith retail outlets were included in the research. The interviewees included a mixture of retailers who are customers of WHSmith News and other wholesalers (i.e. some retailers deal with up to three or four wholesalers) as well as retailers who are not customers of WHSmith News. The mix broadly reflected the market share of WHSN.