Rack
'Em Up
Publishers
Scrimmage Amid Dwindling Mass Market Suppliers
FROM PUBLISHING
TRENDS (MAY 2001)
The
idiom of mass market book sales pops with so much merchandisers’
slang you could almost mistake it for a new extreme
sport. You got your “lane blockers,” your “waterfalls,”
your “power wings” and “gravity sleeves.” There are
“clip strips” dangling product ready-to-hand, and “candyless
checkouts” cheered by moms and category managers alike
as kids grab for a high-margin book instead of a twenty-cent
sugar buzz. The adrenaline gets pumping just thinking
about all that prime, retail real-estate where books
and bon-bons go head-to-head for the holy grail of shoppers’
“mindshare.”
In fact, the business of getting books to supermarkets,
drug stores, variety retailers, and the like — traditionally
known as the independent distributor channel — has evolved
into a brutally combative game of dwindling suppliers,
choked-off margins, and a mercenary retail playbook.
While publishers generally agree that opportunities
abound for books in the Krogers and the Overwaiteas
of the world, breaking through to those impulse moments
has become as grueling as ever — thanks largely to the
consolidation that has raked the field over the last
five years, leaving four major magazine and book wholesalers
standing: Anderson News, The News Group,
Charles Levy, and Hudson County News.
Anderson, for example, zoomed from 6% of the market
in 1995 to upwards of 40% last year. Meanwhile, News
Group, headed by Jimmy Pattison, scooped up 27%
of US magazine distribution in North America, rising
from only 3% in 1995. As any magazine executive will
confirm, consolidation has radically changed the economics
of their business — for the worse.
Wagged
By the Dog
“The
most important thing you need to understand about this
channel of distribution,” says Tom Stanley, former
executive vp for distribution at Simon & Schuster,
“is the difference between the tail and the dog. The
dog is the magazine business, and the tail is the book
business.” And that dog’s been in the doghouse since
around 1995, when the 1,650-store Safeway supermarket
chain declared it would use only a select number of
major wholesalers. Other large retailers quickly followed
suit, and in a blink hundreds of mom-and-pop wholesalers
effectively went kaput. Supermarkets demanded larger
discounts, as high as 30%, which squeezed wholesaler
margins. Meanwhile, as Anderson News chairman Joel
R. Anderson told the New York Times last
fall, an estimated 1.2 billion magazine copies every
year go to the shredder, never even leaving wholesalers’
warehouses (industry reports put magazines at a woeful
32% sell-through rate). Passing the buck, wholesalers
have called for publishers to sell 40% of their magazines
loaded at newsstands, or else face unpleasant service
charges. News Group even hiked magazine discounts as
high as 44%, brushing aside the industry standard of
40%.
As magazine publishers put their paws over their heads,
views on the book business have been mixed. Rack-size
mass market paperback sales — probably the best indicator
for this segment, even though all formats are now flowing
through independent distributors — are holding steady,
according to the BISG, ringing in at more than
$1.4 billion last year, a number estimated to rise 4.8%
this year. On the other hand, says magazine consultant
John Harrington, the share of books passing through
independent distributors has dropped from 12–15% in
pre-consolidation years to around 10% today. Since books
offer higher margins to retailers — averaging 50% for
some categories — wholesalers could theoretically sweeten
their offers by throwing more profitable books into
the mix. If only it were true in practice. “It doesn’t
appear to have resulted in an increased book share,”
Harrington says. “With the growth of the book superstores,
people just don’t look to supermarkets and discount
stores for their books. The market may not be appropriate.”
And say goodbye to distribution depth, as wholesalers
halt deliveries to smaller retailers and ditch slow-selling
titles. Tim de Young, senior vp for sales and
marketing at Dorchester Publishing, laments that
News Group has cut distribution to just 45–50 new titles
per month for its entire book line. News Group’s books
are 75% backlist with name-brand authors, de Young says,
and there are no category sections — just “New Arrivals,”
which aren’t so new given that stock is only rotated
every six months. Returns may be down, but customers
obviously won’t have much incentive to keep coming back
for more. (News Group officials did not respond to requests
for comment.) Still, Dorchester’s sell-through is 50%,
higher than the industry average, with 40% of that business
going through Wal-Mart and Kmart.
Distributor consolidation has its bright side, publishers
acknowledge. “It’s easier to manage a smaller group
than it is to manage hundreds,” says Stefan Kaiser,
vp for sales and marketing at Simon & Schuster.
“Certainly that’s a major change. Publishers are actually
looking at this as a business.” While sales may not
be as strong as they could be, the sector has become
more profitable through tighter inventory control. But
consolidation may exact the ultimate price by sacrificing
authors themselves. “Competition helped the mass market
get the midlist out into the marketplace,” Kaiser adds.
“Everyone has to play on the Stephen Kings of
the world. It’s developing and growing the next big
author that consolidation has hurt.”
The
Next Blue-Light Special?
Amid
the tectonic shifts in the marketplace, many publishers
and distributors are singing the old refrain of category
management: putting the right books at the right prices
into the right stores at the right quantities. “Being
the man in the middle makes efficiency a major goal,”
says Sharon Hails, senior vp of merchandizing
and marketing for Sher Distributing. “We are
not in a business to kill trees.” Sher closely watches
what sells in every store, she says, and is establishing
sales ranks for different categories of books to reflect
what sells best where, in some cases maintaining title-by-title
planograms for every department she manages. “You can’t
run it as a cookie-cutter business,” Hails says. “We’re
actually starting to work with space management programs
to make sure everything fits on the shelf.”
A life buoy has also floated into view in the form of
the specialty market, which has been the sole growth
area in the magazine business. According to Folio,
Ingram Periodicals shipped to 5,300 locations
in 1994, a number that climbed to 10,000 five years
later. (Ingram ditched the ID book business years ago
because it was so unprofitable.) Likewise, specialty
distributor Retail Vision ramped up its load
from 150 titles in 1995 to over 600. This sector is
booming in part from the small retailers left high and
dry as key distributors pulled out. “Retailers are demanding
service,” says John Morthanos, vp specialty sales
for magazine distributor Curtis Circulation.
“Many of the retailers we’re dealing with have lost
access to titles that were doing very well in their
stores.” Though such sales require effort, they pay
handsomely in higher sell-through (Curtis sees 60%).
The book biz would do well to take note, says Tom
Fogarty, vp for single copy sales at Retail Vision,
which is a unit of Primedia. Fogarty drops magazines
into chains such as Blockbuster, Musicland,
and Home Depot — and says he would gladly handle
books. He’s also been using co-op to drive consumers
to stores in a marketing deal with Wal-Mart and Seventeen
magazine: Wal-Mart places ads in the magazine, and links
are established between websites, so that teens surfing
the magazine’s pages can click over to now hip Wal-Mart’s
site to buy clothes online. Meanwhile, George Bick,
vp director of sales for Avon/Morrow, says he’s
had success getting HarperCollins’ Lemony Snicket
series into Target stores (via Levy) and the
130-store Fred Meyer chain in the Pacific Northwest
(via News Group), no small thing considering the $9.95
price point. He notes that the advantage of small regional
distributors was their proximity to the local constituency,
which allowed them to select the most appropriate titles
for their customers. Though battered by consolidation,
smaller distributors such as Gopher News in the
midwest are regaining a foothold in underserved markets.
Books, however, are still a long way from the next blue-light
special. “It’s a sidelight,” says Rich Maryyanek,
senior vp of marketing for Golden Books. “I’m
not sure the category is properly utilized in any supermarket.”
Golden has tried everything from cross-promotions with
diaper companies to coupons for $1 off when buying two
Golden Books and a toothbrush. Moreover, a recent cross-promotion
for Nickelodeon character SpongeBob SquarePants
— who resides in a pineapple under the sea — has put
displays in produce aisles that offer a purchase incentive
for pineapples. “We’ve had produce managers who called
us and said this is working so well, they want three
or four of those displays shipped in immediately,” says
Maryyanek. Such is the luxury available to Golden, which
still captures around a 25% retail unit share for children’s
books. Rumors of Golden’s impending demise notwithstanding,
Maryyanek says there’s more volume for the taking. “We
believe that this market has untapped potential,” he
says, adding that his current business “could be doubled”
if it was merchandized with more savvy. After all, what
have retailers got to lose? “We’re guaranteeing 50%
margins, and retailers can return what they don’t sell,”
he adds. “It’s a nice value proposition.”
©2001
Publishing Trends
