Publishers Scrimmage Amid Dwindling Mass Market Suppliers
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.”
