Making Sense of Newsstand Trends

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Making Sense of Newsstand Trends
By Baird Davis
http://www.circman.com/viewmedia.asp? prmMID=2996#

In the volatile newsstand sales world, publishers that heed the ten “rules” for success will greatly enhance their odds.

Newsstand sales of audited publications appeared to be tranquil in the second half of 2006. Unit sales of 482 million were up 1 percent, but retail revenue remained flat at slightly more than $1.6 billion. The sales performance of the 10 leading newsstand companies (unit sales down 1.7percent, sales revenue off 1.9 percent) was slightly below the industry norm. For the year, unit sales of all audited publications were down 1.7 percent and revenue off 1.6 percent.

Behind this seemingly placid scene a slow, yet dramatic, shift in product preference is transpiring.

In this article I’ll try to cut through the cloud of misunderstanding that surrounds the newsstand. I’ll describe the principle trends affecting the newsstand sales market and discuss why it’s important for all newsstand channel participants to understand the forces perpetuating these trends.

Eight Major Trends Affecting Newsstand Sales


1. Unit Sales are Steadily Falling Unit sales have been declining for years, but the descent has accelerated in the last six years. Since 2000, unit sales of audited publications have fallen 16 percent— slightly less than 3 percent per year.

2. Retail Revenue is Flat, But Trending Toward Decline Retail revenue has remained flat the last six years because cover price increases have generally kept pace with the unit sales decline. But there is recent evidence that cover price increases can no longer be counted on to compensate for lower unit sales.

3. Pricing Elasticity is Weakening It seemed like an anomaly when the average cover price of products sold on the newsstand declined in 2005. This snapped a five decades long run of continual price escalation. But in 2006 the same thing occurred. The average sales price slumped from $3.40 to $3.38. It’s very likely that the recent declining average price phenomenon signals a new era of pricing moderation.

4. Checkout Sales Continue to Grow, While Mainline Sales Decline In the last three years, unit sales of audited checkout titles grew about 1 percent and retail revenue rose 5 percent. This is tepid growth, but compared to the mainline unit sales decline of 10 percent and the retail revenue drop of 9 percent in the same period, checkout sales seem relatively robust.

5. Sales of Women-Oriented Publications Grow, Sales of Men-Oriented Titles Fall The newsstand, with the preponderance of its sales in supermarkets, has always favored women-oriented publications. It’s been estimated that women-oriented titles and gender-neutral titles, like Time and Newsweek, account for about 70 percent of newsstand sales. In the last few years, the sales tilt toward women’s titles has accelerated. This theory is confirmed by the sales growth of checkout titles (nearly all of which are women-oriented publications) and the decline of mainline sales, which is the traditional province of men’s titles.

6. Sales of Weekly Publications are Growing, Sales of Monthly Frequency Titles are Falling In the second half of 2006, nine of the top ten revenue producing publications were weekly in frequency, led by celebrity giants People and Us. Cosmopolitan was the only monthly frequency title to crack the top ten. In addition to those nine weekly publications, there are eight other major audited weekly frequency publications. Combined, the sales of these 17 weekly publications exhibited unit sales growth of 5.8 percent and a revenue increase of 4.3 percent. Their sales performance stands in rather stark contrast to all other audited publications (primarily monthly frequency) whose unit sales declined 3.6 percent and revenue fell .7 percent Note that these 17 weekly publications had a relatively low average selling price of $2.70, accounted for a weighty 51 percent of unit sales and 41 percent of retail revenue.

7. Product Preference is Shifting—It’s no secret that the sales of weekly celebrity oriented publications are growing. In the second half of 2006, the sales of the six major weekly celebrity titles (People, US, Star, In Touch, Life & Style, Ok!) along with the two audited tabloid publications (National Enquirer, Globe) displayed strong sales growth. Unit sales of 181 million were up 10.5 percent and retail revenue of $522 million was up 6.7 percent. These eight weekly publications account for 38 percent of unit sales and 32 percent of retail revenue. The sales of all other audited titles experienced a unit sales decline of 4.1 percent and a retail revenue fall of 2.8 percent. The principle product causalities of the celebrity onslaught have been the traditional monthly frequency woman’s service publications and to a lesser extent some the major men’s titles.

8. Wholesaler Efforts to Increase Efficiency and Reduce Title Proliferation are Beginning to Resonate Wholesalers were pushed to the brink of insolvency by their slow reaction to changing market conditions. But they’ve begun to fight back. They now seem serious about improving efficiency, reducing the number of titles handled and lowering business expense by strategically combining operations with other wholesalers.

Trends Portend the Future

Unit sales are falling, retail revenue is on the cusp of declining, pricing elasticity is vanishing, checkout sales are growing, mainline sales are falling, purchases of women’s titles trump male titles, weekly frequency product is increasing the choice of newsstand buyers, product preference is shifting to lighter editorial fare and wholesalers are (finally) concentrating on improving sales efficiency. What’s going on here? There are two reasons why I believe these trends will not only continue, but accelerate in the decade ahead.

The Internet The Internet is changing everything and that includes the slow-to-adapt newsstand market. The Internet is having a dynamic effect on the way people gather information and has significantly influenced the price people are willing to pay for information. The easy availability of information has reduced demand for magazines and altered the perceived value of information, which has helped diminish pricing elasticity.

It's also altering publisher’s newsstand behavior in another more subtle way. The rising influence of the Internet as a legitimate advertising alternative has reduced the advertising revenue for many publications. Publishers, less flush with advertising revenues, are suddenly finding it’s economically advantageous to reevaluate decisions to support inefficient newsstand distribution programs.

Bifurcated Distribution System

The distribution channel is becoming distinctly more bifurcated. That is to say the channel now has an easily distinguishable set of distribution suppliers. I believe the distribution supplier distinctions will continue to accentuate the affect of the sales trends we’ve described for years to come.

Fifteen years ago, wholesalers controlled about 90 percent, or more, of newsstand sales. They serviced nearly all magazine retailers in their geographic territories. For wholesalers, efficiency wasn’t as important as protecting geographic position. This system helped spawn the proliferation of product, which continues to plague the newsstand sales channel. But in the intervening years, wholesalers have slowly shifted their emphasis from providing service to all magazine retailers in their territory to servicing primarily chain retailers, irrespective of location.

Today, wholesalers concentrate most of their services on supermarkets, drugstores, discounters and terminals. Their share of the magazine distribution market has declined to about 80 percent of all newsstand sales. The other 20 percent (distributions to bookstores, convenience stores, newsstands and other specialty retailers) are, for the most part, now being serviced by so-called direct distributors.

How is this migration to a bifurcated distribution system influencing the major trends? We’ve noted that wholesalers are concentrating on providing service to supermarkets, drugstores and discounters. Those three retail channels account for the preponderance of checkout title sales. Wholesalers have increased their marketing focus on checkout titles and, in so doing, have reduced their mainline attention.

Today it’s not uncommon to see checkout titles simultaneously taking up residence on the mainline. It’s believed this is part of the “benefits” afforded publishers of checkout titles for the significant expense associated with purchasing checkout rack space. But as more checkout titles are displayed on the mainline, this means less space allocated to traditional men’s-oriented titles.

These changes have played a prominent role in raising the sales of checkout titles, which has helped the sales of women’s titles, while inadvertently slowing sales for men’s titles. It’s also contributed to lowering average pricing, because the weekly titles, which predominate at checkout, are priced considerably below monthly frequency titles.

What has evolved is a magazine newsstand system where wholesalers handle the vast majority of high selling women’s titles and direct distributors service the bulk of men’s-oriented titles. A look, for example, at the best selling publications at retailers serviced by wholesalers and those distributed to bookstores (serviced by direct distributors) reveals the stark difference in product preference. At wholesalers, the high volume women’s titles (People, Us, Star) lead the way.

Bookstores present a much different story, where titles such as The Economist, head the list of highest revenue producers.

Ten Rules for Winning at the Newsstand

The current newsstand market trends portend greater sales difficulties ahead for most publishers. What can publishers do to mitigate those difficulties? To start with, develop a realistic understanding of current market conditions; then adhere to the following ten rules:

1. Don’t Fight City Hall Accept the inevitability of the newsstand market trends. Understand their effect and make them work for you.

2. Channel Your Success Concentrate newsstand marketing efforts on those retail channels that offer the best chance for success. Avoid wasting marketing time on retail channels that have historically not produced efficient results.
3. Improve Top Management’s Newsstand IQ Involve top management in the details of the newsstand process. This not only helps eliminate second- guessing after the fact, but is typically an important ingredient in achieving newsstand success.

4. Data Rules There is a wealth of available newsstand sales data. But making sense of it requires real skill. Many publishers underestimate both the difficulty and the significance of properly interpreting newsstand sales data. The results of achieving data understanding are worth the effort.

5. The (Higher) Price is Not Right Price elasticity is waning. Publishers should judiciously consider all prospective cover price increases and resist the temptation of raising the cover price for potential short term profit gains. Being a category leader in efficiency and units sold should be a publisher’s prime objective.

6. Be an Efficiency Expert Wholesalers, direct distributors and retailers are focusing their operational efforts, as never before, on improving efficiency. Efficiency, a nearly forgotten concept, will become the new performance standard. Publishers should anticipate this shift in emphasis and act accordingly.

7. Casual Relationships with Your ND Can Be Dangerous Most national distributors are over committed relative to the services they can provide their clients. They are also frequently restrained because of their conflicting responsibility of working with wholesalers/ direct distributors and the precarious task of collecting receivables from them. Wise publishers recognize the need to work closely with their NDs, while reserving the option to carefully (and fairly) evaluate their performance.

8. Higher Circ Levels are Not Cool Nothing has hurt newsstand sales more than the publishing industry’s reckless expansion of circ levels, which have often been accompanied by the use of marginal subscription sources. Prospective circ level increases should be based, at least partially, on maintaining strong newsstand to subscription ratios. Newsstand sales category leaders usually have the most favorable newsstand to subscription ratios.

9. Cover Your Fanny In the cover development process there is no substitute for creative retail- oriented editors/art directors. However, the process is too important to be left solely to them. In order to maximize newsstand sales, strong circulation involvement in the cover development process is necessary.

10. Edit is King Edit quality is the chief determinate of newsstand sales success or failure. Management should be prepared to evaluate and financially reward editors based on newsstand sales performance.

In the volatile newsstand sales world, publishers that heed these ten “rules” will greatly enhance their odds for success.



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