Luke Magerko is on a mission to save the newsstands. In this fourth installment of the Mr. Magazine™ Interview, Mr. Magerko talks about Scan-based Trading issue and identify the pros and cons of such an issue.

Samir Husni: IS THE ISSUE OF SCAN-BASED TRADING HOPELESS?

Luke Magerko: No, and scan-based trading (“SBT”) is really not that scary.

SH: NO EXPERT OF NEWSSTAND AGREES WITH THAT STATEMENT!
LM: Not true. Wholesalers bend over backward trying to explain the benefits of SBT, but the national distributor, some large publishers, and some thought leaders of this industry remain flummoxed by three specific challenges:
•Issue codes are not currently recognized at retail, therefore publishers claim ABC audited titles cannot get accurate sales data by issue
•Shrink – how many copies are lost or stolen at store level
•The financial challenge of inventory as an asset
All of these issues have been addressed by one publisher and have been reconciled in an actual magazine program.

SH: IS THIS THE MEREDITH DOLLAR TREE PROGRAM? WHY DID THIS PROGRAM GO AWAY?

LM: Yes, this is the Dollar Tree Program, and in deference to my former employer, I will not give you my personal thoughts on why the program vanished. I will, however, direct the audience to an article in a 2008 issue of FOLIO Magazine “After Newsstand Spike, Meredith Discontinues Dollar Store Distribution.” It stated (italics mine):
•“While there’s nothing inherently wrong with selling magazines through alternative and steeply discounted outlets such as the dollar stores, the strategy does have an impact on both the brand perception and the rest of the distribution chain.“
The same article included this fact, however:
•“According to ABC’s FAS-FAX report for second half 2007, single-copy sales rose 71.5 percent for BH&G, 12.7 percent for Family Circle, and 37.5 percent for Ladies Home Journal.”
(http://www.foliomag.com/2008/after-newsstand-spike-meredith-discontinues-dollar-store-distribution#.UefcSo3viM4)
In summary, there was an existing SBT program that was wildly successful and according to Folio’s reporting, external forces might have been brought to bear on Meredith to discontinue the program. I think Folio provided an interesting analysis of the program’s decline.

SH: YOU’RE NOT CONVINCED BY INDUSTRY REASONING ON SBT?
LM: No and I have a riddle for publishers: the Dollar Tree program was a reduced-priced magazine program. I ask the reader to infer terms and conditions, and ultimately, profitability on this type of program. How can a program that sells copies for the industry-taboo price of $1 be wildly successful?
Meredith saw something enticing in the Dollar Tree program. Likewise, many other publishers also have good ideas how to grow their business. This is the clearest example of why publishers need to reestablish their role as the second-most important participant in the supply chain.

I find it hard to believe a Procter & Gamble, Nestle or Hallmark Cards would accept an industry-wide standard on how to run their business. Publishers have a right to work with the retailers, to establish best practices with their wholesalers, and make this a better category regardless of everyone else in the middle of the supply chain.

SH: WHAT DO YOU MEAN “PUBLISHERS NEED TO REESTABLISH THEIR ROLE?”

LM: This is my call to action: Publishers are NOT just another part of the supply chain responsible to industry-wide standards. The essential components of the supply chain are:
PUBLISHER (PRODUCT) — WHOLESALER (OPERATIONS) — RETAILER (CUSTOMER)
The publisher is responsible to its customers and need to reestablish that fact with participants in the supply chain and within their own newsstand departments or consultants. Most publishers ceded their authority almost completely to members of the supply chain, however.

SH: HOW HAVE PUBLISHERS CEDED THEIR AUTHORITY?

LM: Here is a recent example that publishers are bystanders when it comes to selling their own product:
Linda Ruth wrote in Audience Development that Mercury News, a magazine wholesaler in the south central United States, transitioned a significant portion of their business to Cowley Distributing in May 2013. This came after a period where Mercury severely reduced print orders and only shipped the top 500 titles to their outlets. http://www.audiencedevelopment.com/2013/waiting+see+how+mercury+news+situation+shakes+out#.UhpTNxsqinA
http://www.audiencedevelopment.com/2013/cowley+taking+over+some+mercury+news+distribution#.UhpRhhsqinB

While the transition to Cowley alleviates the print order reductions, the decision inevitably devastated 2013 retail sales rankings in those accounts and will have negative ramifications in 2014 and beyond. Unfortunately, it seems as if this happened due to financial pressures on the wholesaler.

I worked in a wholesaler for the first seven years of my career so I understand and empathize with its financial constraints. In the upcoming weeks, I will offer advice on what wholesalers need to say to in order to move forward with such things as SBT and with whom to speak (hint: not newsstand people). Ultimately it is up to publishers to fix this industry but wholesalers can be of great service in the process.

SH: HOW DO WHOLESALERS FIX THEIR SCAN BASED TRADING PROBLEM?
LM: I was interested in the foreboding quote from Ron Clark regarding the future of Hudson News: “tell everyone, if something doesn’t change we will be flat out closed.” I assume that other wholesalers are in a similar financial condition. If the situation is so dire, then the wholesalers cannot wait another decade for industry leaders to research this problem.
(http://www.magazine.org/node/25244#sthash.LDnNsSRa.dpuf).
Rather, wholesalers need to ask themselves:
1.Are there titles that do not have issue code concerns?
2.How do other industries handle SBT inventory concerns?
3.Are there other incentives for publishers who participate in this program?
4.If SBT becomes the norm, would that empower wholesalers to try and expand the magazine categories?

SH: EXPAND? SALES ARE DECLINING!
LM: Not all titles are shrinking; and many of the moderately successful titles have limited distribution on the mainline. Further, at existing margins and price points, magazines are still some of the most profitable products at retail.

Here is my last question for the major wholesalers: if the financial burden of SBT disappeared, could you credibly make a case for maintaining existing space and perhaps in some instances expand for special promotional opportunities? I am curious to know if the wholesalers have ideas they have been withholding due to financial constraints

SH: SO YOU ARE SAYING WHOLESALERS NEED TO FORCE THE ISSUE?
LM: Correct!

SH: HOW DO YOU RECOMMEND WHOLESALERS CONVINCE PUBLISHERS TO DO THIS?

LM: I believe there is a way to transition to SBT that would be beneficial to many parts of the supply chain and that will be the topic of our next interview.

SH: Thank you.

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