Magazine Retail Sales in the United States 2008: The Economy Adds to the Problems

For five of the past six years, retail sales of magazines in the United States have been steady (2003 was the exception, with a sharp drop). Considering that for most of the 1990’s and the first few years of the new millennium units had sharply declined, most members of the mass market distribution channel – publishers, national distributors, wholesalers, and retailers – were generally pleased with the steady performance. When concerns about the market were expressed, they primarily focused on the troubled distribution channel, particularly the financially challenged wholesaler level, which has struggled for more than a dozen years.

The worst year since 2003 – due to economic reasons
However, the first half of 2008 has changed that. Depending on how they are measured, magazine unit sales appear to have fallen by between 5% and 8%. In any case, it looks like the worst year since 2003. By virtue of sharp cover price increases, total retail dollar sales did increase, although at less than the rate of inflation. Whether it will be a blip, like 2003, or a longer term trend, remains to be seen. There is substantial evidence that the poor performance (only 6 of the top 25 retail dollar-producing magazines improved their unit sales) is generally due to the economic recession that has gripped the American economy. Driven by soaring oil prices and abetted by a true crisis in the housing market, inflation is at a nearly 30 year high. Consumers are more cautious than at any time in decades, and that depresses the retail market place. Consumer are concentrating on necessities and making fewer visits, particularly to grocery stores. More than 50% of magazines, which are essentially impulse sales, are sold in those accounts and consumers are going there less frequently and are buying in a distinctly less impulsivemanner. It has to hurt magazines.

Systemic problems of the distribution chain
A troubled American economy is never helpful for the magazine newsstand market, but the current recession could possibly not have occurred at a worse time. The systemic problems of the distribution channel were already at a crisis point. The fragile financial state of wholesalers had driven all of the major players to take unprecedented initiatives, most of them designed to reduce costs. While national distributors have been generally sympathetic to wholesalers’ distressed finances, there were considerable fears that the initiatives might have a negative impact on sales. The most talked about action was the nearly concurrent effort by the four largest wholesalers to improve the sell-through rate at retail. This figure reached its nadir at a mere 33.4% in 2004 and had improved slowly to nearly 38% in 2007. However, wholesalers, whose handling costs were increasing, wanted to get the figure over 40% and some said 45% was their goal. Traditionally, publishers and national distributors pointed to the industry adage, «Cut the draw, cut the sale.» However, wholesalers, and a good number of suppliers as well, felt that the increased sophistication of order/regulation systems meant you could now «Cut the draw and improve the sale.» Where wholesalers and publisher/national distributors were cooperating, there were some success stories. Yet, other suppliers were concerned that their circulation goals would suffer. As noted, by the end of 2007, the efficiency rated had improved, and sales did not seem to suffer. At least one wholesaler reported even more dramatic sell-through improvement numbers, with no loss of overall sales. Anecdotally, some publishers felt the impact was not being equally felt. Yet, when sales fell precipitously this year, the sell-through figure also declined. Another major initiative, and one whichmet with more widespread resistance from suppliers, was a request (some might call it a «demand») for better margins. In some instances, the margin drive was increasing the level of tensions in a distribution channel historically characterized by an adversarial atmosphere. Additionally, wholesalers had become quite vocal about the need for some publishers to raise their cover prices. Yielding to these pressures, a major publisher of high volume weeklies with under USD2.00 cover prices instituted across the board price increases, some as high as 50%. The American retail market had, looking back over a decade or more, demonstrated a friendliness to cover price increases. However, few had been as sharp as these. So, the American magazine retail business finds itself in mid-2008, unexpectedly for most, experiencing its worst performance in nearly half a decade, and searching for answers to what caused it, and what to do about it. Is it merely the result a recessionary national economy? Is it the result of some initiatives that further disrupted an already distressed distribution channel? Or is it, as is often the case, a combination or external factors (the economy) and internal ones (the channel)? In either event, all of the channel members must work together to be more aggressive marketers, as well cooperate in modernizing the channel’s infrastructure.

Author: John Harrington (www.nscopy.com, jharrington@nscopy.com)