Largest Wholesaler: At Least 2,700 Titles to Be Shifted to Limited Distribution Channel

Largest Wholesaler: At Least 2,700 Titles to Be Shifted to Limited Distribution Channel

Karlene Lukovitz

On mid-September, the nation’s largest magazine wholesaler, Knoxville, TN-based Anderson News LLC, shook the industry by announcing that it will establish a separate, limited channel of retail distribution for at least 2,700 magazine titles, based on a by-category analysis of retail sales volume.

Under the plan, about 1,700 titles that account for the majority of dollar sales within their categories will continue to be distributed to the approximately 40,000 retail outlets handled by Anderson through the wholesaler’s 50-plus regional distribution centers. The remaining, estimated 2,700 to 2,900 titles, will go through a new “National Production Center” (NPC) for selective distribution in about 2,100 stores that Anderson says it has identified as having “demonstrated a need for an expanded title selection.” The system is to take effect with on-sale dates after December 6.

In addition to greatly reduced access to mass retail outlets, the titles that didn’t make the cut for the normal distribution channel were informed in the notification letter that they will be expected to pay for reshipment costs from the LaVergne, TN-based NPC to the regional distribution centers on a fee schedule set by Anderson.

Anderson senior VP, director of merchandising John Styron says the wholesaler is establishing the dual distribution system in response to retailer category management initiatives aimed at improving efficiencies and sales. “We need to address the increasing inefficiencies, withholding and prematures” in the system and the “imbalance in the amount of product versus the amount of display and merchandising available,” he said. “We believe that [dual distribution] will allow us to focus on doing the best job we can for all of the titles in the system. We want to get the right titles into the right stores in the right numbers at the right time.”

Styron said that Anderson conducted a lengthy analysis across some 200 subject categories and subcategories to determine which titles account for a minimum of 90 percent of retail dollar sales, over all retail classes of trade, within a given category. In some larger categories, such as women’s titles, a higher sales cut-off point (up to 99 percent) was used, he said.

“Well over 90 percent of total sales are still in the system,” he said. “We maintained adequate variety within every category, relative to its sales potential.” He adds that titles moved to the NPC account for less than 3 percent of retail sales, and that many are one-shots or annuals (only about 500 have a quarterly or greater frequency).

Asked about the sales impact on NPC-designated titles, Styron said, “I’m not going to say that some publishers won’t lose some sales, but virtually every publisher will see more efficient sales. We think that this system offers real opportunity to more effectively and efficiently sell [NPC titles] in those traditional retail accounts that have the display space to handle them and have the best potential for selling them. The titles that perform well will probably have opportunities to grow, and the titles that don’t probably won’t have those opportunities.” Noting that “more and more retailers are going to more and more restricted [authorization] lists,” Styron said that “many of these [NPC] titles are losing access to accounts anyway.”

Asked if all retail customers support the new system, Styron said that each has its own approach to category management, but that retailers as a group “have let us know what they’d like to see,” and that Anderson believes most are “comfortable” with the plan.

He also said that “virtually every major publisher and national distributor” has some titles on the NPC list, and asserted that “many are probably not in disagreement” with the overall plan, although “there may be some questions about how the cut-offs were determined.”

NPC titles will continue with their current discount structures. The reshipment cost schedule provided for these titles ranges from just under 12 cents per pound for the largest shipments to nearly 36 cents per pound for the lightest shipments. In addition, a 10 percent surcharge would be applied to the lightest shipments (those under 25 pounds).

According to Styron, Anderson will combine allotments of NPC and other titles in its regional centers to produce single shipments for distribution to the 2,000-plus outlets that will receive NPC titles. These stores span all traditional mass classes of trade, including supermarkets, mass merchandisers, drug stores, bookstores and newsstands, he reports.

The notification letters specified the number of copies of each title that would be accepted at the NPC (based on “traditional sales performance,” according to Styron), and stated that copies of NPC-designated titles that show up at other Anderson distribution centers after December 6 will be reshipped to the publisher at the publisher’s expense or immediately destroyed. At the end of the letter, publishers were given three options: confirm that they’ll go along with the plan; indicate that they will cease shipping to Anderson as of December; or request individual title reviews. (Anderson acknowledged that some titles might have inadvertently been mis-assigned. It has also indicated that it will review sales and titles’ distribution status at least twice a year, or possibly quarterly.) The deadline to reply to the notification was September 30.

Shortly after the notification went out, publishers and NDs were still sorting out the full implications of the plan and their responses. NDs had begun meetings with Anderson, and some were reportedly advising publisher clients to delay replying to the notification. One publisher reported that, as a result of a re-assessment, some of its titles already had been re-assigned from the NPC to regular distribution.

A few publishers contacted said that only a few or none of their titles had been designated for the NPC. And at least one chief circulation executive in that position said that he’s in favor of the plan. “Less is more,” he said, noting that there are at least 4,500 titles vying for display space, and that more are launched every day. “This will result in higher sell-throughs and more efficiency for the industry, and better display and higher sales for the titles that remain in most of the traditional outlets.”

Not surprisingly, however, publishers who would be significantly affected by the system expressed serious concerns. “There are a million questions about this plan right now, but it certainly looks problematic, between the reduced access to retail accounts and the shipping costs,” said the single-copy director for one publisher. “We know this will help Anderson’s economics, but I think Anderson needs to explain to small publishers how this can actually help them.”

Other circulation executives said that, for many titles that are already struggling to meet rate base, the prospects of unit sales losses and significantly increased distribution costs might mean reducing rate base, abandoning mass distribution, or even folding. “This isn’t just a few retail accounts we’re talking about here,” said one, noting that Anderson’s retail accounts are estimated to account for up to 40 percent of industry sales. “If you’re going to say that you’re not going to go through Anderson, you might have to think about whether it’s even worth being on the newsstand, or you might have to think about shutting down [some titles].”

Several circulators also stressed that the plan would require publishers to pay about three times what it now costs them to ship magazines directly from printers to regional centers, and said that the reshipment fees listed by Anderson are higher than those normally negotiated between NDs and wholesalers. “I’d say the normal range is more like 12 to 20 cents,” said one. Styron, however, maintains that the fees are based on costing studies and “honestly reflect our costs” to handle titles through the NPC system.

Styron contends that NPC publishers should eventually benefit from shipping fewer waste copies and reducing unsolds. But publishers see it differently. “Any publisher in this situation is looking at significantly higher costs and lower margins per copy,” says one circulation executive. “Major reductions in allotments mean lower print orders and higher per-copy printing costs–and on top of that, the added distribution costs will reduce your revenue per copy by maybe another 10 to 12 percent. Next to the harsh, short-term realities, improved sell-throughs may not mean much to a lot of titles.”

Some sources said that publishers and NDs were already meeting with attorneys. “I can’t imagine that you’re not going to see lawsuits for restraint of trade issues, if this plan goes ahead,” said one.

However, others note that the legalities would probably hinge on the specifics of Anderson’s criteria, and how uniformly those are applied. Anderson has stated that it will not refuse to distribute any title that will abide by its terms. In addition, Styron told CM that channel assignment decisions were based strictly on the retail dollar sales performance of individual titles–not on factors such as the wholesaler margin provided by a title, or a publisher’s overall size or ownership of some top-selling titles.

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