What we're seeing here is a sizeable shift in the pattern of consumption!
The Challenge:Retail Growth
What about the impact of price?You could drive a MAC truck through the gap shown on the right between dollar and unit sales,indexed to 1993.
Cover price increases have masked the real sales decline.And as you can see,these price increases have exceeded inflation by a factor of three,too much to simply be a result of the change in product mix.
However,I believe these price increases have been a reaction to,rather than a cause of retail decline.
And I am reminded of the experience of Lou Gerstner,shortly after he took the helm at IBM.He discovered that for 10 years the heads of IBM's mainframe business had systematically raised their prices to mask the inroads of an unfamiliar competitor-the personal computer,which was driving a tectonic shift in the Corporate MIS landscape to which they had become accustomed..
Our problem appears clear.Growth…or more precisely,lack of it.The root cause is less clear.Are we seeing a massive shift in the pattern of consumer demand?The impact of alternative media such as television and the internet?The encroachment of new competition at the checkout?Just what is driving this startling performance?
Drivers of the Retail Slowdown
In my view,retail contraction is being driven by a number of major shifts among consumers,and in the retail landscape.
Consumer behavior has changed.People are not shopping as frequently.Supermarket visits are down-from 85 per year in 1998 to 72 last year.That translates to one fewer shopping trip a month(6 trips instead of 7).For magazines,which are so strongly driven by store traffic,this is a serious issue.
The range of product we offer has changed.We have more titles,a lot more,up from 2,600 a decade ago to almost 5,000 today.We see more and more niche and special-interest titles,and with that comes the challenge of figuring out which outlets and product configurations will be best for producing optimal sales.
And we should not discount the impact of the aggressive subion promotion we've undertaken over the past decade.Some of this damage may be self-inflicted.
On the retailer side,we estimate that there are approximately 30,000 fewer outlets being serviced for magazines today than in 1995.
Retailers have changed too.More checkout lanes.Less wait-time.Scanning.Bigger stores.Smaller stores.More specialized stores.A greater emphasis on efficiency and cost containment.
The nature of our competition has changed too.Particularly at the front-end,magazines are competing for space with beverage,candy and cigarette manufacturers-some pretty heavy-hitter marketers!
Pressure on the front end continues:with self-checkouts and portable scanners replacing traditional checkout lanes.These mean less waiting in line with nothing better to do than pick up a publication!
The greatest danger facing the magazine industry is complacency.Most mainstream retailers are at best ambivalent toward magazines.Many simply don't understand them,and strong supporters are the exception rather than the rule.
Continuing Changes in Retail Landscape
You can see from this chart where the strongest supporters are.They are the retailers that have gained greatest share over the past decade.
Mass merchants,which have grown from 9 to 16%of retail sales.
Bookstores,whose share has doubled from 6 to 12%.
Newsstands and terminals,which have grown from 9 to 12%
In contrast,Convenience stores have declined from 16%to 7%.And mom-and-pop outlets have almost disappeared.
Supermarkets remain our largest class of trade,steady at around 43%.
There is a good reason why the winners-think Barnes&Noble,Wal-Mart,Hudson News-have gained share.It is because they have paid more attention to the magazine category than their competitors.
Magazines fit into their strategy.
Like our earlier speaker,Jeff Bezos,they have redesigned their business model from the bottom up for magazines to strengthen their competitive position.
Barnes&Noble,for example,has designed its magazine section as major in-store destination.It bypasses traditional wholesalers with direct delivery and its own in-store merchandisers;aggressively leverages scanned point-of-sale data to customize each store's layout,optimize assortment store-by-store,even using this data to drive an automated replenishment system.The result:magazine sales at B&N have outpaced overall growth;sell-through levels are way in excess of industry averages.
In another significant phenomenon,consolidation of the retail industry has concentrated buying power.A mixed blessing!But the net result is that the top 9 retail accounts today represent between 50 and 60 percent of retail volume;23 retail calls will reach over 80 percent.
Emerging Classes of Trade
And the retail landscape continues to evolve,presenting new challenges for us.The Internet has emerged as a serious retailing competitor in just about every product category,including magazines.
Consumers are embracing new types of bricks-and-mortar retailers too.
There are 25,000 Dollar Stores,like Dollar General and Family Dollar,growing at 12%a year.
Price Clubs like Costco and Sam's generating some$80 billion in sales.
Limited assortment chains like Save-A-Lot and Aldi,growing at 3 times the rate of conventional supermarkets.
In many cases,the single copy model does not appear to be a comfortable fit.Where are the magazines in Costco?Or in Trader Joe's?We need to create a fit.Many of these new,rapidly growing channels do not sell magazines simply because our single copy,one-size-fits-all distribution model doesn't work for them.
We need greater flexibility in how we serve these retailers.