Thomas O. Ryder-2005 Retail Conference

March 1, 2005

Thomas O. Ryder
Chairman and CEO
The Reader’s Digest Association

Morning Close Speech
Looking Ahead
2005 Retail Conference
March 1, 2005
Phoenix, AZ

When I became head of the MPA, it was clear to me that  one of our highest priorities had to be retail sales. Things were getting “worse… fast.” Previous efforts had focused on fixing the supply chain.  This was certainly a need, but not something easy to accomplish. So, we had a “brilliant” idea, which became the focus of our retail initiative.  I’ll sum it up in these words: sell more. 

We reasoned that we needed to do two things:

One, if we could stimulate demand, many of the financial woes plaguing the supply chain would melt away, as more fixed costs and technology investments were covered.

And… Two, if we could stimulate retail volume, then sell-through efficiencies and profits would improve.
Those are two very big “ifs,” I know.   And, as my brother always likes to tell me, “if a frog had wings, it wouldn’t bop its ass when it hops.” 

But, in fact, I really do believe that our new focus is beginning to pay off. When it comes to the intrinsic vitality of magazines, there has never been any doubt in my mind. The evidence is overwhelming. Like a force of nature, new magazines are being developed with astonishing strength and frequency. And our older magazines, once established, enjoy continuing loyalty from their readers over a much longer timeframe than almost any consumer brands I know. I have said before that magazines are the freshest department in your stores. Magazines are constantly updating and reinventing themselves. This is because publishers understand that they live and die based on their ability to be close to their readers, particularly as those readers change and grow.

During the past two days, we’ve heard some great examples of magazine vitality:

- We heard how multi-cultural magazine publishing is pushing
ahead of the curve, creating magazines that connect to ethnic and minority cultures.

- We heard how leading retailers are using the vitality and connections of magazines at the leading edge of their core business strategies – not buried deep in a corner of their stores.

- We heard success stories of print transcending its boundaries: how the ideas and inspirations contained in magazines and books have morphed into new vehicles, along the way producing generous margins for retailers.

- And, last but very, very far from least, we heard how magazines are being used by retail outlets to drive sales of other critical products.
Magazines are a product unlike any other...connected to your customers, stores and profits in powerful ways.

We kicked off our Growth Initiative last year with our “Magazines Make Connections” campaign. Today, you heard from Peter Kreisky and John Loughlin about our progress with this program. How do we measure success?

We have benchmarks that clearly show that magazines are among the most profitable products in your store. And, we would be thrilled to share them with you. We have brought together retailers and publishers at the senior-most level, and begun important new dialog. We are taking magazines into new kinds of stores that are high-growth-and-volume, reflecting the changing preferences of today’s consumer. Retailers are getting in the spirit, in many cases enjoying success by putting magazines front and center. 

One retailer I know is using a giant display –  right in Center Store –  in effect, creating a destination, a center of attraction. A center of transaction. You heard Barnes & Noble say magazines go on their "50-Yard Line". We are working on a whole new series of initiatives that will improve profitability for retailers – and for publishers, too.  You will be hearing about some of these quite soon.

I want to emphasize the points that John Loughlin made, because they are so important:

- We will work harder to build strong and enduring relationships with our retailers.

- We will work harder to create and support category management programs, to ensure that magazine selection effectively and efficiently matches consumer demand, store by store.

- We will work harder to apply discipline and science to retail economics, to eliminate waste through our supply chain.

- We will work harder to deploy our best and brightest talent to support retail channels, and consistently so.

- We will work harder to challenge conventional and traditional thinking – the “one size fits all” mindset of the old single-copy model.

- And, we will work harder to innovate how magazines are displayed and sold in stores, to move magazines from display to mainstay, from commodity to customer experience.

None of this will happen overnight. But it is starting to take place. Now, I would like to end with a few words to publishers. 

So, to all of my retailer friends please cover your ears! 

Fellow publishers, here are some ideas I ask you to consider:

1. Let's face it; the supply chain is still a mess. And, unless it's fixed, we will not meet our promises to retailers, or to our own shareholders. It is time for some serious rethinking -- and acting.

2. A great percentage of the magazines on the newsstand should not be there at all – or at least their presence should be significantly reduced. DeadWood will debilitate an otherwise healthy tree every time. It is time for each of us to do some serious pruning.

3. Overcrowding exists because too many magazines have rate bases that are bigger than demand. Circulation people know this and should make sure that their management knows it. It is neither weakness nor sin to reduce dumb rate bases.

4. Most waste on the newsstand exists because we allow it to.  
It's time to bring economic sense to newsstand returns.  A publisher recently told me he had a 14 percent sell-through on one magazine but was still making money. That sort of craziness exists when our economic models encourage bad decision-making.

5. I am going to conclude with my pet peeve. I hate it when I find someone else's magazines in pockets I have paid for. It destroys the planning our retailers have done and it hurts the investment I have made. It makes me angry. It affects other publishers the same way. It causes chaos. It hurts sales... so stop taking what you haven't paid for.

OK, retailers, you can listen again. I’ll address these final words to everyone. 

Publishers and retailers have a lot in common, mostly having to do with the challenge of communicating with customers. Back home in Louisiana, I knew a commercial landlord who was renting three shops, all lined up in a row. He promised a free sign with each store rental. He got lucky – three prospective lessees showed up, as it happened, each planning to run a menswear shop. The first rental was the store on the left. 

The landlord asked, “What do you want your sign to say?”  “Men’s wear,” the store owner replied.

Next, the landlord rented the store on the right. “What do you want your sign to say?”  “Men’s wear,” came the reply.

Finally, the landlord rented the middle store. “What do you want YOUR sign to say?” he asked. 

This guy was no dummy. Without missing a beat he said, "I want my sign to say “Entrance.”

Thank you all. 

Enjoy the rest of your stay.  I’ll see you at dinner tonight.