Peter KreiskyChairman, The Kreisky Media Consultancy, Inc.
John LoughlinPresident, TV Guide Publishing Group
Retail Growth Initiative Update2005 Retail ConferenceMarch 1, 2005Phoeniz, AZ
Good Morning, everyone.
I am delighted to be here again, because two years ago the MPA Board gave me a challenge: to bring clarity to the “Fog of Retail” – a critical task considering its importance to consumers, retailers and to the publishing industry.
Twelve months ago, we launched the Magazine Retailing Growth Initiative, the program endorsed by MPA to focus on demand rather than supply; to take magazines to consumers in the channels where they prefer to shop; and to open the industry to alternative business models to connect consumers, retailers and magazines in the most effective and efficient manner.
At this conference last year, I introduced you to a simple new communications framework: Magazines Make Connections and described a set of bold initiatives aimed at stimulating growth through the retailing sector.
Magazines Make Connections made a connection, it left an impression.
It’s no coincidence that this year’s conference theme is “Making Connections”.
Today John Loughlin and I plan to take the Connections theme one stage further, and address how to Harness the Vitality of Magazines
What are the opportunities and challenges at Retail? What have we been doing? And, what can you expect to see over the coming year?
Let’s start with a reminder of the factors driving retail dynamics. A sizeable shift has occurred in product range and mix. We have twice as many titles today than a decade ago with two-thirds of the volume. It’s highly significant how smaller titles have eased out larger titles. The top 25 have been squeezed the most, their unit volume declining by one-half over the decade.
To be fair, this decline has been driven disproportionately by the contraction of a handful of mass market titles. And there’s been a significant though small reversal of this trend in the past year with the success of celebrity titles. But what we’re seeing here is a major shift in consumer preferences from mass to niche and special-interest titles.
Ten years ago, 54% of volume came from the 25 largest titles; today the proportions have been reversed; almost 60% of volume comes from the several thousand smaller titles.
This represents a massive shift in product mix without a corresponding change in the industry’s physical infrastructure to support it. Mainline and front end haven’t changed radically to adapt to the change. Information and logistics infrastructure have a way to go in terms of producing optimal sales, store-by-store, figuring out which product configurations and displays will be best for each outlet.
Another critical shift in the pattern of consumption is being driven by changes in where consumers prefer to shop. Shopping trips to supermarkets are down –- from 92 per year in 1995 to 69 in 2004. That translates to almost two fewer shopping trips per month over the decade. Supercenters and Price Clubs have won the loyalty of many shoppers, who buy more per visit but shop less frequently. For magazines, which are so strongly driven by store traffic, this is a serious issue.
Why are supermarkets losing share of shopping trips? You heard one of the reasons yesterday from Michael Sansolo of FMI. The Coca-Cola Research Council study identified consumers’ feelings that for many, supermarket shopping is an “unpleasant necessity” that is neither interesting, rewarding or likely to provide savings. At the same time as the Coca-Cola study, MPA fielded research through Northwestern University on the value of magazines to consumers, using virtually the same panel of respondents. Their response reflected what I’m calling the “vitality” of magazines: the way in which magazines engage and empower consumers are relevant, make them feel smarter, feel good, provide value for time and money.
We wondered whether the vitality of magazines could offset the absence of pleasure derived from supermarket shopping. For magazine purchasers it can.
As Bill Bishop described yesterday, there are segments of supermarket shoppers, highly valuable segments, for whom magazines do make a big difference. The Discovery segment identified in the Coca-Cola research looks very much like The Influentials segment, which I described to you last year. They are heavy magazine consumers, the affluent and active early adopters and community influencers, who are looking for stimulation and new ideas and are highly sensitive to atmosphere and product selection. They are also the group that is shifting its channel allegiances away from supermarkets the fastest, toward supercenters, warehouses and other fast-growing formats. Magazines are an important factor of a positive shopping experience for them.
Magazines’ vitality turns these consumers’ on. And the retailers that have embraced this vitality have been the big winners, stealing away these and other affluent consumers.
At a macro level, the winners are in the classes of trade which have shown greatest share gains over the past decade. There is a good reason why the winners have gained share. It is because they have embraced magazines as a mainstay of their proprietary retailing strategies. They love magazines because they help drive their proprietary strategies, not the publishers’.
This morning, I want to describe four examples of Retailer Transformations that illustrate how Barnes & Noble, Home Depot, 7-Eleven and Wegmans harness their basis for competitive differentiation (or USP as we used to call it) to magazines’ vitality. Not only have they harnessed the vitality, they have bottled it – under their own label. You heard yesterday from Mitch Klipper, COO of Barnes & Noble how the company has transformed the bookselling business
Bookstores, with B&N and Borders at the leading edge, have doubled their share of retail magazine sales over the past decade – from 5.6 to 11.4%. For B&N this is the result of a purposeful redesign of its business model from the ground up to harness the strength and vitality of magazines.
Here are the key elements of their magazine strategy – as I see them. First, B&N has designed its magazine section as a major in-store destination to enhance customers’ in-store experience. The section is always to the right of the front door, close to the café, where it will encourage browsing and lingering. It has proprietary, high quality, fixtures. B&N offers a broad and deep selection tailored to each store (between 1700 and 3,000 titles per store chosen from a base of 5000). It also aggressively cross-merchandises: computer magazines next to computer books; cooking magazines next to cookbooks, and so on. It also uses highly visible promotion fixtures.
Second, B&N has created a powerful direct delivery system that gets delivery direct to each store from specialty wholesalers and uses its own in-store merchandisers.
Next, B&N aggressively leverages information for operational and competitive advantage. It combines scanned point-of-sale data with local market intelligence –
and feedback from each store. This enables B&N to customize each store’s layout, optimize adjacencies, optimize assortment store-by-store, manage draw levels at a store and chain level. B&N is one of the only leading retailers that successfully uses POS data to drive an automated replenishment system. The results of this careful thought and planning are impressive: magazine sales at B&N have marginally outpaced overall growth; out-of-stocks are extraordinarily low; sell-through levels are the highest in the industry, at levels to make you salivate. Barnes & Noble is truly a leader in this industry. Their model may not work in other classes of trade, but there are elements that other retailers should emulate.
Home Depot, as we all know, is another enormous success story. Less well known is the role magazines and books play in Home Depot’s strategy. Home Depot leverages the information value of books and magazines to drive incremental sales across the store. Its magazine and book “information center” is a keystone of Home Depot’s strategy. Research shows magazine and book purchases are closely linked to DIY projects. Customers read a how-to article on a new deck or home entertainment center and this stimulates sales of project materials and tools identified in articles. Home Depot executes against this goal with a targeted selection of Shelter and DIY titles, housed in a rack designed to fit the Home Depot store ethos. It uses specialty wholesalers to service stores via direct delivery, then merchandises the racks. Another example of capturing the vitality of magazines and leveraging it to your advantage.
Convenience stores share of the retail magazine market has declined from 16% to 7% over the past decade. This has not escaped the notice of 7-Eleven. When MPA met 7-Eleven’s top management a few months ago, they were extremely bullish about Magazines. Their research shows that Magazines are a destination in 7-Eleven stores that drive customer traffic and add-on purchases. This is a slide they showed us of their new objectives for magazines
They see magazines as a destination in 7-Eleven stores to be carefully designed, refined and leveraged, using store-by-store category management to tailor assortment to customer demographics. Incidentally, the meeting also demonstrated the value of benchmarks – they were using erroneous data in looking at magazines. Our new benchmarks were embraced enthusiastically. We will assist them to the fullest extent we can in effecting their transformation.
I’m not going to say a lot about Wegman’s because I don’t want to steal Heather Pawlowski’s thunder later this morning. But as you know, Wegmans has been a repeated winner of best practice awards at this conference, and its recent nomination by Fortune magazine as The Best Company To Work For In America shows that its best practices extend far beyond magazines. Wegman’s has embraced magazines vitality as a competitive differentiator: to stand above the crowd. As Heather will tell you, magazines are part of Wegman’s “Street of Shops,” a concept designed to engage customers and provide a “one of a kind” shopping experience. To Wegmans, magazines are not just another commodity; they provide competitive differentiation. And it shows
Wegmans doesn’t limit magazines to front end and mainline. You’ll see a lot of cross-merchandising at Wegman’s because the incentive structure encourages it -- when the logic is right i.e.: when there is a clear connection between the magazine and the department that will drive sales of both.
The commitment to magazines comes all the way from the top. Wegman’s top management believes in magazines. One of the secrets of Wegmans’ success is the management involvement in the category – the investment in a Class-A management team to shape and drive it, working with, and leveraging the power of, the traditional distribution system. They set a great example for the industry.
Other than Wegmans and a few other chains like them who have embraced magazines, Supermarkets provide our greatest challenge. Supermarkets still represent the largest class of trade for magazines, but have declined from a 43% to a 38% share of market over the past decade. According to Harrington Associates, in the past 12 months, magazine revenues through supermarkets fell some 8%. I’ve already talked about some of the consumer factors on the left of this chart that are driving the dynamics of magazines in the grocery sector
Retailers have changed too.
More checkout lanes.Less wait-time.Scanning.Bigger stores.Limited selection stores.More specialized stores.
A greater emphasis on efficiency and cost containment.
At the front-end, the nature of our competition has changed too. Today magazines are competing for space with beverage, snack, candy and cigarette manufacturers – some pretty heavy-hitting marketers!
Pressure on the front end continues: with self-checkouts and portable scanners replacing traditional checkout lanes! Not only do these mean less waiting in line, but the consumer now has to be more focused on scanning their own groceries, not idly scanning the magazine racks. In my opinion, 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.
The great danger here for magazines is commoditization: decline and loss of relevance in this class of trade
To the store manager who does not see the RDA and RDP allowances taken at headquarters, magazines sit as a no-growth, average margin category. A blip on the radar screen compared to their mainstay categories.
We cannot afford to let magazines be regarded in this way, be compared to frozen foods, or health and beauty care products on a dollar-for-dollar basis. The magazine industry is at a fork in the road.
I’ve labeled the choices: Commodity…or Customer Connection. The low road or the high road.
In one direction, if we do nothing new at retail, magazines will remain a low priority display category for retailers, plagued by a perception of being just another low growth, moderately profitable, labor intensive, messy and difficult-to-understand category that competes for display space with beverages or greeting cards and that may over time be eased out to make way for more dynamic products.
This is a treacherous path. After all, there are as many as 30,000 fewer outlets selling magazines today than 10 years ago and a whole bunch of rapidly growing channels, which consumers prefer, that sell few if any magazines!
Price Clubs, Dollar Stores, Category Superstores. Alternately, we can take the high road by paying greater attention to the retail channel – invest, promote, and communicate magazines’ virtues as a customer connector. And communicate through the benchmark data you’ll see later just how profitable magazines really are. If we do, we will change retailers’ perception and make Magazines an essential department in every store that generates customer traffic, enhances the shopping experience, and promotes greater customer satisfaction and loyalty.
To accomplish this we must promote the incredibly important connections – the visceral relationships – between magazines and their readers, supermarket shoppers. We must convince retailers of the truly attractive economics of magazines. And of the virtues of a tailored assortment.
We must think differently, not just the front end and mainline, but also seek corporate support for effective cross-merchandising.
We must show retailers why Magazines should be a mainstay of every store –
just like the service deli – and show them how to make Magazine Displays part and parcel of a unique customer experience.
And we must execute. Up to this point the magazine industry has for the most part followed Yogi Berra’s advice: if you see a fork in the road, TAKE IT!
We intend to change that.
We must make sure that we choose the high road and – with your support –
transform magazines from just another Display Category to high value Department, overflowing with vitality and customer connections.
So that’s where we’ve come from.
Now I’d like to introduce to you John Loughlin, President of TV Guide, who together with John Griffin of National Geographic has provided superb leadership and direction for the Growth Initiative on behalf of MPA’s Board of Directors.
John will explain what we’ve been doing in 2004 …and what to expect in 2005.
Thank you all for your support – and in particular your encouragement that we’re heading in the right direction.
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Thank you Peter, and Good Morning.
Peter certainly got the Board’s attention when he presented his eye-opening perspective on the retail market at our retreat in January 2004.
At that time, our Chairman, Tom Ryder asked John Griffin, President of National Geographic, and me to lead the magazine industry’s response, overseeing a number of initiatives aimed at stimulating the retail sector.
Simply stated, the goal of the magazine industry is to focus on stimulating demand rather than on “fixing” the supply chain.
Though a different model to the present one is arguably needed, the marketplace must drive that process.
To accomplish our core goal of stimulating demand, the industry must engage in the present while anticipating the future.
We must develop new approaches to magazine retailing that incorporate how the retail marketplace behaves today, and a vision five years out.
We need to migrate from the industry’s traditional, one-size-fits-all, single copy mindset to models that fit a greater variety of
retailing approaches –
serving consumers in the retail channels
they are choosing to shop.
We have to convince retailers of magazines’ relevance and importance for their customers and their stores, and to give magazines the position they deserve.
And, we must have a consistent and coherent industry position on the contribution that magazines make to store profitability.
These are serious and demanding goals, but I’m pleased to share some real progress.
So, What have we been doing?
We have six initiatives to report on in support of these goals.
First, we have enjoyed real cross-industry support mobilizing around the tasks.
Second, we have developed a clear message to retail –
and have been communicating it broadly in the retail community.
Third, we have established and agreed to common performance benchmarks that will clarify retailers’ perceptions about the more-than-attractive economics of the magazine category.
Fourth, we have already made real progress in strengthening
retail relationships through our top-to-top program
Fifth, we have opened doors and engaged long ignored, but high potential channels that have taken share from the traditional supermarket channel.
And finally, we have initiated programs that respond to the challenge Peter Kreisky articulated: to shift magazines’ retailing paradigm from Commodity to Customer Connection.
First, let me talk about industry mobilization.
Six working groups were set up in Spring 2004, with members
broadly representative of the industry.
The teams’ tasks were focused on Performance Measurement and Benchmarking, Display Innovation, Emerging Channels, the Top to Top Program, a Five Year Vision for the industry, and Waste Reduction.
Near-term, their objectives were to define new practices to stimulate growth in existing and emerging channels;
longer term, to establish industry goals for the next five years.
These teams have put in many hours and a great deal of thought,
and collectively demonstrate the industry-wide commitment to improving our position at retail.
Initiative # 2: Clear and consistent communication.
Tom Ryder charged MPA with communicating better with our retail customers the unique role magazines play in stores…..
selling our product more effectively if you will.
Magazines Make Connections, launched at the 2004 Retail Conference, presented a new theme to change retailers’ perceptions.
For the first time it linked together, cogently, the unique assets magazines bring retailers under the theme of Connections.
Connected to customers with buying power and influence through our brands, our content, our relevancy:
140 categories to match every consumer passion.
Connected to stores through a unique logistics and distribution system that handles incredible product complexity and assures freshness.
Connected to retailers’ bottom line, providing value beyond pure profits.
Connected to the future, through constant innovation and renewal.
What was key to this message is that for the first time, it celebrated the differences of magazines from the rest of the store, rather than apologizing for them.
Magazines have unique strengths and we urgently needed to articulate them.
Over the past 12 months, this clear message has been extended and amplified through the retail community.
It was reformatted into a 24-page supplement in the FMI issue of
Supermarket News, translated into discussion and presentation materials, and has been presented to numerous audiences,
notably at major retail industry conferences, including FMI, NACDS and GMDC.
In the coming year our communications program is being driven along four paths.
First, as I hope you’ve noticed, this Retail Conference has a new design and format.
It been redesigned to emphasize our goal of stimulating demand
(rather than focusing in earlier conferences on logistics, efficiency and IT).
We’ve made it into a marketing showcase with a strong focus on products and marketing programs – bringing in our MC, Hearst’s very own Michael Clinton, to articulate our common theme.
The conference program has been designed to be forward-looking.
For the first time we have Editors, lots of ‘em,
providing visibility on hot products like Latina; hot genres like shelter, men’s magazines, and celebrity; new product introductions like Inside TV, the very hot new title from TV Guide.
Apologies for the commercial, but we’re very excited by the retailer response.
The conference is also showcasing retail innovators like Barnes & Noble, Basha’s and Wegmans, each of whom have embraced the vitality of magazines as a critical component of their USPs.
We’re excited by the new life that Michael Pashby and
the MPA team have breathed into this event. Let us know whether you agree.
Second, we now have benchmarks.
They’re in your conference binders and I’ll be talking about them next.
Importantly, we’ve had an extremely positive response to our benchmark data at Top to Top meetings.
The challenge now is to use them in the most relevant and effective manner.
Third, following last year’s successful supplement for the FMI Show issue of Supermarket News, we’re repeating that effort again this year.
Finally, we are continuing our PR program:
framing the growth story effectively and consistently; focusing on the vitality of the sector with success stories: new titles, new categories, breakthroughs.
Next, Benchmarks.
The purpose of this work was to level the playing field when we visit with our retail customers: to shift their often-negative perceptions with fact-based reality.
Retailers’ perception is often that magazine profitability is no better than average.
The reality: once you add-in the trade allowances that local store management may not see, magazines’ true gross margin is at least 6 points higher than chain averages.
Retailers’ perception is often that magazines’ inventory turns are no different than average.
The reality: Frequent wholesaler service guarantees freshness,
and direct store delivery eliminates the need for warehouse or backroom inventory.
Magazines turn almost twice as fast as store average.Retailers’ GMROI becomes very very high.
Retailers’ perception is often that magazines are labor intensive.Checking in deliveries plus checking out returns.
The reality: wholesalers supply the merchandising, so little or no store labor is involved in stocking shelves and displays.
The facts: labor costs are 2 points lower than the store average.
Retailers’ perception is often that magazines are only moderately profitable.
The reality, putting above-average gross margin and below-average labor costs together, is a contribution margin for magazines of 25% versus 17% for the total store.An impressive metric.
Retailers’ perception is often that magazines are unconnected to the rest of the store.
The reality: Magazine purchase is associated with incremental sales throughout the store.
Recipes lead to the produce aisle.
Beauty tips lead to the cosmetics aisle.Product reviews lead to equipment purchases.
Advertisements and coupons drive product trial and
repeat purchase.
Finally, retailers’ perception is often that the magazine category is a “no-growth zone”. Not true.
The reality is that there are many rising thermals, magazine segments that have been exhibiting very impressive growth.
Celebrity is clearly very hot.
Here are some others:
Teen Girls, Hispanic, Gamers, Modern Men’s Lifestyle, Shopping.There are a host of growth stories to be proud of.
In 2004, we embarked on a top-to-top program to raise the visibility of magazines to the top management of our retail customers.
With the increasing concentration of buying power,
just 23 retailers represent over 80 percent of volume.
The good news about this is that we can meet retailers responsible for over 80 percent of the market through only 23 meetings, give or take.
How many of us CEOs have called on our major retailers?
We don’t flinch at flying to see Procter & Gamble –
a major advertiser –
at a moment’s notice.
But few of us ever make it to Kroger, America’s largest supermarket chain, also based in Cincinnati.
Top-to-top means CEO-to-CEO, and we are finding this can mean a very different, more strategic discussion than the magazine industry has had before.
Here is a selection of the direct dialogs between publisher and retailer CEOs in 2004.
For me, these meetings have been an eye-opener into the retail community’s perspective on magazines
For many, we are a low priority category, a blip on their radar and it’s been tough getting through.
It was startling to hear the COO of the nation’s third largest magazine retailer tell Nina Link and me that our meeting was the first time a magazine CEO had crossed his threshold.
Nonetheless he was thrilled to see us.
At another top-to-top, the president told us how critical the magazine industry’s high level support was to his chain’s repositioning and turnaround.
We’re working to help him further his goals.
But these meetings are invaluable.
We are listening carefully, communicating the strengths of magazines, learning a lot, and critically, we are being heard.
This coming year, we’ll continue and extend the program using feedback from 2004; targeting new dialogs while continuing others already established; and developing follow-up programs that include a series of touchpoints.
Most important, I want to issue an invitation here and now to retailers in today’s audience to come up after this to see me if you would like to set up a Top to Top.
John Griffin and I will be thrilled to set up a meeting with an agenda that addresses your opportunities and concerns.
We have been rethinking our traditional business model for important new channels where magazines are not sold today.
Many of these are growing at enviable rates, in particular the Internet, Category Superstores in a wide variety of sectors,
Price Clubs, limited selection retailers, and Dollar stores.
Over the past year, the Emerging Channels team has profiled key players, focusing in particular on understanding how their business model compares to the standard retail formula; developed hypotheses for magazines’ potential role; and generated practical options to break through.
We are exploring all the strategic and operational variables at our disposal – beyond the single copy model – to assure magazines are not left behind.
Through intensely focusing on the problem in this way,
I can report that we have achieved several important breakthroughs in the past few months and I look forward to sharing specifics once we deal with confidentiality agreements.
You'll be hearing more very soon!
We’re very pleased with the progress we’ve made in Emerging Channels.This is a great example of anticipating the future…
and getting used to a world of multiple business models.
In shifting the retailing paradigm, we are aiming for a fundamental shift in magazine retailing.
We need to change the magazine experience in retail stores.
From Commodity……to Customer Connection.
Our goals are crystal clear.
Stop magazines competing for display space with commodity categories.
Reposition the mainline as a department that drives customer traffic and purchase, enhances customer satisfaction, and strengthens store loyalty
Promote the entertainment value of magazines enhancing the customer shopping experience.
Establish magazines as a high value anchor of every store.
We are working on several initiatives to support the shift.
Over the last few months, we undertook primary research into the role and relevance of magazines to supermarket shoppers: their attitudes and behaviors around magazines; magazines’ role in enhancing the shopping experience and their impact on customer loyalty.
These focus groups, conducted around the country, eliminated any shred of doubt that magazines drive incremental purchases in stores.
Respondents get ideas for meals, new products, projects and much more from the pages of magazines.
Second – and this is new(!) we consistently heard strong requests from consumers for more cross merchandising, that is, for relevant magazines to be displayed and sold close to matching products.
Several of the groups suggested breaking up the magazine display, and placing magazines in related areas of the store – wine magazines in the wine section, for instance, or health and beauty magazines in the corresponding aisle.
Many say this would make the magazines more noticeable and increase the number of shoppers who see them since they would be integrated into the aisles that customers shop.
In one group, respondents suggested that cooking demonstrations could focus on a recipe from a current magazine and allow customers to sample the dish and pick up the magazine at the same time.
Third were some compelling examples of well merchandised and located magazine departments’ ability to draw traffic.
Frankly, we believe this demonstrates the unrealized opportunity to do much, much better.
Finally, almost without exception, the consumers we talked to demanded retailers do a lot better with their displays.
When asked, they came up with a multitude of suggestions
for higher standards.
Mainline displays should have excellent lighting, be well-stocked and organized by topic area, show the full covers instead of simply the title, and perhaps be situated in an area of the store that is heavily traveled (like the milk or bakery section) or in an area where customers often have to wait for service (e.g., the deli or pharmacy departments).
Individual supermarkets should take far more care selecting titles that meet their customer needs.
Consumers clearly care.They want displays better designed to make selection fast and easy.
And they insist on better maintenance.
Based on our survey work, their needs are, for the most part,
not being met.
This represents an opportunity and we plan to respond.
In 2005, we intend to apply the best of design thinking to innovate how magazines are sold at retail and we have decided to focus the next phase of MPA research on rethinking display design.
We have asked Peter Kreisky to coordinate this work,
the objectives of which are to rethink the consumer experience;
innovate how magazines are sold at retail; and focus on the most effective mechanism to spur innovative design.
So, to summarize what to expect in 2005, we plan to build on our momentum, that is, to keep the industry focus on stimulating demand rather than trying to fix the supply chain.
Growth must lead; the supply chain will follow.
Major initiatives include focusing and expanding the communications program; continuing top-to-top dialogs; pursuing
new retail paradigms for display innovation; supporting initiatives to reduce waste in the channel; and addressing the opportunities and challenges of emerging channels.
And so I hope you’re asking yourselves “What can we do?”.
The magazine industry must work harder
to make our retail channels work better.....
By building relationships with retailers
By supporting the efficient management of the category
By applying discipline to retail economics
By putting marketing talent against retail channels, and
By pushing the boundaries of the historical "one size fits all" single copy mind set.
And, by strengthening the customer experience in every store.
The choice, I hope is clear.
Publishers ignore the challenges at retail at our great peril.
We have the roadmap, we are developing the tools, and with your support and involvement, magazines can and will have a much more vibrant place – and the customer will connect… and respond!
Thank you.
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