HEARST, CONDE NAST PLAN TO POOL DISTRIBUTION

JOEL ELSON

NEW YORK -- Hearst Magazines and Conde Nast, both based here, have agreed in principle to form a new joint-venture distribution company for their magazines, which include major large-volume titles carried on supermarket checkout racks.

Under the distribution alliance, Conde Nast would merge its retail and sales organization with Hearst's own distribution group. The new organization would coordinate the two firms' magazine titles from printing to news rack distribution. Conde Nast titles include Vogue, Glamour and GQ, while Hearst publishes Cosmopolitan, Harper's Bazaar and Country Living. Conde Nast now distributes its titles through Time Distribution Services, a subsidiary of Time Warner, New York.

Hearst spokesman Paul Luthringer told SN: "We have agreed in principle to form a new sales, marketing and distribution company. The new equal partnership will combine the Hearst Distribution Group with the Conde Nast retail organization."

According to Maurie Perl, Conde Nast's senior vice president for corporate communications, the companies are in discussions on developing the distribution plan. Both publishers declined further comment.

Once the agreement is completed, the newly formed distribution plan would be implemented during the first quarter of next year, a source close to the situation said. Once the deal goes through, magazine wholesalers would deliver the firms' publications to retailers from the yet-to-be-named new distributor.

What effect, if any, this new distribution arrangement would have on supermarkets will be clarified after the deal is signed, the negotiating parties indicated.

During the past five years the number of magazine wholesalers has declined through industry consolidation to about 50 from 180, putting pressure on poorly performing magazines that often are dropped from wholesalers' lists or pulled from supermarket mainline magazine fixtures.

As a result, total newsstand sales of all magazines slipped 4.6% in 1998, according to industry studies, the publishers said. Hearst Corp.'s magazine unit in particular relies on newsstand sales for many of its top titles. Its Cosmopolitan magazine sells about 22.5 million, or 70% of its total circulation, on the newsstand, according to publishing data.

The two magazine houses will leverage their strength in dealing with major magazine wholesalers that supply the supermarket channel with periodicals and books, noted Richard Brown, executive director of the Periodical and Books Association of America, New York,

"The wholesalers' strength will be weakened due to this larger distribution organization," Brown pointed out. "Rather than fighting with just Hearst and Conde Nast individually, the wholesalers now will have to deal with this new and larger volume company."

Under the new distribution system "with one policy and one philosophy in dealing with wholesalers, there is not a wholesaler that could operate without affecting their overhead if they lost that one distributor now," Brown said.

According to industry insiders, one national distributor that stands to be affected by this alliance is TDS, a national distributor, that handles magazine sales and marketing for Conde Nast and maintains contacts with supermarket retailers.

It provides on-site merchandisers who conduct in-store merchandising to complement the duties of magazine wholesalers, a knowledgeable industry observer said. "TDS also ensures that the magazines arrive at stores during the busy times of the week. But most importantly, TDS and its extensive field force has maintained the retail contacts for Conde Nast, bolstering the publisher's sales and marketing staff," the source added.

"TDS also did all the retail marketing and negotiating with retailers for space on the checkout racks, authorizations for promotions and special displays," noted the source.

And while Hearst handled these sales and marketing functions through its own distribution group, the new joint distribution company "would basically take on all of the retail marketing," said the source.

The new distribution approach "is molded after our successful joint venture in England, Comag," Luthringer noted.