MPA STUDIES SUGGEST DISTRIBUTION ALTERNATIVES

STEPHANIE LOUGHRAN

NEW YORK -- The Magazine Publishers of America here recently released the results of two new reports that offered solutions to alleviate problems in the single-copy magazine distribution system.

The first study, released just before the American Magazine Conference 2001 here last week, offered remedies such as a more direct relationship between publishers and retailers, and a "cost-to-serve" model to help align payments and incentive conflicts within the current distribution system.

Boston-based Charles River Associates conducted the study, "Single Copy Magazine Distribution for the 21st Century: Summary of Initial Feasibility Study," for trading partners to better understand the distribution process and to provide alternatives to bring more stability to the magazine industry, according to Anne Finn, vice president, consumer marketing, MPA.

"We are pleased with the study as a solid foundation for the industry to build upon. This is a first step," Finn said.

She said the study would be made available within the next two weeks to the retail community through the Magazine Retail Advisory Council, which is comprised of MPA members, International Periodical Distributors Association members and members of the retail and wholesale communities.

CRA consulted 25 retailers, publishers, wholesalers and distributors to obtain their feedback on the current system.

According to the study, retailers were dissatisfied with the level of service they received, in addition to the efforts required to sell magazines. Meanwhile, the publishers continue to push the maximum number of copies on a retailer in order to drive up the rate base, without bearing the costs of returning unsold copies.

An anonymous magazine-ordering specialist at an East Coast-based retailer said the system is backwards.

"Publishers should bear the cost of unsold copies," the retail source told SN. "It would be incentive for them to get a better sell-through. If they were held to a higher level, they would not be trying to push as many copies [on the retailer].

"It should be more of a 'pull' industry instead of a 'push' industry," the source noted.

The study suggested a more direct negotiation between publishers and retailers to ease the strain of current incentive-conflict issues.

Monica Noether, vice president of CRA and the officer in charge of the study, said alternative initiatives like the "cost-to-serve" model, in which the wholesaler is paid for each service performed, could help realign the trading partners' duties and iron out payment conflicts.

"Under a cost-to-serve model, the publishers could pay wholesalers to handle returns explicitly and choose not to send so many copies if they don't want to pay for this," Noether said. "Or publishers could pay wholesalers to make sure that retailers never run out of their key titles."

She said the new structure would give wholesalers, as logistics providers, new incentive to provide better service at the racks.

"Retailers could pay wholesalers more if, for example, they do a better job servicing the magazine racks or if they agree to make two deliveries a week instead of one," she said.

At the conference, McKinsey & Co. presented a separate study to publishers that complemented the benefits of the cost-to-serve model explained in the CRA study.

Joanna Barsh, director of New York-based McKinsey & Co. and one of the presenters of the study, "Prevailing at Newsstand: Mastering Today's Distribution Challenge," said the cost-to-serve model coupled with scan-based trading -- a concept that eliminates retailers' costs of checking-in and checking-out magazines -- would be a great step forward.

"In one swipe, retailers could get rid of in-store labor devoted to magazines, all of their inventory costs and most of their administrative hassles," she said. "What's not to like from a retailer's point of view?"

After the presentation, Finn said that discussions to move forward with the scan-based trading initiative and the cost-to-serve enterprise are under way among the trading partners. She told SN that she recommended the introduction of both models "in tandem in order to clean up the supply chain."