PROPERTY APPRAISAL

AL HELLER

Retailers are not passing go when it comes to the high stakes front-end these days. Instead, supermarkets are testing the impulse successes of more products in checklanes to see how they stack up against magazines.

Publishers and distributors aren't alarmed yet, for the activity is so nascent they hesitate to call it a trend.

Yet the signs are unmistakable that supermarkets want to merchandise what customers want on the last legs of their shopping trips, without giving up allowances that buffet performance in this prized real estate.

Magazine industry sources count the ways some chains are reducing their display pockets. They tell of checklanes with no magazine fixtures, height reductions of displayers from five pockets to four so cashiers have better visibility, and heated competition from vitamins and herbs, greeting cards, razors and blades, batteries, film and disposable cameras, cold sodas and sports drinks, and of course candy, gum and mints.

"The issue is diversification and what retailers think is optimal for their consumers," said Richard Jacobsen, vice chairman and chief operating officer of St. Louis-based The Source Information Management Company, which manages front-end merchandisers and magazine rebates for retailers.

"Magazines show a return on invested capital that's better than most nonfoods. They have high turnover rates, a strong transaction price, and good volume," he added, recounting a performance study by the Magazine Publishers of America, New York.

There's some irony that nonfood categories, long the stepchild of supermarkets, are suddenly contesting with one another for coveted checkstand space. While their in-line performance can suffer from a lack of upper management attention, selected general merchandise and health and beauty care products are center stage in this growing controversy.

Yet Jacobsen offered a reasonable explanation: "There's been a sea change in magazine distribution over the past four years. We used to have regional wholesaler service, who took care of all retailers within their given markets. There was virtually no competition. Service was a mixed bag that ran from high levels to a hybrid of in-store personnel backed up by once or twice a week store visits by wholesale distributors.

"It's shifted since. New competition and bidding wars for the business have brought margin flow to retailers," he added. "Chains continued to want value-added service in terms of merchandising support. Yet the economics of the business began to make wholesaling unprofitable, and in-store merchandising services were the first to be dropped. They just ramped up so quickly that their performance varied by market, and there've been inconsistencies even within the best organizations."

Meanwhile, he stinged publishers for "grossly overmerchandising and failing to present compelling arguments, supported by data" for their continued presence at checkstands. As a result, he predicted "a general shakeout of magazines in the next year or two because there's too much product out there, and the supply chain will apply more pressure. If and when magazines lose front-end space, is to be determined. If it happens, it will hurt some sales of high-volume titles and really inflict damage on marginal titles."

Jacobsen calls for publishers to "be more selective in what they push, so they can lower fixed costs and rebates, and establish themselves with fewer competitors in checklanes.

"This sea change made magazines more profitable for retailers overnight, and chains woke up to the potential. Let's face it," added Jacobsen, "we're in a non-inflationary market in grocery. Retailers can't exploit price, so they're looking for new sales opportunities."

The inherent problem in all this, he said, is that evidence of what's most effective in checklanes is largely anecdotal. Scanning tells what sells, but not from which location in the store. And while there's been discussion about adding extra information to UPC codes on magazine covers, there are challenges to that, ranging from the prohibitive costs of technology, to whether systems could handle added capacity, whether the Uniform Code Council would allow extra codes, and the desire by magazine art directors to minimize the impact of UPC codes on their cover designs.

However, these codes aren't available either on candy bars, razor blades or numerous other items competing for checklane space.

Still, magazines have a problem because "neither they nor confectionery companies have really measured or done a great job of communicating why they need to be at the front end. Along comes a company like Gillette, which is one of the smartest and most innovative suppliers, and you can be sure they can create a compelling case for their items being there. And of course they'll back it up with statistics," said Jacobsen. "Certainly fees mask weakness in a product's performance. But a smart company with good consumer research can always fight off allowance-driven offerings -- at least with smart retailers," he observed.

Jacobsen cited an M&M/Mars study, Front-End Focus, detailing sales share by location within stores and appropriate assortments at checkstands, as a solid initiative that gained credibility with retailers. M&M/Mars, a unit of Mars, Hackettstown, N.Y., sponsored the two-year study with Time Distribution Services, New York.

What magazines can offer is sales influence on other categories through cross merchandising and promotional efforts. San Antonio, Texas-based H.E. Butt was the beneficiary of this dynamic when it ran its Look of the Century special events in several cities with Seventeen magazine as a co-marketing partner with 14 other vendors. Events included modeling contests, rock concerts, media exposure and follow-through in stores. Special displays throughout H.E. Butt stores were part of the program, as was Seventeen's exclusive checkstand rights in the teen category at the chain.

Scott McLelland, senior vice president, marketing at H.E. Butt, has committed to a similar program with Shape magazine around a fitness theme, which is already being promoted on the chain's Web site.

Clearly magazines continue to scrap among themselves for available space. Oprah Winfrey's new magazine, O, is coming out of the gate as a women's title with considerable name recognition; and Us has gone to a new weekly frequency, further crowding the picture at checkstands.

One outcome of all this competition is the formation of power alliances among publishers to secure front-end display pockets. Some examples: New York-based Hearst and Conde Nast, issuers of women's titles; TV Guide, Newsweek, Woman's Day and Weider, publisher of Shape and Muscle & Fitness. "Because chains have consolidated, unless you're aligned with a power player, you have no protection against lousy positions. Once you're knocked off the rack, it's too late to fix. You always have to be on the alert," said Dick Glassman, director of retail sales at Weider Publications, Woodland Hills, Calif.

"It's like a big game of Risk, with groups of titles vying to amass territories," he added.

The efforts to be displayed well at checklanes may be great, but so are the rewards. "Say an average checkout has 40 pockets and mainline has 400 to 600 titles. The front end may account for 10% of the titles in the store, but probably at least 50% of the category sales in the stores," noted Glassman.

The saving grace is that magazines are simultaneously being tested as sales catalysts throughout the store. For instance, Indianapolis-based Marsh Supermarkets displays Wine Spectator in its wine-and-spirits department and Cigar Afficionado in its smoke shop. And Stevens Point, WI-based Copps Corp. is beginning to install new three-sided magazine, book and educational literature racks as anchors to its Whole Health merchandising efforts.

"Magazines are impulse, but if magazines can be merchandised in outposts throughout the store, the emphasis on front end might be diminished," said Glassman, noting that retailer desires for cleaner, speedier checkouts may hasten their removal. "About 70% of customers read while waiting on line now. Chains may want to remove diversionary items from this area. It's the last interaction a store has with a customer, and they want it to go well."

More pressure may be applied as retailers and magazine industry leaders intellectualize the problem further. "Trading partners are going around in circles. Retailers want payments and manufacturers, or publishers, want display. The outcome of these two requests isn't validated with consumers, so the product doesn't necessarily sell," said Bill Bishop, president of Barrington, IL-based Willard Bishop Consulting, Ltd.

"This is mutually assured destruction. Everyone knows that allowances make no sense, but everyone is afraid to back away from them. Moreover," Bishop added, "retailers clearly don't want magazines at every checkout. They're concerned that the return rate is 50% to 60%, and there are labor costs and risks at the retail end attached to that."

Meanwhile, Jacobsen said The Source is in the process of creating the industry's first database of store-level data that could benchmark magazine performance at different in-store locations -- and put some of retailers' guesswork to rest. "We're in alliance with wholesalers in Canada and the United States who are providing us with weekly sales information, with the permission of their retailer clients, who are also our clients. We're also working with a couple of point-of-sale data providers," he said, noting the distinctive nature of magazines because they have prices encoded on their covers, like greeting cards, and varying issue codes, such as People, whose code changes weekly.