Anderson News announces major new distribution requirements ...
Economic conditions have forced Anderson News Company's hand and the wholesaler, which represents more than 20 percent of mass-market magazine distribution, has announced a program detailing two demands: Publishers must pay a 7-cent per-copy price increase on all copies distributed and they must bear the inventory cost attached to scan-based trading (SBT). The deadline for signed agreements is February 1st. Non-compliers will be refused distribution.
Indeed, Anderson noted that since the major consolidations in the wholesaler market began 10 years ago, profits have been dwindling ever since. "What we are trying to do is give some stability to the channel. Short of that, there will be an implosion in the business," he said.
Anderson added that he believes 3 of the four major wholesalers are losing money, which underscores the on-the-bus or off-the-bus severity of Anderson's position.
The 7-cent figure represents about a 3.5 percent increase and was arrived at by examining all the variables in retail pricing and efficiency costs. Discussions with CoMag resulted in three percent offer and separate talks with Time Inc. arrived at 5 percent. The 3.5 percent-"a fair rate," said Anderson-split it down the middle.
The second and likely more onerous part of Anderson's program outlines the wholesaler's exit from bearing the costs of SBT. "We are no longer going to participate in investment of scan-based trading," Anderson said, and added that they had already invested $70 million into inventories for four major customers.
Anderson said that the greeting card industry, which also uses SBT, passes the cost on to the manufacturer. "We think it is only fair that the manufacturer bear the cost," he said.
Currently, Anderson has SBT relationships with Wal Mart, Paradise, Walgreens and Kroger. The latter will be online with SBT on March 1st.
Anderson said the pricing is non-negotiable-"We really belive the seven-cent number is the number."- and publishers that don't sign the agreement will effectively be dropped from distribution.
When asked, Anderson implied that if his company does not reach a satisfactory threshold of participation from publishers it will possibly leave the magazine market. He noted his company is successful in representing and distributing other product lines and magazines are the only money-losing part of the operation. "We're committed to this. Over the last 12 years we've tried to serve the customer in the best way. The last thing we want to do is exit the business. But why should we be in a business that doesn't give us any return? We don't want to get rich, but we want a fair return and that's all we're asking for."
Another factor impacting the wholesaler business, said Anderson, has been the dramatic drop in scrap paper pricing, which has gone from $130 per ton to $60 per ton-resulting in a $6 million net loss for the company.
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