Taking charge of America's newsstand

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Ten years ago magazine publishers barely ever gave Wal-Mart a second thought. Now the retailer dominates conversations on everything from their hopes for new launches to their growing fears for the health of their checkout-friendly titles.

Recently, recalled Jack Kliger, president-CEO of Hachette Filipacchi Media US, which publishes Elle and Car and Driver, "I had someone pitch me a magazine-a somewhat sexy idea for a magazine." All well and good-save for the one unspoken question hanging in the air. But, before Mr. Kliger could ask, his suitor addressed it. "We have a solution to the Wal-Mart-sex question," this individual said. Which turned out to be doing different, toned-down covers for copies that Wal-Mart would sell.

That's a remedy the magazine world has yet to embrace. But it's one indicator of how Wal-Mart's changed the way the magazine world thinks. Wal-Mart's the biggest single retailer for magazines' newsstand sales, accounting for what industry executives peg as at least 15% of all such sales.

It holds that place despite some selectivity in choosing which magazines to stock in its stores. In May, citing customers' concerns, Wal-Mart dropped Emap's FHM and Dennis Publishing's Maxim and Stuff from its newsstands, and subsequently obscured significant parts of the covers of Hearst Magazines' Cosmopolitan, Marie Claire and Redbook, as well as Conde Nast Publications' Glamour. As such, as Mr. Kliger's comment demonstrates, Wal-Mart's content-related concerns are not far from the minds of executives whose titles live or die via newsstand sales.

Controversial covers

"We work with Wal-Mart," said David Pecker, chairman-CEO of American Media, publisher of the Star, the Globe and the National Enquirer, which collectively sell a total of 2.8 million copies on newsstands each week. In the event of a "very controversial cover, we will call and say, `this is what we are doing."'

"I might take into account something may be too sexy," Mr. Pecker conceded. He insisted, however, that Wal-Mart had never claimed any cover ran too hot for its stores.

Tellingly, as Time Inc. assembled plans for a potential entrant into the women's mass magazine space, an executive familiar with the matter said the project was discussed with Wal-Mart. (Beyond confirming such a title was among its projects in development, a Time Inc. spokesman declined to comment.) This would not have been imaginable five years ago, as one senior industry executive at another company points out. "Wal-Mart is always in the center of the discussion of what drives retail," the executive said. "Five years ago, they weren't even there."

Some Pain

Those companies and magazines affected by Wal-Mart's May decision that will comment on Wal-Mart banning their titles or covering their covers, deny their magazines have taken any major circulation hit. Insiders within and outside the laddie titles' parent companies confirm that the Maxims of the world did not derive a huge portion of their newsstand sales from Wal-Mart. But an insider at another affected title confirmed internal chatter testifying to some pain stemming from Wal-Mart's recent move.

One can find magazine executives that accept Wal-Mart's argument over its newsstand changes-though, interestingly, they tend to be at companies unaffected by the May moves. "They are not trying to favor one social or political viewpoint over another," said Kent Brownridge, general manager of Wenner Media, which publishes the newsstand-heavy title Us Weekly, and whose Rolling Stone just ran an extremely steamy Britney Spears cover. "If they think the product isn't right for their stores, it probably isn't." He cited, like many contacted for this article, the almost frightening degree to which Wal-Mart understands its customers.Wal-Mart itself cites customer knowledge in justifying its decisions to ban or obscure certain titles.

"We listen to our customers," a Wal-Mart spokesman said. "This particular subject had been an issue with them for some time. In the end we take all comments and try to do the right thing. We accept the responsibility and will continue to respond to our customers."

Still, some suggest that Wal-Mart's mistaken in applying a national answer to a local question. "Clearly, for a store in suburban New Jersey, FHM, Maxim and Stuff all belong. In Bentonville [Arkansas, Wal-Mart's hometown], maybe not," said Susan Allyn, VP-consumer marketing for FHM.

Yet likely the biggest concerns publishers have about Wal-Mart have less to do with what it says are the wants of its customers and more to do with what Wal-Mart wants for itself.

In its role as retail's leader, there are multiple fronts on which magazine executives express fear over Wal-Mart's possible next moves. Each of them has the potential to wreak serious havoc on the sales end of an industry that's still struggling through a protracted advertising downturn. The pre-checkout ritual of glancing through the tabloids (or People or Us Weekly) could be endangered by two retail developments.

self-scan checkout

The first is the rollout of checkout counters that permit customers to self-scan. This plays to the trend for convenience, as well as striking a blow against labor costs. But what magazine executives see most clearly is that while such units often come with magazine racks, the self-scanning process means customers won't scan titles while the cashier rings them up. There's also queasiness over the fact that warehouse Sam's Clubs do not carry magazines at all.

Secondly, Wal-Mart has been an early-adopter of seeking to pay magazine sales based on what's called "scan-based trading"-solely based on data derived from scanning of UPC codes. The concern some publishers cite-though not unanimously-is that magazines improperly scanned or with damaged UPC symbols are simply rung under "general merchandise"-and thus not credited to publishers. If one believes publishers' estimates of single-digit percentage error readings, this soon becomes significant money-not to mention unreported sales that can drag down newsstand sales figures, the industry's de facto heat index.

There's also the fear of other merchandisers invading or overtaking magazines' prime checkout spots. "I am not worried about them enforcing some [community] standard," said Wenner's Mr. Brownridge. "I am worried about some other product group convincing them" to replace magazines' checkout positions. He added, "It's happened for the last 10 years, not just through Wal-Mart but throughout other retailers." This is of paramount concern to publishers with titles like Us Weekly and the tabloids, for whom the loss of key positions at Wal-Mart would severely sting.

Publishers may take some comfort, though, in one worst-case scenario that has yet to play out. In '02 Time Inc.'s Time Distribution Services began testing in Chicago an ambitious plan with Wal-Mart to rework the complex and dysfunctional way in which publishers go through distributors and wholesalers to get their wares to retail. Publishers fear that in time Wal-Mart will grow to take over such channels-a situation that might prove bearable for the big players and disastrous for the smaller ones, who have fewer titles desired by Wal-Mart and thus less leverage. "They will want to establish direct [sales] relationships with publishers," said a Time Inc. executive familiar with the process. Dealing direct, after all, is the Wal-Mart way. And publishers realize, with anxiety, when the parties involved gather to hammer out the details, which party has the most heft. In the reckoning of one magazine executive who's been to Bentonville, Wal-Mart's 15% of magazines' retail sales accounts for significantly less than 1% of Wal-Mart's revenues.

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