Markets Change

Volume 6 Letter 4

Sometimes we get so busy being busy that we forget to poke our heads up to see that there really is an evolving market out there. Take the case of the magazine publishing industry.

From a consumers’ perspective not much has changed since the 1990’s. Magazines like Time, Business Week and of course the tabloids exploiting the daily movements of Brad Pitt and Angelina are purchased mostly from newsstands. Called impulse buys, they crowd for eye space in the kiosks of major stores.

There are four main players in the magazine industry that ensure you get your favorite magazine at your favorite store in a timely fashion. They are the publishers, the distributors, the wholesalers and the retailers.

Publishers like Time Warner etc. produce and print the material. The Distributors (Condé Nast, Warner Publisher Services) get the magazines out to the major distribution areas ready to be sent to the retailers. Wholesalers pick up the magazines from the Distributors and deliver these to the Retailers (Wal-Mart, Target, Carrefour etc.)

Between 1995 and 2004 the percentage of cover price sales revenue retained by the four major players changed dramatically:

  • Publishers retained 56% in 1995 dropping to 53% in 2004
  • Distributors retained 4% in 1995 – this remained constant in 2004
  • Wholesalers retained 20% in 1995 dropping to 14% in 2004, and
  • Retailers retained 20% in 1995 and got 29% in 2004

The revenue sharing formula had worked for decades but between 1995 and 2004 the power in this equation shifted dramatically. Retailers had gone through a huge consolidation. Mega stores like Wal-Mart, Target, Home Depot, and grocers like Carrefour, Kroger and Safeway were dominating their markets (and their suppliers).

Squeezed in the middle of this battle for revenue between the retailers and publishers were the wholesalers. The wholesalers were a fragmented group of small companies. In 1994 the five largest wholesalers controlled only 30% of the market. As a group, the unorganized and unconsolidated wholesalers had few systems in place to bring the market efficiencies needed to control their part of the market. Change was afoot and it happened rapidly.

By 2004 the magazine wholesalers had consolidated into four large companies who control 80% of the market. The hundreds of other small wholesalers have either been bought out, pushed out or fallen out.

In any industry where there are efficiencies to be gained by installing common systems and networks, the supply chain also needs to evolve to best serve that market. Control of a geographic region no longer guarantees success. Systems bring market efficiencies and thus a competitive advantage and can be rolled out across many geographic regions. Pretending this won’t happen in your industry is foolish. Instead watch for it, accelerate it and exploit the opportunities it brings. In fragmented industries (like the wholesalers) it’s go big or go home.

Recent Posts