Newspapers and magazines are no longer the focus for newsagencies as they respond to the new digital world. So how are the franchise brands within this sector facing up to the new challenges?
In part one of this article we looked at the report released by IbisWorld, and some of the predictions for this arena. Now we can share what three newsagency brands are doing to stay ahead.
Who is buying?
While the consumer is the dominant customer (66.5 percent of the market), business accounts are increasingly important to newsagencies (17 percent), thanks to services such as parcel shipping and ink supplies. The growth is expected to continue to 2018-19. Subagents on-selling publications account for the remaining 16.5 percent.
What are the costs?
The margins on some products (newspapers, magazines and lottery products) are fixed by suppliers and monitored externally, and this has hampered the industry’s profit levels.
All newsagencies rely on staff, but the contraction in store numbers and a softer retail trading economy have reduced demand for employees over the past five years, reports IbisWorld.
Add to this slowing demand the changes in award wages, loadings and penalty rates. The results is a reduction in the industry’s wage bill, with wage costs falling by an annualised 4.2 percent to $179 m in 2014-15.
Who are the retailers?
Of the franchise chains in this sector, according to IbisWorld, Nextra is the biggest, with 11.4 percent market share and 327 outlets. Lucky Charm and Supanews together account for less than three percent of the market; Lucky Charm has 50 stores, Supanews, now owned by UK brand WH Smith, 28.
The other key players in the arena are buying groups: Newspower with 650 outlets equating to a 21.8 percent of the market; and NewsXpress with 182 stores and 5.2 percent market share.
NEXTRA
Greg Campbell, CEO and director, predicts a change in the merchandise on the shelves in the short to medium term. More floor space will be given over to gift and fashion stationery and this will deflect the leakage and shrink of the magazine category.
It isn’t good news for independents. The high street is most likely to suffer from store closures he says, and there is concern about regional locations.
“Larger centres tend to reinvest to innovate and refresh. We are strategically located in these precincts for this reason,” he says. “Occupancy costs are a concern for a lot of retailers, no doubt this will continue.”
Fellow director, and owner of the Chermside Nextra outlet, Denis Hickey, agrees. “The Nextra Group is well placed with a significant number of members in regional shopping centres which may be considered “fortress centres” i.e. ‘last man standing’.
“Wages (and penalties) together with occupancy costs usually result in “treading water” in the periods outside of seasonal occasions which are very profitable.”
Hickey sees that the magazine category may benefit from higher priced niche titles. Innovation is required from suppliers as well in the greetings card market he says. “The card and wrap offer needs to be an important part of our offer and also requires card companies to develop new themes and products.”
So what of the services option that is being touted as a boost for newsagencies?
“It is hard to determine at this stage if Connect type operations would be profitable for us. To forecast five years ahead in retail is a big call. In three years things can change significantly.”
THE LUCKY CHARM
Mike Kentros, managing director of The Lucky Charm says “Our model is vastly different to the traditional newsagency. If you were to only include the commission of Lottery products as gross sales, magazines and newspapers would contribute only eight percent of total sales. This is a far cry from the 30 percent of total business.
“Our TLC business model does not include sub agents and home delivery. Only three of our 52 stores have home delivery and those businesses are treated separately. We are a retail model.
“We no longer see ourselves as newsagents or newsagencies. Whilst we sell traditional lines sold in a newsagency we no longer carry the name newsagent, news or the like. Whilst magazines still play an important part in our stores, newspapers are no longer a strategic part of our future.”
Over time the business has initiated programs to boost sales of products like stationery and printer cartridges, to attract 30 to 45 year old women back into stores with gifts and stationery merchandise, and introduced the industry’s first loyalty card.
TLC Rewards now has more than 300,000 members, and the program has more than doubled customer spend: an average pre-Rewards basket was $12.48; in 2015 the average is more than $26.
Two years ago TLC launched a contemporary shop fit that realigned magazines, stationery and gifts, and dropped the newsagency name. In 2015 the business has moved online and introduced a Back to School list for retailers. Consumers choose a store and product can be delivered within 24 hours.
SUPANEWS
Daniel McDonough, franchise business manager at Supanews, predicts the newsagency model in five years will be very different from today’s profile. “Magazines will be reduced a fair bit but there will always be a space for them,” he says.
The full format model is more likely to mirror the WH Smith stores in the UK, which have for years included books in their merchandise line-up. Gifts, cards and books will form the basis of bigger stores .
Kiosks, relying on convenience and impulse buys, will have a different product profile. Full format stores will likely be 150sqm, occasionally 200sqm. “The days of the typical 400sqm or 500s m are long gone – there are just a few around. In some shopping centres there may be room for one store and a couple of satellite outlets,” he suggests.
Lottery tickets prove to be a traffic driver. “We see a spike in our sales, so it helps our business,” says McDonough. In the UK the Lottery sales line snakes through the store, rather than outside, promoting further purchasing from waiting customers. This is something that Supanews is considering adopting.
“Innovation is important. If you don’t change you get left behind,” says McDonough. “We are always looking for new ways.”
One introduction is the WH Smith branded gifts and stationery items that will help stack the Supanews shelves.
The IbisWorld report mentions the Connect model which includes other services – typically found at a post office. WH Smith has featured post offices in some newsagency outlets and that’s something that Supanews could consider down the track.
At a time when retail models are broadening their focus so that there is crossover in merchandise and services, differentiation has never been more important. Also in the WH Smith portfolio in Australia is the Wild Cards & Gifts Retail franchise chain – so how do the two businesses segment themselves?
“Supanews has Lotto and services; Wild is a specialist, and within a Wild store are cards, gifts and wrappings. We will look at the model to take it forward to differentiate it and do it better.”
There are 1800 stores worldwide, and the experience and understanding of what works and what doesn’t is a huge benefit to the franchisees under the WH Smith umbrella, McDonough says.
Extensive expansion is on the cards over the next 12 to 18 months. New stores could be brand new businesses or acquisitions of existing independent newsagencies, and the model dependent on what is required to fulfill the local services.