BoSacks Speaks Out: Two weeks ago our Publishing Pandamic Roundtabe of Joe Berger, Samir Husni, Bo Sacks, Gemma Peckham, and Sherin Pierce was joined by Jim Bilton. Jim Bilton is the Managing Director of Wessenden Marketing. Jim’s knowledge of the UK and the European media supply chain is amazingly complete and thorough. This is admittingly a long but interesting and worthwhile conversation that I have broken up into two parts. Jim puts together a comprehensive monthly newsletter about the media supply chain with analysis of ongoing trends and observations. He has offered our readers a free issue, and I suggest you get one to see what is happening in the UK. I assure you you will walk away better informed with useful information you can use here domestically in the US. Just drop Jim a line at email@example.com.
Bo Sacks: Jim, did I read correctly in your last newsletter that the Travel sector was down 91 percent?
Jim Bilton: Actually it is 97 percent. WHSmith's Travel division only kept shops open at hospitals. Everything else worldwide, they closed down. They're beginning to open back up again and their High Street operation is also starting to come back. The health of WHSmith is a big deal for UK publishers – they account for around 14% of total magazine sales. But their whole business model has been turned upside down by the pandemic. A year ago, they were being praised for their smart strategy – investing in Travel, which has included some big acquisitions in the USA, and squeezing costs out of their declining High Street operation. Now everything has flipped. The High Street is the main way of keeping cash flowing through the business until Travel can come back on stream. They were just in the wrong place at the wrong time.
Joe Berger: Is this an example? This also showed up on my LinkedIn feed today. Weirdly enough, Hudson Retail just opened up two new stands in LaGuardia at Terminal B. I would guess, seeing as how there's nobody around, it's pretty easy for them to do all the work. This is a store called Madison Avenue Market, and it does have a fairly good size mainline rack and a fairly good availability of paperback books. But the rest of the store, as you can see, is just full of every other kind of tchotchke in the universe. This is another look at the Madison Avenue Market. And again, notice in a traditional Hudson retail store, this area around here will be covered with magazines. That's gone. Here's the outside of the Madison Ave. Market.
Bo Sacks: So, the reason they may be there at all is that the terminal is newly opened. They may have been legally committed to be there and open rather than actually wanting to be there and open?
Joe Berger: Probably. I would imagine that's the case. So, anyway, that's life here in the States with with us Zoom neophytes and all of the weirdness with our with our wholesale system.
Jim Bilton: Have you had a hard lock down over the same kind of period that we had? It was week 13 that we started.
Sherin Pierce:Yes, I think maybe in New York it was early.
Joe Berger: You might have a week or two earlier than here in Chicago. But I believe it was that New York locked down on a weekend. And Monday morning, our governor here in Illinois said, OK, everybody, stop it.
Sherin Pierce: In New England, we locked down on March 27.
Gemma Peckham: The last day open was March 17, which I think was a Thursday. And then we took Friday off and we haven't been back since.
Jim Bilton: And in the U.K., any shop that sells newspapers is classified as an essential retailer, selling an essential service - news. Magazines have ridden on the back of that. As a result, we lost only about 10% of our retail universe at the peak of lock-down. Yet that’s just the number of outlets, irrespective of their size. A chunk of that 10% included some big multiples – the biggest being WHSmith. The nightmare scenario is that WHSmith never fully comes back on stream again.
Bo Sacks: Italy declared any place that sells publications as essential.
Joe Berger: Well, not here in the States.
The other questions that I've been finding fascinating, and I put it in our pre-meeting notes, was, we're obviously very interested in the parent company of Barnes & Noble and how things look for Waterstones. And does this company that's now invested in B&N have the financial wherewithal to bring this chain back to life and make it a better Publishing corporate citizen?
Jim Bilton: Waterstones is a actually a very small magazine stockist. It has a very limited range. Not all their stores have got magazines. So, they're a bit of an irrelevance in our magazine business. But they seem to be doing the same kind of thing as B&N, which is to self-heal the print products. They go into the storeroom. They don't go straight back on the shelf. And the Waterstones’ outlets generally are a lot smaller than B&N. So, they're not reorganizing in a fundamental way as they don’t have that much space to play with. Coming back to WHSmith, space is their issue too. In their High Street business, they’ve been squeezing more and more margin out of their shops. They shove the gondolas closer together. The gondolas go up in height. Some of their smaller shops are really horrible places to shop in - claustrophobic. All this makes socially-distanced shopping a real challenge for them.
Bo Sacks: Is that a new situation or did it exist before Covid?
Jim Bilton: Oh, no, they've been doing it for years. They've been squeezing all the time. They've been performing the absolute impossible. As their top line has gone down and down and down, they still manage to squeeze more and more profits. Their High Street trading profit margins are now well into the double digits, which is a staggering achievement! Their star category is now stationary – high margin and taking up more space in-store. Their book range is tightly edited – with a focus on best sellers and travel and juvenile. Yet it’s newspapers and magazines that they’re still known for.
They're also into electronic items - peripherals, headphones, earbuds - that they're plonking in the front of the store and they're playing around with other things too. They'll do limited ranges until they sell out. They sell umbrellas. They push chocolate in your face at the tilI. I remember a few years ago when they started down this route, one of their store managers told me that when he started, he’d joined a quality retail operation: “Now it’s turning into Woolworths”
Joe Berger: That was the claim of many Barnes & Noble employees. The last year they've been stocking up on gifts and toys and all kinds of accessories and things. Who knows when the stores here in Illinois will open, but it will be interesting to go and see them. Apparently, an Amazon Books just reopened here in Chicago. I'll have to go and check that out. But the footprints are very small.
Samir Husni: Last November or December, I was sitting at the Delta Club in Atlanta and two people from WHSmith’s came up to me. They recognized me and introduced themselves. They said they were planning to reopen WHSmith stores in the states. Have you heard anything about that?
Jim Bilton: They are doing lots of things at the same time with the Travel operation. They’re growing organically. They’re partnering. They’re acquiring. In the States, they’ve bought InMotion and the MRG chain. That gives them access to lots of American airports. What they're going to do branding-wise is also very flexible as they have trialled new formats without the WHSmith name at all and they may well keep the brand names of the retailers they’ve bought. They are actually very smart and very pragmatic. Years ago, they sold off their US Travel operation. Now they’re back!
Before the pandemic, Travel had grown to account for 58% of the group’s revenues and for 51% of their profits. Its US operation has been a key driver of that. As we talked about before, that was a smart move a year ago. But now…..
Joe Berger: Just to clarify, Jim, because I read it in novels and I hear other English people talk about it, High Street is sort of like our Main Street, is that correct?. And it would also be out in the American suburbs, often what is sometimes called the Miracle Mile, which is just this giant stretch of four-lane or six-lane roadway. Would something like that exist in England and would that also be considered a High Street?
Jim Bilton: Well, if you don’t mind my saying so, our High Streets are a little nicer and more characterful, but they're becoming increasingly difficult to park in, because they are the town center. The town is built around the High Street. And WHSmith has always done better in smaller market towns. In the big cities, it tends to make less money, where the rents are high. But they are a pivotal pillar retailer in most small towns. And again, if they go, it undermines the whole High Street. But again, the High Streets are all over the place as to whether some do very well and some do really badly. Some are impossible to park in. So parking is a big issue because we don't have the parking lots. We simply don't have the space that you have in the States. That’s why the old Borders operation failed so badly in the UK.
Sherin Pierce: You know what's so scary is they were talking about WHSmith, and it's the independent bookstores in our small towns. They are an integral part of the business and they're going under now. They can't compete with the chains or with Amazon.
Joe Berger: And they've all been closed now for a really long time, too.
Sherin Pierce: Right. They didn't have websites or curbside pickup; nothing.
Jim Bilton: It's interesting. There are independents that have picked up during lockdown for the first time ever, mainly because of their convenience and the fact that many offer home delivery. So, convenience is our retail channel that has gained share during lockdown. This share gain is on the back of actual volume growth. It's been about six or seven percent up in volume through lockdown, because that's where many people are shopping, so we've got a major channel shift there. And our big five grocers account for about 41 percent of magazine sales. They have held their sales and some have edged their share up.
But the big issue about the whole retail channel is that discovery and impulse are being taken out of the mix due to socially-distanced shopping. It’s purposeful shopping now. In and out. No messing. No browsing.
Sherin Pierce: What about pharmacies, drugstores, such as Boots? Do they carry magazines?
Jim Bilton: Very limited. Boots doesn't, Superdrug, does. I think your pharmacies are very convenience focused while our pharmacies are very much pharmacies, rather than convenience stores. And convenience is such a big term now anyway, with lots of different fascias and formats. But a lot of our convenience stores have gone down food-to-go and other services like lottery.
Bo Sacks: Do you think that will continue? With the convenience growth, we have retrained the consumer's buying habits, but will the convenience growth continue after Covid?
Jim Bilton: That's an interesting one. Will people go back to shopping like before? We've got this transitional phase of socially-distanced shopping currently, before we get back to the way it was – if we ever do. I think the assumption is that large chunks of the gains that convenience has made, they will hold on to that. There will be some permanent shifts into how and why we shop - doing more local shopping, walking there, not going into the town center. So, the conclusion must be that there are some potentially permanent changes.
Bo Sacks: That makes sense to me.
Samir Husni: I know magazine distribution in the U.K. is different than in the United States because you have the daily national newspapers. They can bring in magazines every day. It's not like that in the U.S., it is more like once a week. Did COVID change any of that? And are you seeing anything similar to what's happening in the United States? Before COVID we had the Me Too movement, then we had Covid, and now we have the Black Lives Matter movement, even in the magazine world. What is the picture in the U.K., the overall picture?
Jim Bilton: Phew! Lots of questions, Samir! First, we've suddenly now got scan-based trading via the backdoor because of our big supermarkets. One of our leading grocers Sainsbury’s said that they couldn’t handle the magazine category on a daily basis during the pandemic, partly because of store colleagues not being around. With most of our retailers the product isn't walked into the retail outlets as it is in the States. It's dropped outside or in the storeroom at the back and it's normally shop staff who manage and merchandise it.
Now, there was an added complication with Sainsbury's in that they used a merchandising operation to help their own store staff. This operation was actually owned by one of the wholesalers and they closed it down because of lock-down. So they were left without merchandising support. They saw that this was their opportunity to get scan-based-trading. They said that they would have to cut the category completely because they couldn’t handle it, unless they were given that scan-based solution. So, they’ve come up with a soft version of SBT. The UK magazine industry has been resisting it for years. I mean, not to be rude, but we look to America as the ultimate case study of how you can screw up your supply chain. We have no intention of going down that route.
Bo Sacks: It's not rude when it's the truth.
Joe Berger: It was one of those things where pretty much anyone I knew took one look at this and said it’s not gonna end well.
END OF PART ONE