In Canada,Costco stores do sell magazines,a very limited selection(32 SKUs)packaged on specially designed pallets delivered direct to the stores.Here's a picture of the Canadian pallet rack.
While Costco rejected the same idea for the U.S.,other tests are in progress,and we are energetically pursuing this critical new channel.We are exploring all the strategic and operational variables at our disposal-beyond the single copy model-to assure magazines are not left behind as Costco and these other channels grow.We've begun a dialog with them-and are optimistic as to the outcome.
5.Benchmarks
Next,Benchmarks.
The purpose of this work is to level the playing field when we visit with our retail customers:to shift their often negative perceptions with fact-based reality.
*Retailers'perception is that magazine profitability is no better than average.The reality:once you add in the trade allowances that local store management does not see,magazines'true gross margin is at least 6 points higher than chain averages.
*Retailers'perception is that magazines'inventory turns are no different than average.The reality:frequent wholesaler service guarantees freshness,and direct store delivery eliminates the need for warehouse or backroom inventory.Magazines turn almost twice as fast as average.Retailers'return on investment is very very high.
*Retailers'perception is that magazines are labor intensive.Checking in deliveries plus checking out returns.The reality:wholesalers supply the merchandising,so little or no store labor is involved in stocking shelves and displays.In fact,labor costs are 2 points lower than the average.
*Retailers'perception is that magazines are only moderately profitable.The reality:putting above-average gross margin and below-average labor costs together,is a contribution margin for magazines of 25%versus 17%for the total store,and that's pretty impressive.