How is Scan-Based Trading Working Out for You?

Scan-based trading (SBT)—wherein the wholesaler is paid only for copies that go through the register, and unsold inventory is not recorded as either sold or returned—has been implemented in an estimated 70% of U.S. retailers. It was a long time coming, with many studies and audits and recommended best practices backing it up; and no one has lost sight of that history. However, now that it’s (mostly) in place, I’m finding that I’m fretting about it more than I had hoped. It’s not only the information flow, though that issue hasn’t been quite buttoned down yet. And it isn’t really even the payment flow, although from my perspective that could use some clarification. No, what worries me is the shrink. Not a new issue, no; we’ve been talking about it for years. And when we as an industry were still auditing the system in preparation for this change, the level of shrink seemed to be pretty small, a few percent, not so much. But a lot has changed over the past few years. To distinguish print from digital product, publishers are upping the value of print, making magazines a premium product, albeit one that is highly portable and still seen as disposable. Some publishers are shifting their business model toward special issues and bookazines, which may be anticipated eagerly by the target audience and, when delivered, can be in high demand. These publications are loaded with value. They are very expensive. It seems to me that the adaptations these publishers are making in our changing market are making them more vulnerable to shrink. I’ve been doing lots of dealer checks for several publications that meet these criteria. One publication, an annual, awaited eagerly each year by a big audience that kicks off a national PR campaign, is distributed in beautiful cardboard floor displays. This publication has been disappearing out of the stores at a breathtaking rate—in many of the stores we’ve checked 40 to 50 copies seem to have disappeared the first week of sale. Have they all gone through the register? We could more easily answer that question, perhaps, if more retailers were able to provide store-level POS information; however, based on the numbers we received, hundreds of copies appear to be unaccounted for. On the opposite coast, one of my publisher clients launched a beautiful new quarterly publication: textured paper, beautiful photography, high price point. But when several stores requested a re-order of additional copies, we discovered that, of the copies we’d sent them, fewer than 20% had gone through the register. The rest of the copies were unaccounted for. Retailers used to send unsolds back to their wholesalers to be destroyed and reported as such by affidavit. No longer. Unsettlingly, some of these premium publications have been showing up on the black market, through EBay and other sources; with these cover prices, they make a nice resale commodity. Without the accounting for inventory, publishers aren’t getting paid for the expensive-to-print copies disappearing out there; and in a way, that’s only the tip of the iceberg. The stores that went through half a hundred copies of the annual? The magazine’s competitor is now in their pockets; and next year, if only eight or ten copies are shown as having sold, that store will get fewer copies, have a less visible display. The store with the four copies sold of a couple dozen? Maybe it could have sold a dozen copies, or fifteen, or the full two dozen. Who knows? What we do know is that, going forward, that store will be regulated at a four-copy sale. Sales are going to dwindle as allotments are reduced to account for unsolds that appear not to have hit the rack. We had hoped SBT would give us an earlier, more actionable picture of what is going on at store level. So far this has not been the case. Return flows are ambiguous, and prematures no longer visible. A publisher’s ability to react to what is happening in the field has grown increasingly limited. Wholesalers are alert to compliance issues, and have departments set up to insure SBT integrity. They have as much at stake as publishers do, and they are confident from their compliance efforts that shrink continues to exist at a much lower level, and that what I’ve called out here is anomalous. In a follow up post I’ll talk about what is, in fact being done to maximize confidence and minimize shrink. Even so, for a publisher, it’s an uneasy matter sending copies into the field today. There has long been a misconception that publishers don’t care about their unsold inventory; that has never been the case, and today, with so much investment going into the premium publications—one of my publishers spends almost three dollars a copy to print one of their high-end publications—it is less the case than ever. They cannot sit idly by and watch their dearly-bought publications march into oblivion. All channel partners are hanging on by a thread now—publishers, wholesalers, national distributors. Auditing takes money. A non-returnable system has proven, so far, impractical. And, given the additional fees that continue to be added to the cost of distribution, if I suggest that some channel money be returned to the publishers to cover for these lost copies, I’m sure that many in this industry will think I need to have my head examined. But seeing the numbers, that looks like a solution to me. Many of my publishers are questioning if they can afford to stay in the mass market at all. Their disappearance from it would be an enormous loss to all channel partners, from the publisher right through to the retailer. Increasing confidence in the SBT system is a necessary step to keeping them on the newsstand.

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How is Scan-Based Trading Working Out for You?

Linda Ruth

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Linda Ruth