A recent edition of Retail Newsagent contained a letter from Graham Doubleday saying that he had dramatically reduced the number of a local newspaper that he is prepared to sell. He says:
“We have received a letter from the managing director of the publishers of the Tameside Reporter that told us that there would be a 7p price increase to 45p. We won‚t be getting much extra because the terms will remain at 15%. We get just 6.75p per copy and it‚s got to the point where it is not worth selling it.”
For a newsagent to come to this type of decision is interesting to say the least. After all it is local newspapers that can make that link with the local community and in this case the Doubledays were selling 200 copies each week. I decided to phone Graham to ask him how he came to his decision.
He told me that it is quite simple, he has to be able to make a profit on the products and services that he sells and a newspaper with a 15% gross profit margin falls below his acceptable level. Graham told me that the publishers of the Tameside Report asked retailers to take the reduction 15% last year to help them through difficult times, but expected a bigger share of the recent rise to start building the retailer margin again.
This didn’t happen so action was taken. I am sure many retailers think like this when they feel that they are on the receiving end of what they consider to be unfair decisions. Very few take this type of action.
So how do you decide if a product is not worth selling any longer?
There seem to be a variety of ways of looking at this.
There is the emotional approach; you feel that you must react to the unreasonable‚ commercial decision of your supply chain partner.
There is the fact based approach where you calculate how much it costs to run your business on a daily business. By analysing your profit and loss account one can reveal how much gross profit you need to generate both by time and space.
But you also need to know how much the customers are worth that buy the product under review, the basket size.
When I spoke to Graham it was clear that he had considered the economics of selling the newspaper and is moving his customers across to the other local newspaper.
Good luck Graham, we will be interested to know how your strategy works for you.
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