Sainsbury’s takes magazine margin cut for returns changes
The rate of shrinkage would be deducted from the retailer’s magazine margins
Supermarkets beyond just Sainsbury’s are in discussions with distributors and wholesalers about taking magazine margin cuts and adopting EPoS-based returns crediting.
Last month, it was revealed that Sainsbury’s and distributors had been working on changing the returns system for magazines to tackle rising shrinkage caused by challenges managing the category in stores.
Under the new scheme, which is understood to be in place at the supermarket, EPoS data provided by Sainsbury’s is used in conjuction with the returned copies to calculate credits.
In exchange, it was claimed by multiple sources that the grocer had accepted a reduction in its commercial terms, including magazine margins.
A source close to the deal confirmed the rate of shrinkage is deducted from the retailer’s magazine margins. For example, if Sainsbury’s had 5% shrinkage, it would receive a 20% magazine margin, rather than the standard 25%.
The source said this ensured retailers maintained responsibility for managing the category, but removed the staff hours required to count returns.
While wholesalers Smiths News and Menzies disputed previous stories about the deal in a strongly worded joint statement, trade sources this week further confirmed the measures and revealed new details.
The sources claimed that not only is the scheme operational in Sainsbury’s, it is also now being offered to other multiples, is likely to extend beyond the Covid-19 crisis and, importantly, will eventually see returns-based crediting scrapped altogether in the multiple, in favour of a purely sales-based crediting system.
Despite the changes, it is unlikely a similar scheme will be extended to independents, according to experts. A magazine industry insider said: “This change has been in the pipeline for a long time. It was a case of jumping before you are pushed, but the pandemic has definitely accelerated it.
“There’s no way the distributors or wholesalers will allow independents to self-report in the way they are going to allow multiples to, in part because the multitude of EPoS systems in the convenience channel would make it a nightmare to maintain.”
An industry source agreed the move to EPoS-based reconciliation would not be reversed and would become the new reality for magazine ranging in multiples. However, they said it would not halt further reductions to magazine space in supermarkets.
“If they think this is going to stop the multiples from slashing magazine space in stores, they’re very much mistaken,” they said. “Social distancing, delivery operations and general merchandise are all on the rise – there’s no doubt Sainsbury’s will want to add Argos anywhere they can, and where does it normally sit in a store? Right next to magazines.”
Trade sources said that newspaper publishers were resisting renewed calls from supermarkets to follow magazines in adopting a similar sales data-based returns crediting system.
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