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Q&A: John Cowley, President, Cowley Distributing

John Cowley is president and co-owner, with his brothers, of Cowley Distributing, Inc., a wholesaler founded by their parents, John and Helen, in 1957. He recently discussed his company's operations and business philosophy, and his assessments of the retail magazine and book businesses, in an interview with IPDA Daily Publishing & Retail News editor Karlene Lukovitz.

First, some background: Headquartered in Jefferson City, Mo., Cowley Distributing employs more than 520 people, and services more than 3,900 retail outlets in eight states: Kansas, Nebraska, Missouri, Oklahoma, Arkansas, Illinois, Tennessee (Memphis and the western region) and Mississippi (northwest corner). Its major retail clients include Wal-Mart, Walgreens, CVS Health, Kroger and Target. It also services numerous convenience stores, plus mom-and-pops and a small number of independent bookstores.

The company handles more than 3,000 magazine titles, distributes about three million copies per week, and sells 15 million magazines per year. It also handles about 15,000 paperback, trade and hardcover book titles at any given time. Magazines represent about 85% of dollar sales and 78% of unit sales. Last year, the company's sales reached $100 million.

Cowley Distributing owns seven bookstores and newsstands in Missouri. Its operations include three distribution centers, ranging in size from 45,000 to 60,000 square feet, in Jefferson City and St. Louis, Mo. and Lenexa, Kan., which feed nearly a dozen smaller depots. The company is one of the seven independent wholesaler groups that are limited partners in The News Group LP.

What are the keys to your company's longevity and stability?

John Cowley: My dad always said that the key is getting and keeping good people, and in my view, that hasn't changed. On the management level, our DC managers have a lot of autonomy to make local-market decisions. And I think that the larger wholesalers who have kept their key managers in place are benefitting from that continuity.

Below the management level, instead of going to a model where part-time people are used for merchandising, about 98% of our merchandising employees are full-time, with benefits. In our experience, full-time people are much more loyal and committed to doing a great job and selling magazines. Our turnover is only about 4% a year, and that continuity enables training and an experienced workforce. New merchandisers spend two to three weeks training with a supervisor and including follow-up training.

We also remain committed to 100% in-store service. We service every store, whether it's a $50 a week account or a $10,000 a week account. That lets us control the quality of our end product—the quality of our displays, merchandising, categories, etc.

How were your operations affected by the shutdown of Source Interlink Distribution at the end of last May?

JC: We had already expanded significantly in recent years [as other wholesalers exited]. We picked up most of Kansas, Nebraska and Missouri from Anderson in 2009; Southern Missouri from Ozark News in 2012; and Oklahoma, Arkansas, part of Mississippi and the Memphis market in 2013 from Mercury Retail Services.

With the Source, the territorial overlap was small, and we picked up just 110 stores in Western and Southern Illinois. To cover those accounts, we hired about 25 merchandisers—Source people, who have been strong additions. TNG took on more than 26,000 stores formerly serviced by Source virtually overnight; the partners took on about 1,000 of those, combined.

TNG has done an amazing job getting supplies back into stores. They spent $20 million on trucks alone and nearly doubled their field force to 10,000. That's not including their investment in adding DCs and depots. Hudson News and Ingram also made major investments to pick up Source accounts. These investments demonstrate wholesalers' strong commitment to the business. And in the end, I believe we have a stronger distribution channel.

Another positive in all this: Retailers hung in there. They supported the category and gave us time to recover, instead of overreacting. Speaking for our own operation, although we've lost some space here and there to competitive categories in recent years, we haven't seen any significant retailer attrition, even during the period of disruption last year. While a few have been influenced by all of the bad press claiming magazines are a dying category, I think that most retailers still have a very favorable view of the magazine category.

In fact, we are successfully opening up significant new retail accounts for magazines. For instance, we've installed four ten-pocket wings of magazines in 165 Farm & Home Supply stores. This is a large chain, with hundreds of millions in sales and superstore-sized stores, that never carried magazines before.

What's your view on the prospects for magazines at retail in 2015 and beyond?

JC: Last spring, the major grocery chains were seeing unit declines slow to about 2%. Then the Source collapsed, and the overall category's sales were, of course, hurt by the channel disruption, starting in June and particularly in the third quarter. But our retail partners had service continuity, and a number of them, including Kroger, were actually up in dollar sales last year versus 2013. Kroger was up 2%. It's true that 2013 had been a tough year; still, we definitely saw signs of starting to move in the right direction in 2014.

I believe that the magazine category may have bottomed out. As an impulse category, we've been hurt since the recession by millions of people still struggling, or on tight budgets. People are buying from grocery lists, and supermarket trips and basket sizes are down. Most GM categories' sales have been affected. Something like 185 out of 225 GM categories saw dollar sales declines in 2013.

But the economy and employment rates are finally improving. Lower gas and oil prices just gave consumers the equivalent of a $150-billion pay increase. I travel around a lot, and despite another harsh winter, I've never seen the traffic busier in the towns and the stores. If this continues, we may have seen the worst of the sales declines.

And let's not forget that even through these challenging times, the industry has continued to sell billions of magazines. When strong new products are introduced, retail's power to sell them is undeniable. Look at how we blew out sales for the Food Network and HGTV and Dr. Oz magazines. Also, many niche and special interest titles, including titles with regional interest, have continued to flourish. A few that come to mind as recent big sellers in our markets are The Backwoodsman, Auta Buy, and $1.25 Walmart-only Penny Press Crosswords.

I continue to have an exuberance for this business. I think there are real, rational reasons to be positive about the prospects if we work together, because I see consumers proving that they value magazines every day by buying them. I think that the glass is half full—and we can fill it up.

What about the effects of competition from digital channels and mobile devices? For instance, it seems clear that preoccupation with using smartphones has hurt impulse sales to some degree for all categories at checkout.

JC: Yes, but on the other hand, I don't think that magazine e-subs have been much of a contributor to declines. The numbers of e-subscriptions are still small, according to the reports I see. And people 30 and under don't believe that they should ever have to pay for digital or online content. They believe the Internet should all be free. They will be a hard sell on paying for that content.

Nothing is more portable or convenient than a print magazine, and young as well as older people still appreciate and value the experience of reading a high-quality magazine.

For more proof that print isn't dead by any means, just take a look at what's happened with books. Between the economy and e-books, we saw several years of declining print book sales. But in 2013, children's books and series, like "Fifty Shades of Grey" phenomenon, resulted in real dollar and unit growth. For books, 2013 was so strong that it was tough to comp against that in 2014.

But the core point here is that people who initially switched to e-books are now swinging back to reading both traditional books and e-books--they're reading both formats. I recently saw a woman reading an e-book in an airport. When the device's power ran out, she just reached down and pulled a real book out of her purse.

We're very enthusiastic about books. We carry the full range of paperback, trade and hardcover, including children's books, which are a big growth opportunity. Books' prices and sell-through rates—generally in the high 30's to 40% range—make them profitable.

What other steps or initiatives would you like to see happen in order to support and rebuild momentum for the magazine category?

JC: The first key is that publishers continue to support the retail channel by supplying exceptional products, including new products. I've been doing this for many years, and I can tell you that the quality—from the covers and editorial content to the paper and production values—has never been higher. And I would love to get more products with strong regional interest.

We also need publishers to continue to supply sufficient quantities of magazines. I understand that efficiencies are important—in fact, I think it's not unrealistic for the partners together to try to push sell-through for magazines back up, with a goal of 40%. But that should come through leveraging by-store POS data, not just slashing copies across the board. I would urge publishers to be careful not to cut allotments too much.

Also, while everyone talks about digital, I know I'm not alone in my view that heavily discounted print magazine subs are, next to the economy, probably the biggest contributor to newsstand challenges. I'm also not alone in urging publishers to find ways to achieve a better balance in subscription prices and newsstand cover prices. I understand that sub prices must be attractive as part of publishers' business model, but if publishers do, as they say, consider the newsstand channel crucial to their business, rationalizing sub prices is critical.

Obviously, I strongly believe in the importance of merchandising the category. I'm in favor of doing more cross-merchandising where it makes sense. Servicing for outposts isn't an issue if it's for the right product in the right location.

On the structural and operational fronts, I believe we need to simplify our business processes. It's gotten too complicated to keep track of it all, and some of it is unnecessary. In my opinion, RDA has to go—the administration and collections and all of it are costly and an efficiency killer, and it's long past the time for broad adoption of pass through. While I'm in no way suggesting collusion, I would welcome it if all involved looked at their individual programs for opportunities to simplify them. There are so many variations that it's become difficult to track cash flow accurately.

In fact, from our operations view, cash flow is the biggest challenge overall. There are many potential ways to address this. We of course believe strongly in implementation of TNG's PROS system, to leverage POS data and SBT to eliminate physical returns processing and costs and, maybe even more important, get paid quicker on the inventory we invest in up front with SBT agreements. [For TNG's description of PROS and a discussion of the arguments pro and con, see IPDA Daily Publishing and Retail News article from 2013.]

One bright spot in recent months is the lower gas prices. Fuel accounts for about 10% of our costs. Since prices started diving, we've been seeing about $9,500 a week in savings, which would work out to about $500,000 a year in savings if this continues.

 

 
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