Checking Out Canada

In August, Glenn Morgan, president and CEO of Canadian magazine national distributor Coast to Coast Newsstand Services Partnership, summarized magazine trends in Canada during a PBAA event in Toronto. Last week, Morgan discussed results of an updated data analysis and shared additional insights about category trends with Newsstand Forum’s Karlene Lukovitz. (Note: In a few places, data has been inserted in brackets for the reader’s comparative purposes.)

How are magazines performing in Canada so far this year?

Morgan:  During the past two years, the category’s sales in Canada were not as hard-hit as in the U.S.  Last year, for example, our total category units were down only 1.4%, compared to the U.S.’s 11.3% unit decline. Our dollars were up 3.7%, compared to basically flat dollars in the U.S.

How we look in the first half of this year depends on which U.S. data you are using for comparison. We seem to have performed better than U.S. audited titles [which, according to Magnet, were down more 12.4% in units and 9.9% in dollars]. But our declines may be a bit higher than those for total U.S. magazines [-10.4% in units and -6% in dollars].

Earlier this month, I updated my analysis of actual units and dollars sold for 1,859 English-language weeklies, biweeklies, monthlies and bimonthlies for the first five months, using data contributed by all Canadian wholesalers to Coast to Coast’s Cognos system. I chose these titles for analysis because I'm confident that their sales are now more or less final through May. For this group of magazines, units were down 10.8% and dollars were down 10.2% compared to the first five months of 2008. 

Again, these titles do not represent the entire category. Quarterlies and the specials and annuals that tend to carry higher than average cover prices are not included.  
 
If you look instead at the reports from the PMC system, Canadian wholesaler flow numbers—retailer invoices less return credits—show category dollars down 9% [to $275.1 million] for the full first half, or six months.
 
However, even during this extremely challenging period, about 38% of the titles we analyzed had unit increases in the first five months—a number that actually surprised me a bit. 

And the really good news is that, among retailers for which scan data is available, two of the largest in Canada have seen eight straight weeks of increases in magazine sales. Category dollar sales rose each week between July 12 and September 8 in those chains, and I’m sure that units are also on the upswing. This is a very, very positive sign. 

What’s driving that pick-up in magazine category sales, in your estimation?

Morgan:  There’s good reason for optimism ahead. Economically speaking, things are really starting to turn around in Canada as the year unfolds. I believe that we are in recovery mode now. 

The key economic indicators, including the stock markets, real estate sales, automotive sales, manufacturing and consumer spending indexes, are all trending positively. We are now in the sixth month of a baby bull market, and the average bull market spans 30 months. Home sales have posted six consecutive monthly increases, and as of July, seasonally adjusted activity was only 1.4% below its all-time high in May 2007. Manufacturing sales rose 1.9% in June, and new manufacturing orders jumped 18.4%, the largest gain on record. And through June, five of the six months showed uptrends in consumer spending.

Consumer confidence—the factor that I believe has the biggest impact on magazines, because they’re impulse buys—is clearly on the rise. The monthly consumer confidence index from the Conference Board of Canada rose by 5.5 points in August, to 88.4, which is the highest level in a year. And that marked the sixth consecutive monthly increase.

Another area that creates positive consumer confidence is our banking system. The World Economic Forum recently announced that Canada is home to the soundest banking system in the world. Canada was ranked number one out of 133 countries.

As in the U.S., unemployment is still a problem. As of July, Canada’s unemployment rate was 8%, compared to 9% in the U.S.—which, by the way, is unusual, since Canadian unemployment is usually higher than the U.S.’s.  As we know, employment tends to lag behind the other indicators during a recovery.

But overall, the outlook seems much more optimistic both in Canada and elsewhere. Bloomberg’s global consumer confidence index was at a 22-month high as of last month. CIBC chief economist Avery Shenfeld recently said that he believes that history will show the second quarter of this year being the last quarter of the recession, and the third quarter marketing the beginning of the “climb out of the hole.”

Looking at the current retail scenario for the category, what are some of the positives and the challenges in Canada? Are there key differences with the U.S.?

Morgan:  Obviously, there are a lot of parallels between Canada and the U.S. when it comes to the magazine category. Certainly, we face significantly increasing competition from other categories, particularly at the front end.

Our numbers indicate that we are dealing with an even larger newsstand title base in Canada than exists in the U.S. In addition to Canadian magazines, we have most of the U.S. titles and many imported European titles. At the same time, the average mainline space in Canadian supermarkets is substantially smaller than in the U.S. So our display space challenges may be even more intense. 

Probably the biggest single difference in the Canadian retail scenario is that most retailers continue to perform in-store rack dressing and merchandising themselves. We do not have the wholesalers performing such activities, so it is up to national distributors, wholesalers and publishers to work with retailers to encourage category merchandising best practices. 

In terms of classes of trade, as of May, supermarkets had a 35.6% share of category sales here in Canada—up 0.6 points since last May—versus supermarkets’ nearly 50% share in the U.S. One significant development this year is that drug stores have moved into second place, increasing their share from 16.6% to 17.8% and bumping convenience stores, which now have a 16.6% share, down to third place. Mass merchandisers have also been gaining share. They are at 14.3%, compared to 13.4% a year ago.

The steady gains by both drug stores and mass merchandisers reflect both new store openings and improved racking initiatives. For example, one of our major drug store chains, Shoppers Drug Mart, is a very strong supporter of the magazine category, and they’ve been opening up a significant number of new stores. So that is impacting positively on magazines. On the mass merchandiser front, during the PBAA event, Mike Martin of CMMI reported that the wholesaler group’s successful fixturing and other initiatives with Costco and Wal-Mart are resulting in positive sales trends year-to-date.

There have also been positive developments in the supermarket class of trade. For instance, in one major retailer, magazines and other traditional front-end categories had lost space as a result of a checkout streamlining initiative. As a result of magazine category benchmarking efforts, we are now starting to see that retailer reinvest in new magazine racks that fit with their vision of the front end. That will undoubtedly be a positive for magazine sales.    

Which magazine categories and titles have been showing increases despite the economy?

Morgan:  Fashion/beauty category units rose nearly 5%, general interest units gained 5.4%, and entertainment gained 28% in the first five months. Quite a few of the sports-specific categories also showed solid gains.

Some of the larger titles in terms of volume that saw healthy increases included Cosmopolitan, which was up 14.9% in both units and dollars; More, up 22.1% in both units and dollars; Hello!, up 9.7% in units and 35.6% in dollars; and First for Women, up 3.9% in both units and dollars. So while only 11 categories among the total 63 were up overall during the first five months, and key categories such as celebrity and women’s lifestyle were down overall [-6.6% and -6.2%, respectively], there were magazines within those categories that did see gains.

What’s been happening with efficiency rates?

Morgan:  Allotments decreased by 10% in the first five months, so the average efficiency rate remained at 35%, the same as in last year’s first five months. As in the U.S., we continue to strive to improve efficiencies, and we would expect to see improvement once the economy and sales trends return to more normal patterns.

Morgan’s PBAA presentation and updated data analysis are available for download on Coast to Cost’s site (www.ctcmagazines.com) under the “CTC News” area.