Source Interlink Layoffs Not Catastrophic

Source Interlink’s recent layoff of “at least 30” employees could fall into the category of another shoe dropping for Source Interlink consequent to its loss of the distribution contract for major banners of the Kroger Company. Or it could fall into the category of just one major magazine industry player re-organizing its business in order to remain profitable in tough economic times. 

The former Source employees that called to tell me about the layoff call it a response on Source Interlink’s part to the loss of the Kroger chain and the $60 million that they say it represented in newsstand sales revenue. They saw the non-competes they say they were asked to sign as an indication that all is not well in Source-land, and mentioned, as support for this point of view, Source’s attempts to get into new lines of business—sunglasses, phone chargers, electronic cigarettes, Dream Water.

No one who pays the slightest attention to the trade press, or to their own sales trends, can doubt that these are tough times for magazine publishers and their distribution channel partners. And a layoff on the part of a company Source Interlink’s size puts them in the same category as most of the bigger magazine publishers, most of the national distributors, most of the wholesale groups.

With the rumors flying, I called David Algire, EVP of Source Interlink Media, and until recently President of Source Interlink Distribution, to clear them up.

Of course times are tough, Algire acknowledged. But for a company the size of Source, employing 6200 “great people,” the regrettable loss of such a small percentage of employees could hardly be counted as “massive.” Nor does the loss of a single retail chain, however valued, constitute a catastrophe. “The fact, good or bad, is that the margin from our distribution business pales to that of the retail sales volume,” Algire said, “so while we hate to lose a good customer, it is not life-threatening.”

Disgruntled former employees notwithstanding, Algire pointed out, all of the major magazine wholesalers have been carrying non-magazine product for years; all require non-competes when employees leave their companies.

The newsstand sales decline is hitting everyone, and the new management at Source Interlink is implementing changes to manage expenses and lay the foundation for the long-term health of the company.

As an approach to managing expenses, Source Interlink is analyzing how best to consolidate and still effectively cover its market. They’ve cut back to three distribution centers, all state-of-the-art; their reduction in personnel comes after similar reductions from Comag, the News Group, and—well, it would almost be easier to list companies that haven’t had layoffs than those that have.

But Algire says that there is reason for optimism on the publishing side. At Source Interlink Media, the past four to six weeks have seen some leveling out of sales declines; the publisher has also had recent successes with new publications—Geek magazine, launched in June, and  Recoil magazine, now on its third issue, both show promise in the retail market.

“As an enthusiast publisher we have a readership that is voracious about its passion,” Algire said. “We are conscious of this as we market our titles, and it pays off.”