Will Wal-Mart Seek to Convert Publishers to Direct Distribution?

Always up to something, is that gang at Wal-Mart, and the latest something appears to be a chain-wide initiative to move transportation services away from suppliers to their own trucks and warehouses.

Wal-Mart of course does have its own trucks, which currently they use to move product from distribution centers to stores. The initiative is meant to lower costs through direct supply across multiple categories. How that is likely to translate for magazines
appears to be the elimination of the wholesaler suppliers with the difference
in discount going directly to Wal-Mart.

But does Wal-Mart intend to make the same arrangement with magazine publishers? And how would that play out for magazines?

For some publishers it’s back to the future with this. A multi-title publisher with a large annual publication did set up a direct relationship of this sort with Wal-Mart a couple of decades ago. It cost the publisher dearly.

“What we didn’t understand at the time,” the publisher recently explained to me, “was that for any pennies you save moving to direct supply, it costs that much more across all the other channels. The wholesalers lose the volume and the route
density; they have to spend more to get their product to every remaining
retailer. And to stay in business
themselves, they are going to have to get that difference from somewhere. There are only two places to spread that cost
out: to the retailer and the
publisher. It’s what happened with the
bookstores back in the ‘80s, and to some degree the entire system has been
paying the price ever since.”

The price, in this case, is the further weakening of the already-fragile wholesaler supply system, with the reduction of overall volume raising the prices everywhere else.

With so many suppliers on the magazine side, so many returns to manage, so much complexity in the system, this all might become a moot point. After all, the wholesaler system
consolidated to its current state through trying to meet the needs of large
national chains such as Wal-Mart. To
undo those relationships again will give rise to many questions: will Wal-Mart set up its own returns
processing center? What about in-store
merchandising? Will the RDA be rolled
into the discount? How will this affect
payment; and how, in turn, will that change affect the survival of some of
Wal-Mart’s smaller publisher suppliers? Or will Wal-Mart, having picked up its
own trucking, want to pick up the trucking to other retailers as well? Will they essentially move in the direction
of becoming a national wholesaler?

While some of these scenarios are more likely than others, certainly none are impossible. We’ve seen massive changes in our system before, and there is no real reason to
believe that we won’t continue to see change.

But as Wal-Mart begins to talk directly with publishers about direct supply, this might not be a change we want to embrace. There is every reason to anticipate that costs savings to the retailer will mean additional costs, in the long run or
the short run, to the publisher.