Why Walmart Won’t Stop Selling the National Enquirer
(Bloomberg) -- A decade ago, the company that distributed magazines to Walmart Inc. and other big retailers tried to impose a surcharge of 7 cents a copy. Publishers such as Time Inc. and American Media Inc. fought back by halting shipments, resulting in a short period where checkout-counter racks were devoid of titles like AMI’s National Enquirer.
Walmart received more customer complaints about the missing tabloid than just about any other out-of-stock item in its history.
The incident illustrates the close ties between the world’s largest retailer and the Enquirer, whose publisher David Pecker is locked in a public spat with Amazon.com Inc. founder Jeff Bezos. The clash indirectly pits Walmart and Amazon against each other, since Walmart represents 23 percent of the Enquirer’s sales, according to a 2017 New Yorker article. Bezos says he was blackmailed by Pecker, a close friend of President Donald Trump, himself a frequent Bezos critic.
As the altercation unfolds, a petition on the website of activist group MoveOn to remove the Enquirer from Walmart’s 4,755 U.S. stores has been revived. Through Thursday afternoon, however, the petition only had 45 signatures.
Even if it gains more support, there’s little chance that Walmart will remove the Enquirer. While magazine sales at supermarket checkouts have plummeted in recent years -- part of the broader decline wrought by digital media -- Walmart still makes money pushing gossip titles, which depend heavily on single-copy sales at retail newsstands.
“I doubt that Walmart will do anything under the current conditions,” said Bob Sacks, a publishing veteran who produces a daily industry newsletter. “The checkout line is still big business.”
An AMI spokesman didn’t immediately respond to a request for comment, and Walmart declined to comment.
Feeding the Gossip
The tabloids that shoppers peruse while waiting to pay for their weekly groceries come via a web of publishers, wholesalers and distributors, and any disruption to that supply chain can have a big impact. Magazines are one of the few items in a supermarket where the retailer doesn’t set the price -- publishers do -- so retailers negotiate a complex set of discounts and rebates to make money on each issue. Walmart, which is responsible for about one in four magazines sold in the U.S., also doesn’t have to pay its own workers to restock the magazine shelf, which boosts its margins.
That setup worked fine when there were hundreds of wholesalers in the U.S. to negotiate with, but most of the middlemen, facing declining sales and saddled with huge fixed costs like trucks and drivers, have gone kaput or consolidated over the past decade. The 2009 imbroglio between publishers and wholesalers over surcharges led to the demise of Anderson News, and five years later another big wholesaler, Source Interlink Distribution, went out of business after a feud with Time Inc.
The biggest wholesaler remaining with more than half of the market to itself is The News Group, which in November was sold to a company owned by Chatham Asset Management, the hedge fund that also owns Enquirer parent American Media and other publishing assets. As its clout grew, The News Group dialed back the discounts it offers retailers, who, in turn, have shifted away from magazines to carry other products.
If Walmart ever does part ways with the Enquirer, it’s more likely to be because of declines in the tabloid business than a political imbroglio. Magazines once commanded almost a third of the $6.5 billion in impulse items -- think gum, candy, lighters -- sold at checkout counters, but that share has fallen to 7 percent, according to industry statistics.
Retailers have stepped back from magazines in various ways. A few, including Home Depot Inc., have jettisoned them altogether. The most common move is to reduce the number of magazine racks, or pockets, carried in a store, giving that space to faster-growing items such candy, salty snacks or energy drinks.
Other tactics are more subtle: Retailers can reduce the depth of the pockets by an inch or two so they carry fewer magazines, or they can shift the magazines from the cashier’s side of the checkout counter to the other side so they’re not as visible to shoppers waiting in line. That matters, as one in five shoppers buy a checkout-lane item on any given day, according to a 2015 survey. The Enquirer’s sales are especially sensitive to where it gets placed at retailers, AMI said in a 2016 filing.
Neither Walmart nor the Enquirer can be happy with the fact that today almost 80 out of every 100 magazines at the checkout don’t sell and get sent back to wholesalers. And Walmart has ditched some titles: A year ago, it pulled Cosmopolitan magazine from its checkout counters, bowing to pressure from activists to make its aisles more family friendly.
But Walmart is loath to remove the Enquirer, which at $4.99 an issue is a buck less expensive than rival celebrity magazine People, and so more appealing to penny-pinching shoppers. AMI also works closely with Walmart to avoid upsetting the retailer with the Enquirer’s racy coverage. In a 2003 interview in Ad Age, Pecker said he occasionally gives Walmart a heads-up when the Enquirer is about to publish an especially controversial cover.
“Walmart likes AMI’s titles because they are in the wheelhouse of the Walmart customer,” said Gil Brechtel, who once ran The News Group and has done consulting work for them. “Magazines are still very profitable for them.”
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