Newsways Distributors keeps your 7-Eleven supplied with its piles of People and Lowriders, Stars and Cosmos.
The Glassell Park magazine distribution company supplies grocery and convenience stores, newsstands and office building sundry shops with reading material that feeds curiosity for celebrity gossip, offers other lifestyle coverage or caters to custom car enthusiasts.
Given the pervasiveness of the product, the appetite for such publications seems like it might be insatiable. Newsways saw record growth from 2005 to 2007. The company earned the No. 22 spot on the Business Journal's list of 100 fastest growing private companies with revenue of $35 million in 2007. In 2008, however, revenue dropped 5 percent to $33 million.
What does it mean? Newsways President John Dorman isn't discouraged by the drop, and said the company is growing its customer roster.
"We have noticed some softness. We are not working at a high efficiency, and are doing lower volume in a lot of our stores," said Dorman, who learned the distribution business as editor of the classified ad publication Recycler Classifieds. "But we are picking up a lot of new business."
That's happening because of a war between big distributors and the publishing companies. Two of the biggest distributors, Source Interlink Co Inc. and Anderson News LLC, sought to impose a seven-cent per copy surcharge on magazines, and publishers stopped shipping to them. Newsways is starting to take over those deliveries.
In Dorman's world, the publishers sell the magazines to the distributors at a percentage of the cover price. In turn, the distributors sell to retailers at a higher percentage.
When the magazines don't sell, the distributors reimburse the retailers and then grind up the unwanted publications. There's enough money in the pulp business to make it worthwhile.
Newsways services 3,400 stores throughout California and Arizona, and half of that business comes from convenience stores including 7-Eleven and AM/PM. The remaining 1,700 clients include liquor and grocery stores, newsstands, office building concession shops, hospital gift stores and college bookstores.
The company offers their retailers a choice of 2,000 titles, including Cosmopolitan, Vanity Fair and Star Magazine.
Magazine sales plummeted 11 percent during the second half of 2008. The downward trend is forcing some distributors to squeeze more money out of their deals.
In February, two of the industry's biggest players Beverly Hills billionaire Ron Burkle's Source Interlink and Knoxville, Tenn.-based Anderson News sought to impose a seven-cent-per-copy surcharge on publishers. Major publishers Time Inc. and Hachette Filipacchi Media U.S. Inc. refused to ship their magazines to Source and Anderson for distribution to retailers. Source backed down and didn't impose the surcharge.
Anderson has ceased operations and said it was maintaining a "skeleton work force" as executives negotiated with publishers to get their business back.
Anderson and Source did not return phone calls from the Business Journal.
The conflict gives Newsways the opportunity to fill a void left by its larger competitors. Dorman estimates that the company will see a 25 percent increase in revenue this year as Newsways grabs customers that were getting magazines from Source and Anderson.
"These are exciting times," Dorman said.
Newsways has already snagged one client that was getting magazines from Burkle's Source Interlink. Crews of California, an L.A. company that operates five concession stores at Los Angeles International Airport, began working with Newsways in December.
David Husack, Crews' chief operating officer, said the company is receiving better deals on magazine prices as a result of switching to Newsways and getting more personalized service.
"Newsways pays attention to service," Husack said. "They keep our magazines stacked properly and are here in the morning on time."
Industry experts anticipate that smaller companies like Newsways will thrive as publishers and retailers look for new distribution channels in the wake of the war among the two big distributors and the publishers.
"There is a lot of speculation that the smaller, independent wholesalers will come into certain regions and pick up some of the business," said Bill Mickey, managing editor of Audience Development, a magazine industry trade publication. "The West Coast is one region."
Dorman, 61, started out delivering Fuller Brush catalogs to homes in Monterey Park and Alhambra when he was a teenager. "Most kids had newspapers routes, I had a magazine route," he remembered.
In the early 1970s, Dorman started working for Recycler founders Gunter and Nancy Schaldach. He helped the couple build the Recycler into a thriving business, and in the process learned magazine distribution.
In 1985, after the Recycler became a success, Dorman founded Newsways. However, he continued to distribute the Recycler through another company, which was sold to Times Mirror as part of its purchase of the classified magazine.
In the late 1980s, Newsways started distributing Lowrider Magazine, a monthly publication that focuses on custom cars. The success of Lowrider in the late '80s and early '90s helped Dorman build a network of retail clients.
Later, Newsways became successful in the Northern California market, and the company became 7-Eleven's preferred magazine distributor. In 2005, Newsways finally proved to be a profitable company, Dorman said.
Newsways recently negotiated a deal with Gelson's Market to service five of the high-end grocery chain's stores. The company is also expanding its presence in Arizona, where it services 7-Eleven and Circle K convenience stores.
"I don't see our growth stopping,"' Dorman said. "We continue to be able to meet the service requirements of the larger, more demanding retailer."
Headquarters: Glassell Park
Core Business: Marketing and distributing magazines to retailers
2008 Revenue: $33 million (down 5 percent from 2008)
Employees: 189 (up seven from 2008)
Goals: Developing new distribution models, expand merchandising capabilities and investing in staff training
Driving Force: Consumers demand for magazines
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