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-By John Boley

Think back 20 years. There were some 5,000 “newsagencies” on the high streets and in the shopping centres of Australia. Many, perhaps most, took the form of a small shop. Someone might be serving you wearing a vest with a fag in his mouth and a pair of thongs on. But things have changed since then.

For nearly 100 years the Australian newsagency industry was a totally regulated, highly controlled environment, explains Brian Macfarlane, chairman of Nextra Group. “If you wanted to buy or sell a newsagency you had to go through a publishers’ committee, virtually, to qualify you to buy or sell.” It was in this environment that Nextra Group was actually formed, “because in the 1990s a decision was made to totally deregulate the newsagency industry in 2000.”

Brian himself, having spent nearly two decades working in banking, was at that stage running a number of agencies with “a big investment in the industry” and had the foresight, with a couple of colleagues, to commission a report into the likely consequences of deregulation and what they should do to prosper thereafter.

“Some complacency had crept into the newsagency retailing standards, simply because of that protected environment. A newsagency had a specific territory and the only place you could buy circulation-product magazines or papers was from that one news agent.” The message from consultants was clear: radical change, with a completely new newsagency concept that would be sought after by landlords and enable owners to run them as effective competition in markets dominated by the Coles and Woolworths of the retailing landscape.

“The conclusion was that we had to break away from the industry and come up with a new concept. The next step was to come up with a name.” That process took several months but eventually settled on the time-honoured cry of ‘extra, extra’ bellowed by traditional newspaper sellers in Fleet St – combined with the ‘next step’ opportunity represented.

“We built the brand from that. We started just with four and today we have over 300. The essence of our de-regulation strategy was diversification.” Nextra retained elements of the traditional newsagency but in the modern shopping-centre development, “they are just not going to survive, simply because the basic gross profit from circulation products is 25 per cent and in this day and age it is difficult to pay wages and rent within that margin. So therefore you have to de-regulate to get a higher GP and that has been a key strategy of the group: to diversify into other products, to build up our GP into the 30s [per cent] and that has been successful.”

The concept is to an extent regulated by usage clauses in shopping centres. “Our goal has been to broaden those usage clauses to enable us to get in industry-related products such as books. There’s the ‘shop within a shop’ concept that we developed in 2000: we set up a concept store which was larger than a traditional news agency which may be 150 square metres. We went for a larger size of 400 square metres.” Inside the ‘shop within a shop’ would be a small book department, a gift department, a circulation department (magazines), and a stationery department.

Nextra’s franchises are mainly in major shopping centres. Brian says with justifiable pride that the traffic through the sites totals “approximately one and a half million customers per week. That provides an excellent path to market for suppliers when they get in new products; it gives them exposure to shopping centres.” Nextra stores provide an excellent alternative to supermarkets or conventional stationery stores.

Today, “we have 150 excellent suppliers. The point that we think is quite unique to our organisation is the path to market that we offer them. When you think about it, to get access to 80 million customers a year, one and a half million people a week, is an excellent path to market for suppliers who might otherwise have difficulty getting their products into certain stores. They have no expenses of rent, etc – we do all that.

“We value our relationships with suppliers. They are the lifeblood of our industry, because we are talking about diversification.” The key is getting good quality product in, “getting it in, getting it through, establishing a good supply. For people out there it provides an excellent opportunity for them to get exposure for their product in all these sites across Australia in major shopping centres. That cannot be underestimated.” Nextra shares a shopping mall happily with the likes of Coles and Woolworths but if you go to them and ask for the kind of exposure that Nextra can give your product, says Brian, “I don’t think you are going to get it.”

Nextra has struck a deal with card-maker John Sands, a division of American Greetings, with which it now has a preferred supplier agreement. John Sands’ chief executive Ray Mundy “saw in de-regulation the way the industry was going to go. A lot of people didn’t know which way it was going to go but I think Ray could see that it would be a marriage into groups, some of which would emerge very strong like the pharmaceutical industry. Ray had the foresight to realise that.”

What does a franchisee need? It depends on the site, but generally speaking currently the shop fitting cost is around $2,000 per square metre, so a 150-200 square metre shop could cost $400 000. “We are going more and more for seven to ten-year leases so the life of the shop fit will extend hopefully over ten years, but quite often at the end of that lease term a further shop enhancement is required and sometimes a complete shop fit will be required; that is a bit of an issue,” Brian acknowledges. In addition there is usually a goodwill element that might be a two to four times multiple of profit. “If you go to a greenfield site you could be up for the cost of a shop fit which could be anywhere from $250 000 to $400 000 plus the stocking costs, which could be $150 000 and your computer systems and set up costs. It is a half million dollars-plus investment in a greenfield site.”

“We have an excellent relationship with the major banks and they are very supportive of what we are doing in the sense that we are bringing a standard to the industry. We are giving advice and if anyone wants to get into the newsagency industry here, they need the best advice they can, they need the best support they can, particularly with landlord negotiations which are becoming a very difficult area.” There is even the suggestion that finance houses look favourably on Nextra as a banking proposition. “That is the feedback we have received and in fact we had a major bank do up a banking proposal for us and the group. They were very keen to do business with us.”

Nextra has always been careful to court the landlords of shopping centres. “Our aim always has been to be the preferred newsagency choice for landlords. We have made that clear and that has made some other people nervous, but that has been our objective. We have an excellent relationship with most of the landlords.”

Growth is coming from traditional newsagents, many of whom will have been members of a previous loose grouping of which Brian was also once a member. “It was governed by the association for newsagency federations. I was always told, and we always believed, it was the sleeping giant of Australian retailing and that is exactly what happened – it went to sleep.” When the deregulation issue came up in 1995, I said, ‘I don’t think they have got the answer and we have got to change.’ We were part of that mass of 5,000 outlets and it just wasn’t working.” It’s practically impossible to implement a model that has identical pricing “for the guy sitting at Chadstone shopping centre trying to buy product and the guy sitting in a strip out at Mount Isa. You can’t buy at the same price.” With the old model, “whether you bought one or a hundred thousand it was the same price, whether you were in Western Australia or in a metropolitan area it was the same price. Where our growth is coming from is that people are now accepting the industry is changing dramatically and they are now joining us.”

Having changed the model, “we are very happy with our place in the shopping centre market, most of the stores are very happy indeed. Most franchise groups’ fees are around six per cent of turnover. We don’t do that – we just take a fixed fee of 550 dollars a month to be in the group: 250 for administration and 300 for marketing.” This helps to make the proposition more affordable. “We are just offering an enormous range of services by a very dedicated and qualified staff for a minimum fee. And that has been another thing that has set us apart from other franchise groups and probably may be the key to our success in the fact that most of our members, we hope, are happy. And from my feedback it appears they are.”

Making Sense of Management

Management is the art, or science, of getting things done through people. Sounds fairly straightforward – except for the fact that people are not robots waiting to do our bidding. People have their own minds, motivations, and goals. So how do managers keep operations – and the people behind them – running as planned?

December 19, 2018, 5:10 AM AEDT