Keith J. Kelly

Keith J. Kelly

Men's Health

Beach warning: Summer magazine shortage ahead

Don’t count on the glossies for your beach read.

A national shortage of magazines could hit this summer after the nation’s No. 2 wholesaler abruptly shut down, leaving publishers scrambling to find a replacement to truck their magazines to stores.

The sudden demise of Source Interlink Distribution means that People, Us Weekly, Glamour, Cosmopolitan, In Touch, Men’s Health and other favorite glossies may go missing at some retail outlets — at least in the short term.

The timing couldn’t be worse for the celebrity weeklies. Summer is traditionally their top-selling period as many consumers soak up the breezy reads along with the sun.

Barnes & Noble, which received between 75 percent and 80 percent of its magazines from SID, is said to be switching to a smaller wholesaler, Ingram, which had been handling about 20 percent of B&N orders.

Stephanie Fryling, vice president purchasing for magazines at B&N, did not immediately return a call.

SID was also the exclusive national supplier to Costco, CVS, Rite Aide and A&P supermarkets, and handled Walmart stores in Pennsylvania and the South.

Time Inc. said Monday that disruptions from its decision to dump SID in a squabble over rates could last up to three months, but a well placed executive said that may be overly optimistic.

“There could be six to nine months, maybe a year of total disruption to the marketplace,” the exec said.

Time Inc.’s move, which was announced before SID said it was discontinuing operations Thursday, will shave $12 million from its earnings this year.

Added another source, “Tens of millions of dollars are at stake for publishers.”

In the end, the executive predicted that the cost of trucking magazines to market and processing returns would rise, creating more price pressure on publishers at a time when they can least afford it.

The two biggest wholesale survivors — expected to inherit most of the business — are TNG, owned by Canada’s New Group, headed by Jimmy Pattison, and James Cohen’s Hudson News.

Time Inc. already said it was shifting its business to TNG.

SID has warehouses in Lancaster, Pa., McCook, Ill., and Ontario, Calif., but it’s unclear how much inventory it has or what will happen to it in the immediate aftermath of its decision to close.

The company told publishers that it might work something out for the short term to smooth the transition.

“In light of this unfortunate turn of events, we are willing to discuss arrangements for an orderly transition of our retail customers to successor wholesale distributors as part of an industry solution,” CEO Mike Sullivan said in memo to publishers Thursday.

As SID battled to stay in business, it grabbed market share by promising retailers a better percentage cut on the magazines it sold at retail. SID hoped to recoup the cost by pushing for better terms from national distributors and ultimately magazine publishers.

“Source made unreasonable demands,” said one industry executive.

The demands included later payment terms and a move to have publishers foot the bill for magazines lost, stolen or damaged at the retail level.

Wholesalers absorbed the cost of so-called “shrinkage” in the past, but if SID was successful in moving to a scan system of inventory tracking, the shrinkage would have been pushed onto publishers, who balked at the idea.

SID is owned by hedge fund Oaktree Capital Management, which split the distribution business from the media business.

Source Media publishes Motor Trend, Hot Rod, Automobile and other special interest titles and is not involved in the shutdown of the distribution side, which will toss 6,000 people out of work.

Months of futile negotiations between SID and publishers came to a head in recent weeks, when SID began withholding payments for April magazines to distributors.

National distributors are used by publishers for billing and collecting from wholesalers and other services, although they never touch the physical product.

They essentially serve as bankers to the publishers, keeping tabs on sales and returns and doling out payments.

Time Warner Publishing Services and Curtis, two of the largest, pulled their business from SID this week when they were not paid for April magazines.

SID “issued an ultimatum to the publishers and it backfired,” said one source.