Once he got the business up and running, Merchant began taking on the very model of magazine distribution in Australia in an attempt to form a more profitable supply chain.
“The incentive given by distributors to magazine sellers wasn’t to sell everything they got,” he explains. “You pay for everything up front and then get your money back two or three months later.”
“Distributors are like large financial institutions. Close to the end of the financial year you get lots of magazines dumped on you. For every 10 magazines printed, five are sold and five are dumped and pulped.”
“This has a lot of hidden costs and makes the magazine industry very inefficient. We thought if we could get rid of that, the money would come through to us.”
Merciless tracking
Rather than be at the mercy of distributors that sent large volumes of magazines that may or may not sell, Mag Nation began to record its sales in a way that a standard newsagent would never be able to do.
Merchant says that the business “bastardised” a standard system used by retailers to chart the sales of titles. By identifying the most popular titles, Mag Nation could cherry pick them and avoid accumulating large batches of stock that wouldn’t sell.
“We mercilessly tracked sales,” says Merchant. “We had a better feel for what consumers wanted than the distributors, who were just pushing stuff to us.”
This change involved the construction of a supply chain that, on the face of it, was far more complex than dealing with a handful of major distributors.
“We rethought the entire supply chain and dealt directly with the UK, US and Europe,” Merchant explains. “We had lots of cups of coffee with lots of niche, independent publishers who didn’t have a distribution channel or did have one but knew that we would give them a good show in-store.”
“We aligned risk and return rather than buying stock and being stuck with it if it didn’t sell. Magazines are one of the last ‘push’ industries left in retail, rather than ‘pull.’ Why should we accept a 25% margin when we can choose the publishers ourselves?
“We made the margin structure better, made more per sale and the customers engaged with us. We went where the love was.
“We managed 1,000 different supply chains into us and the margin was 50 to 75%. We did it through personal relationships. We were left with some stock, of course, but we built trust so that publishers knew that if they were selling 50 copies somewhere, we would sell 800.”
Fine-tuning the model
The change to the supply chain boosted Mag Nation’s margins, but it wasn’t until two years after the business launched that Merchant finally fine-tuned the business model by shifting the focus from product to consumers.
“We started out without a target audience,” he says. “Everyone said that we needed a target audience and I said that the product was king. I thought the product was the point of difference from newsagents.”
“We had a light bulb moment and dumped the product focus and switched to customers. The term was ‘urban savvy’ – not Gen Y or based on demographics, but it was about being design and fashion conscious. It was about caring about the visual and material world.”
“We were selling more design, architectural and fashion magazines, proportionally, than other topics.”
Merchant may have belatedly honed in on Mag Nation’s target customer, but he says he was always clear about separating good magazines from the rest, especially in an era when the internet is viewed as a major threat to circulations.
“A lot of magazine are crap and have no business existing,” he states, bluntly. “Why buy a magazine on cameras when you can see it online? What magazines can do is complement online.”
“Online is the enabler. If there was no internet, Mag Nation wouldn’t exist. The barriers around aggregating communities are now much lower.”
Giving the brand a voice
Mag Nation’s marketing started to reflect its core customer base, with Merchant giving the brand a cheeky, irreverent edge. Merchant began blogging for the company website and a motto of “Everything at Mag Nation can be touched, felt and browsed… except for our staff” was adopted.
“The voice of brand was my voice, it was very personal,” he says. “A lot of large brands don’t have that authenticity. It was a real strength of ours. We used blogs and Twitter and we were playful and fun.”
“We weren’t reticent to talk about errors and when people criticised us, we didn’t hide it. We changed the focus of the blog from magazines to things I was thinking about.”
The exit
In July last year, Merchant started getting “itchy” about his working life again and decided to sell his share in the business.
“It was an emotional time as Mag Nation was my baby, but it was the right time to do something else,” he says. “I have three kids and it was taking over my life. I loved the business but I was working like a dog.”
“I gradually made myself redundant. I’m a big believer in stirring the pot before it gets stale.”
That “next challenge” is in fact a dual task, with Merchant working on two different businesses. Previously a highly visible character in the entrepreneurial world, Merchant says he hopes to be a “bit more under the radar” this time around.
Despite his desire for a slightly quieter life, there will be plenty of people keen to see if Merchant is again set to defy the odds and conjure up another start-up that captures the public’s imagination.
