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Source Interlink After Kroger: Layoffs and Diversifying Business

At least 30 employees have been let go as the company looks to get new lines of business.

Linda Ruth By Linda Ruth
08/22/2012 -02:19 PM

Source Interlink’s recent layoff of at least 30 employees could fall into the category of one major magazine industry player re-organizing its business in order to remain profitable in tough economic times. Or it could fall into the category of another shoe dropping for Source Interlink as a consequence of distribution contract loss from major banners of the Kroger Company.

The former Source employees that called to tell me about the layoff view it as a response to Source Interlink’s loss of the Kroger chain, and the $60 million that they say it represented in newsstand sales revenue.

The non-competes they say they were asked to sign are viewed as an indication that all is not well at Source. They mentioned, in support of that perspective, that Source is experimenting with distributing other products—sunglasses, phone chargers, electronic cigarettes, drinks like Dream Water. In other words, the non-compete and the other products, along with the layoffs, combined in their minds to an indication that Source is struggling.

No one who pays the slightest attention to the trade press, or to their own sales trends, can doubt that these are tough times for magazine publishers and their distribution channel partners. A layoff at a company link Source Interlink puts them in the same category as most of the bigger magazine publishers, most of the national distributors, and most of the wholesale groups.

With the rumors flying, I called David Algire, EVP of Source Interlink Media, and until recently president of Source Interlink Distribution, to clear them up.

Of course times are tough, Algire acknowledged. But for a company the size of Source, employing 6,200 “great people,” the regrettable loss of such a small percentage of employees could hardly be counted as “massive.” Nor does the loss of a single retail chain, however valued, constitute a catastrophe.

“The fact, good or bad, is that the margin from our distribution business pales to that of the retail sales volume,” Algire said, “so while we hate to lose a good customer, it is not life-threatening.”

Disgruntled former employees notwithstanding, Algire pointed out, all of the major magazine wholesalers have been carrying non-magazine products for years, and all require non-competes when employees leave their companies.

The newsstand sales decline is hitting everyone, and the new management at Source Interlink is implementing changes to manage expenses and lay the foundation for the long-term health of the company.

As an approach to managing expenses, Source Interlink is analyzing how best to consolidate and still effectively cover its market. They’ve cut back to three distribution centers, all state-of-the-art; their reduction in personnel comes after similar reductions from Comag, the News Group, and—well, it would almost be easier to list companies that haven’t had layoffs than those that have.

But Algire says that there is reason for optimism on the publishing side. At Source Interlink Media, the past four to six weeks have seen some leveling out of sales declines. The publisher has also had recent successes with new publications—Geek magazine, which launched in June, and Recoil magazine, now on its third issue. Both show promise in the retail market.

“As an enthusiast publisher we have a readership that is voracious about its passion,” Algire said. “We are conscious of this as we market our titles, and it pays off.”

Linda Ruth is Principal of Publisher Single Copy Sales Services. Her book of case studies, "How to Market Your Magazine on the Newsstand," is available at BookDojo.com and at Amazon.

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