Anderson News ceases operations, in negotiation with publishers, retailers
By Carly Harrington (Contact)
Tuesday, February 10, 2009
Just over a week after imposing an unpopular fee for magazine delivery, Anderson News has decided to cease operations as it continues to negotiate with publishers and retailers.
The decision is an attempt to rein in escalating expenses just as publishers have stopped shipping magazines to the Knoxville distributor, which began charging a 7 cent fee on Feb. 1 for each magazine distributed.
CEO Charles Anderson said the surcharge was necessary to offset losses and stay in business, but publishers have refused to pay.
Most employees were told Saturday not to report to work until further notice.
It was unclear how many were affected by the decision, but in a note posted on the doors of its headquarters, Anderson News said it hoped to resume normal business activity soon. Meanwhile, the company is maintaining "a skeleton work force."
"As these discussions proceed, we are incurring unsustainable costs. If these costs continue to go unchecked, we jeopardize any chance we may have to resolve this crisis. We will continue our efforts, but must for the short term stop these escalating costs," Anderson wrote as part of the note.
Anderson News has had about 400 employees at its Knoxville-area facilities, including a distribution center on Westcott Boulevard off Middlebrook Pike, though the company reportedly laid off some workers last year. In 2007, Anderson had about 9,800 employees companywide, according to Hoover's Online directory of businesses.
"We continue to work toward an amicable solution. I have been told by our two largest publishers that any interruption of service should last only a few days. I am not quite sure if they really understand the situation. This is a mess for all of us," Anderson said in a statement released Saturday.
Last Wednesday, the company denied reports that it was exiting the business. Another distributor, Source Interlink, which also had implemented a price increase, alleged that publishers were refusing to ship copies to it and Anderson News to "lock out competition."
Anderson News and Source Interlink represent about 50 percent of the magazine distribution market, which also includes rivals Hudson News and News Group.
Anderson News has said the fee is meant to be a temporary measure as it seeks "a viable business model" that would ensure a competitive marketplace. Anderson News' magazine sales in 2008 were about $760 million, and it reported a net loss of more than $20 million.
The impact on consumers and how and when they will be able to get the latest issues of their favorite magazines is yet to be seen.
Food City CEO Steve Smith said the regional grocer sells millions of dollars worth of magazines, which are supplied entirely by Anderson News.
"We're sympathetic with their goal to get a more effective business model; however, we're not being serviced. That can only go on for a certain amount of time. We support Anderson and hope they get these issues resolved, but ultimately, we have to make sure our customers get the products they want," Smith said Monday.
Based in Abingdon, Va., Food City operates 100 retail food outlets throughout the tri-state regions of Southeast Kentucky, Southwest Virginia and East Tennessee. It has been a longtime customer of Anderson News, which Smith called a local company that does "a good job."
Kroger spokesman Glynn Jenkins also expressed hope that Anderson News would find a resolution, saying the disruption in service "could temporarily limit the selection and quantity of books and magazines available in Kroger stores."
"Some of our distributors informed us that they are having issues fulfilling their obligations to retailers. We hope they resolve their situation soon and, in the interim, are looking for alternative suppliers," Jenkins said.
Last month, Anderson was quoted in The New York Post as saying in a conference call with publishers that, "The last thing we want to do is exit this business, but why should we continue in a business where we are not making any money?"
Anderson News was established in 1917. It is one of the largest distributors and merchandisers of magazines in the United States. The firm provides weekly service to retail locations in 37 states.
"We survived two world wars, a great depression and countless economic panics," Anderson said in his memo to employees. "In the past two months, we have done everything possible to get our magazine companies back on solid economic foundation."
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