Turning the page on the Mag Nation doubters

Sahil Merchant isn’t afraid of a challenge. According to friends, potential investors and even the magazine industry itself, his start-up Mag Nation didn’t have a chance of succeeding. Five years and more than four million customers later, Merchant didn’t just beat the odds. He smashed them.

Merchant is no longer involved in Mag Nation, having sold out in July 2010. He says that he doesn’t want to step on the toes of the current owners, but it’s clear that he handed them a legacy of one of the most dynamic start-ups in Australia.

There are now six Mag Nation outlets across Australia and New Zealand. The stores stock more than 4,000 magazine titles from across the world, with customers encouraged to drape themselves on plush seats to access wireless internet and peruse titles ranging from craft publication Bead & Button to UK indie music magazine Big Cheese, and everything in-between.

The hard sell

Mag Nation isn’t quite a newsagent, but it’s not really a library either. It’s a concept that Merchant had to sell hard in Australia after he decided to spin out the success of Auckland-based Mega Mags with co-founder Ravi Pathare, who happens to be his uncle, in 2005.

“A lot of people said ‘Shit Sahil, why run a magazine business?’,” he recalls. “They thought that because they shop, they were an expert in retail. There was a lot of scepticism (from potential investors) but they were willing to introduce me to other people.

“Before we had a store in Australia, we saw the major magazine distributors and pitched the idea to them. They said ‘Good on you, but it won’t work.’

“They pointed out that the magazine industry hasn’t changed in 100 years and that newsagents are not libraries – once you allow people to touch and feel the magazines, conversion rates go down.

“But they were thinking all about Women’s Day, not the collectors’ items. People have such passion for these magazines. Why are they treated differently from a watch or piece of clothing? You wouldn’t buy a pair of jeans unless you tried them on first.”

Tapping into that consumer passion for niche magazines was what convinced Merchant that the idea was viable, despite the misgivings of others. His own passion, for entrepreneurship, compelled him to give it a go.

“I was at (consultancy firm) McKinsey and I loved what I did, but I got to the point where I was itching thinking about Mag Nation in the morning,” he says. “I couldn’t wait to start it up.”

“Here you had a major category that was stuck in the middle – it wasn’t value driven but it had the carpets and fluoro lights. The experience of buying magazines wasn’t great.”

Sizing up the mag world

Merchant may have been determined to forge ahead with the idea, but he wasn’t starry-eyed about the industry at large. He admits: “I’m passionate about information, but I’m not a big magazine reader. In many ways, I was the sceptic as I’m not the usual customer for this, but I had a feel for the customers and their passion for magazines.”

“Also, it’s a dumb industry, so to speak. You don’t have lots of smart people say ‘I really want to work in the magazine industry.’ Those that do work there do it for a lifestyle choice, but they aren’t going to change the industry around them.”

In order to bend the magazine retail industry to his will, Merchant needed cash. Using “contacts of contacts” at McKinsey, Merchant managed to get $5 million worth of private equity commitments, but eventually only raised $1.8 million. Merchant admits there was a lot of “blood, sweat and tears” to get convince investors that he wasn’t opening a glorified newsagency.

An initial injection of $500,000 enabled Mag Nation to get started, opening its first store on the corner of Elizabeth and Collins Streets in Melbourne’s CBD. The cash soon disappeared as the venue had to be completely revamped, including the installation of a new floor, in order to house the business.

“I’m from Melbourne, thought that the urban savvy community was here and wanted to keep a close eye on the business,” says Merchant. “We wanted to secure somewhere high profile but the hard thing is that we didn’t get a look-in at Chadstone, for example, because we weren’t a national brand.”

“We were used (by property landlords) to drive up the price for existing business tenants. To get the funds for the premises, we need the location. It was a catch 22 situation.”

“We managed to get both through dumb luck. Through an intermediary, we managed to get hold of the Melbourne CBD location before it went to market. There were plenty of sleepless nights though.”