Monday, November 28, 2005

Stockholders upset with Office Max

It's never a good day when your largest stockholder says, "It's rare to see a turnaround plan so horribly botched."

That's what the Chicago Tribune reports about Office Max. The article is interesting, but I think the telling point for Office Max is that they are a poor #3 in their category, with both Staples and Office Depot 50% or more ahead of them (both are around $14b-15b in sales, with Max at $9b). I've been coming to the conclusion that there's no room for a #3 anymore, except maybe if you can define a niche for yourself. Each category will soon have two players, and possibly just one plus Wal-Mart.

Are store brands really "just as good"?

The New York Times reports on store brands and their increasing acceptability to large numbers of shoppers:

But makers of store brands say that they are every bit as good. In June, the Private Label Manufacturers Association, which represents about 3,000 generic goods makers, commissioned Meyers Research to examine how store brands stacked up.

In a blind taste test, 300 people - who, according to Meyers's president, Arthur Zimbalist, represented a cross section of the population - sampled 1,788 products in 10 locations. Store brands, they found, edged their national counterparts, 51 percent to 49 percent.

Treat commissioned research with appropriate skepticism. However, assuming that it's true, I would still question whether the important point is that private labels are improving, or that lack of innovation by branded products is allowing the store brands to catch up.

It's my contention that increasing concentration of retail, and therefore of manufacturers, is leading to less innovation, which provides an opening for store brands.

Research has shown a strong correlation between levels of retail concentration (by country) and private label market share.

Ahold settles with stockholders

Ahold's accounting scandals have now cost the company another billion. The company announced that it had settled a stockholder suit by paying $1.1b to stockholders who bought the stock during the time period when the company's vendor-allowance fraud was going on.

Christmas season off to a good start

The National Retail Federation reports that Black Friday sales were up 22% over last year, from $23b to $28b.

They also report that the average person has completed 35.6% of their shopping, which I find incredible, since that's 35.6% ahead of where I'll be in two weeks.

Sunday, November 27, 2005

Direct mail: declining effectiveness?

The Economist reports that studies indicate a drop in direct mail effectiveness:
The response rate from some campaigns has fallen to just 1.4%, according to America's Direct Marketing Association (DMA). In previous years it was well above 2%. When it comes to responding to “direct-order” mail shots (signing up to an offer, as opposed to merely expressing an interest), the rate has fallen even more dramatically, to 0.7% from 3.5% in 2004.
(Note: link may require subscription).

The report says (quoting AdAge) that the drop may be due to mailbox clutter, "leading many consumers to discard the blizzard of solicitations they receive." While I can certainly testify to having a cluttered mailbox, I wonder if the clutter is that much worse than the recent past.

Friday, November 25, 2005

Black Friday

The Urban Legends website has a posting about the common belief that today is the biggest shopping day of the year.

As they point out, Black Friday typically ranks about fifth, behind the last two weekends before Christmas, in terms of sales.

The top shopping days of the year in the recent past:
* 2004: Saturday, Dec. 18
* 2003: Saturday, Dec. 20
* 2002: Saturday, Dec. 21
* 2001: Saturday, Dec. 22
* 2000: Saturday, Dec. 23
* 1999: Saturday, Dec. 18
* 1998: Saturday, Dec. 19
* 1997: Saturday, Dec. 20
* 1996: Saturday, Dec. 21
* 1995: Saturday, Dec. 23
* 1994: Friday, Dec. 23
* 1993: Thursday, Dec. 23
We hope you had a great Thanksgiving.

Wednesday, November 23, 2005

Good news on the economy

Despite fears that the exceptionally tough hurricane season might damage the economy, the latest report by the National Association of Business Economists raised the 2005 estimate one-tenth to 3.6%.
The hurricanes failed to blow the US economy off course, according to Carl Tannenbaum, NABE vice president and chief economist. The NABE economists predict strong GDP growth next year, which should be enough to push the Federal Reserve to continue to increase interest rates.

The economists say they expect the Federal Reserve to keep lifting interest rates to 4.75 percent by the end of 2006 from the current 4.0 percent.
In related good news, the National Retail Federation just raised their estimate for the Holiday season from a 5% increase over 2004 to 6%.

Merry Christmas!

Tuesday, November 22, 2005

Just for Fun

There's an advertising/marketing angle to this, so I'll try to pretend it's on-topic.

A kid in the UK decided to raise money for school, so he created a page where he's selling ad space at $1 per pixel (in batches of 100). Thus far, since August 26, he has made $623,800. The page looks pretty interesting.

Why didn't I think of that?

Prestige Brands has Sarbanes problems

Buried in an article in (the Bergen Record's website) about an acquisition, is this tidbit about Prestige Brands:

Prestige notified investors last week that it would soon be restating earnings back through 2003 because of questions over "recognition of revenue, the classification of certain trade promotion allowances, and computation of earnings per share."

Prestige said it found accounting errors during an internal audit required by Sarbanes-Oxley rules. The company said the mistakes were related to timing and would not affect its fundamental trends.

In a news release, the company reported earnings of $7.4 million for the three-month period ended Sept. 30, down about 26 percent from the year earlier period. But the company has delayed filing its 10Q financial statement, citing the accounting issues.

Prestige markets such products as Spic & Span, Prell, and Cutex.

Tesco to buy a piece of Meijer?

This item from Reuters is interesting:
Britain's top retailer, Tesco Plc, declined to comment on Tuesday on press reports it was poised to take a 49 percent stake in U.S. foodseller Meijer, but said it had never ruled out a North American deal.

Trade journal The Grocer said Tesco, due to report its third-quarter trading figures on Friday, would pay 2.5 billion pounds ($4.3 billion) for the stake in the family-owned, Michigan-based grocery and general merchandise operation.

The deal would be announced in two weeks, The Grocer said, without disclosing the nature of its sources.

A spokeswoman for Tesco said only that the company did not comment on market rumours, but emphasised that Chief Executive Terry Leahy had never ruled out a push into the United States -- traditionally something of a graveyard for British retailers.

A month or so ago, the rumor was that Tesco might buy Albertsons, but they denied that quite firmly. These statements sound like they're leaving things open.

Update 11/23: Meijer is denying the rumor, and says they plan to keep the company private.
"It is important for our entire team to know that these rumors are false and that we are not negotiating with any company for the sale of any part of our company."

And more on media

We have several items below discussing the decline of newspapers. Now we're hearing that the biggest stockholder in the Knight-Ridder chain had told management to put the company up for sale (coupled with the threat that, if they didn’t, there would be a takeover of the board). The company promptly engaged Goldman Sachs to look for potential buyers.

More on China

In an article in the Minneapolis Star-Tribune (11/15/05), we gain insight into the strategy of General Mills in China. They are (wisely in my opinion) looking to the long-term. The most interesting part of the article, though, was to me a graph detailing the number of people in China that General Mills sees as being able to consider purchasing three of their products.

There’s also a fascinating article in Retail Traffic, giving lots of statistics on the development of Chinese retail. For example a listing of the top retailers (only one of the top ten – Carrefours – is a foreigner. Wal-Mart is nineteenth), as well as the news that a mall is being developed in Dongguan that will be twice as big as Mall of America. However, as the article notes, street vendors “remain the dominant retailers.”

I noted in my newsletter (TPM Update) that Wal-Mart is having problems in China because they can’t compete on price, which is the only thing they know how to do. Retail Traffic echoes this: “While its primary attraction here is its low prices, in China, that's not enough. ‘They can't match the prices of street markets, so they have to compete on the basis of quality, product mix and convenience..."

Saks got another subpoena

Saks' deduction problems refuse to go away – according to an article in the New York Post (11/16/05), “Saks said it received an ‘additional subpoena’ on Oct. 11 from the Securities and Exchange Commission related to a probe into markdown payments and other financial controls from 1999 through 2003.”


Sorry about the lack of posts -- last week was lots of travel. We'll try to get caught up here.

Thursday, November 10, 2005

Print = Vinyl

Great quote from the former editor of UK's Financial Times, who got canned (or, at least, left) last week because of "philosophical differences" with the management.
"Working in print, pure and simple, is the early 21st century equivalent of running a record company specialising in vinyl."
Of course, he made the comment in a newspaper column he wrote -- so there's a certain amount of irony.

Is VOD a $5b market for broadcast TV ?

That's what CBS thinks, according to this article.
Mr. Poltrack based his figure on an estimate of 50 million homes with VOD access and CBS research that shows an average household would pay $100 a year to watch network programming on their own schedules.
Which means, on the positive side, that they'll be collecting a lot of money. On the negative side, to collect that much money, they'll have to divert a lot of people away from the network broadcasts, which will cause advertisers to question the money they pay for reaching viewers who aren't there anymore because they're watching on VOD.

Wednesday, November 09, 2005

China's new Robinson-Patman Act

China is considering new regulations to prohibit several practices common to retailing in most of the world. According to Shanghai Daily:
THE Ministry of Commerce is collecting suggestions for two new regulations that will place strict and clear requirements on market promotions and terms of payment among both suppliers and retailers.

Retailers will be banned from several poor practices including charging suppliers sponsorship fees for opening new stores. They will also be banned from forcing suppliers to take part in promotional activities by threatening to halt purchases.
Increasing competition and declining profit margins are given as reasons for retailers making demand on their suppliers.
A general manager, surnamed Liu, of a home appliance joint venture said the company is charged fees by retailers.

"We were charged 3,000 yuan (US$369) for each store by one chain," Liu said.
It will be interesting to see if China has any more success in enforcing these rules than the FTC has had with Robinson-Patman.

Cleveland paper kills magazine

Further to the "Newspaper decline accelerating" post below, the Cleveland Plain Dealer announced today that it's killing off its Sunday magazine section that has been published since 1919. In the time-honored tradition, they blamed a "stagnant economy". Hmmm, 3.9% GDP growth last year, 3.4% this year -- right, that's stagnation. Or anyway, it's close enough when you're looking for an alibi.

A little later in the article they get more realistic:
Clifton explained that glossy Sunday magazines have lost advertising support as opportunities for color printing opened in other sections of the paper.
Okay, that excuse we'll buy. Of course maybe the 4.5% circulation decline the PD announced on Monday had something to do with it, too.

Tuesday, November 08, 2005

Networks shows on video-on-demand

CBS and NBC are now going to be offering their shows on an on-demand basis through Comcast (CBS) and DirecTV (NBC), joining ABC, which is making its product available through Apple iPod.

CBS's deal includes the ads (though they can be zipped through). NBC and ABC are serving up their shows ad-free.

Question: Doesn't this undercut the advertisers who pay big bucks to support the networks? The advertisers are already fretting (justifiably) about fragmentation, and then the networks fragment their own audience.

Newspaper decline accelerating

I sent out a newsletter yesterday about the effect of declining newspaper circulation on trade promotion. Concurrently, the latest circulation numbers were released.

To say they're abysmal is to be kind.

The SF Chronicle dropped 80,000. The LA Times dropped another 3.8% (on top of previous catastrophic falls). To be fair, the newspaper industry is saying that the horrible results are the result of cleaning up some of their past practices -- three of the top twenty papers didn't report this period because they're in the middle of investigations into past circulation frauds -- and that some of the circulation loss is just readers moving from the print editions to the newspapers' own websites.

Some truth in this, no doubt.

My main point in the newsletter was about newspapers becoming a targeted rather than mass medium. A Miami Herald editor supported that argument in Editor & Publisher: "Newspapers will become supplemental reading for a very elite audience," he added, and the online edition "will be where the popular press lives."

Monday, November 07, 2005

Computer ads on the floor

A company called Intellimat has released a new product that offers video and sound when shoppers run a cart over it, according to this story in Ad Age.

I'm skeptical. Certainly, it might have some effect at first, as shoppers react to something new. But I wonder how many more ads shoppers can handle. There's also this point:
“It’s not going to work. You have issues related to American Disabilities Act, people with wheelchairs are going to have a hard time getting over it,” she said. “I think it is a terrific idea, but it’s only going to work if it is paper-thin.”
The article describes the item only as "less than an inch thick." Given the usual state of shopping-cart wheels, it better be a lot less than an inch.

Sunday, November 06, 2005

Impact of out-of-stocks at P&G

P&G's director of Global Supply Chain Operations detailed the effects of out-of-stocks on P&G's top brands at a supply chain conference in North Carolina:
He said based on P&G's top 100 stock keeping units data, when consumers face an out-of-stock product situation, 48 percent switch stores, 10 percent do not buy the product, 31 percent purchase at another retailer, 14 percent delay the product purchase, 19 percent substitute another brand, 18 percent substitute another size.
Wal-Mart recently stated that tests show that use of RFID technology can cut OOS by 16%. I think that integrating trade promotion planning data with RFIDs could make the impact even greater, since many (probably most) OOS situations are caused by promotions.

China will require anti-trust review on mergers

At present, major mergers require the approval of US and EU regulators. That could change soon:
Chinese officials are working on an anti-monopoly law that would require companies seeking mergers or acquisitions to notify Chinese authorities if one or more of the parties involved has 1.5 billion yuan ($184 million) of business in China.

Authorities would then review the deals for their impact on competition in the domestic market, just as the United States and European Union do.

In the future, mergers like Adidas/Reebok and P&G/Gillette could have three hoops to jump through instead of two -- slowing and perhaps stopping a lot of mergers.

Friday, November 04, 2005

Is Wal-Mart good for the economy?

Global Insight's study of Wal-Mart's effect on the economy is available here. A highlight from the press release:
These results were supported by statistical analysis which found that the expansion of Wal-Mart over the 1985 to 2004 period can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices as measured by the Consumer Price Index-All Items, which includes both goods and services.

The main driver of this impact was a 0.75% improvement in the overall efficiency of the economy. Increased capital intensity and lower import prices were secondary drivers. The 3.1% decline in the price level was partially offset by a 2.2% decline in nominal wages, so that the net effect was to increase real disposable income by 0.9% by 2004.

So it reads like Wal-Mart forced down wages, but forced down prices slightly more. Which doesn't sound like a ringing endorsement (though it's definitely better than the reverse).

More studies will be coming out shortly.

Wednesday, November 02, 2005

Criminal charges in Ahold scandal

From Reuters:
Seven people were charged by the U.S. Attorney in New York with criminal conspiracy to falsify the books and records of Ahold's U.S. Foodservice subsidiary, the U.S. Securities and Exchange Commission said on Wednesday.
This includes, apparently, both employees of Ahold and of suppliers.

Gift cards are #1

According to an annual survey by Deloitte, gift cards will be the most popular (or at least the most-given) gift this Christmas season. At first I was surprised when I read this, but after a moment's reflection, it made a lot of sense. From a marketers' standpoint it seems that the importance of this is that it means that the last week of December is no longer strictly for clearance sales -- it may be when a substantial portion of your holiday sales are actually completed.

It's also interesting that there was a confirmation of something mentioned below in the post about the purchase of Saks' northern department stores by Bon-Ton. Deloitte says that in 1985 department stores were the main shopping venue for 67% of consumers -- today that's down to 13%. Even for me (and I've been a department store basher ever since I worked in the channel 30+ years ago), it was shocking to see how total their collapse has been.

Gannett introduces 'on-line circular'

PointRoll, a subsidiary of Gannett, is offering what they call an on-line circular "for national retailers and other advertisers who want to target local markets with specific offers."

Gannett, Knight Ridder and the Tribune Company are now selling PaperBoy placements on their approximately 200 local news sites, which reach about 80 of Nielsen's designated market areas. and Yahoo! will also offer it, targeting the offers based on user registration data.

The format will appear live in the next two weeks. PointRoll is calling the ads online circulars because "from a retailer perspective it's something they can relate to," according to Andy Ellenthal, the company's EVP of sales. "If you look at the ways circulars are bought and leveraged, it's to drive foot traffic that particular week. It's less of a brand exercise."

A Gannett spokesperson is quoted as being surprised at the size of retailer budgets for circulars ($200-500mil). If that surprises them, I wonder what they'd say about the amounts the retailers collect from their vendors for those circulars?

Tuesday, November 01, 2005

Thanksgiving ads

This is an interesting site, called Black Friday 2005. It has links to PDFs of major retailers' Thanksgiving ads (Sears, Wal-Mart among them), lists of featured items and prices for others, and a discussion board. It looks like the White House isn't the only one with leak problems.

More negative publicity for Wal-Mart

An anti-Wal-Mart group called Wake Up Wal-Mart is starting a series of ads on CNN and CNBC to promote a documentary that's about to be released, called "Wal-Mart: The High Cost of Low Prices". Meanwhile, the Department of Labor's inspector general is criticizing a deal Wal-Mart cut to settle child labor law violations -- apparently the DoL even allowed "attorneys for the world's largest retailer to write key parts of the deal." A congressman calls it "a sweetheart deal."

It's tough to work up a lot of sympathy for Wal-Mart, and most companies would be glad to have their problems, as long as they could also have their profits. But still, I'm beginning to wonder if there might be a point of critical mass at which Wal-Mart begins to suffer at the cash register.

Further consolidation in the department store channel

Saks sold its midwestern department stores, as expected, to Bon-Ton yesterday, for $1.1 billion, reported here by the Chicago Tribune. You have to admire Bon-Ton's courage, if not their brains. If I had a billion lying around, I sure wouldn't spend it on department stores.

This is clearly a dying (if not dead) channel. I suppose there may be a little cash still to be squeezed out of this old cow, but how long will it take Bon-Ton to generate a billion in incremental profits to offset this purchase? They'd do better to put the money in a savings account. Heck, they'd probably do better stuffing it in a mattress.

By the way, I want it on the record that I had similar comments on May's purchase of Marshall Fields a couple years ago. All that buy did was put them out of business.