The worst job in the world

Okay, that's an exaggeration, but a job I wouldn't want right now is selling ads for the LA Times -- they just announced a 3%-6% rate increase for 2006. Yes, that's right, this is the same LA Times that just had a 3.8% drop in circulation. How would you like to face your clients with that news?

USA Today (circ down 0.6%) is raising their rates 6%, and the Wall Street Journal (down 1.1%) is upping the ante by 2.5%.

You have to wonder if the Chicago Sun-Times will have sufficient chutzpah to do something similar. They just completed an audit after their admission of falsifying circulation. According to Editor & Publisher they're down more than 20% on daily circulation.

All this, of course, is (related to the previous item) just more fallout from media fragmentation.

On-line ad spending to reach $16.6b

According to this Bloomberg report in the Chicago Tribune, on-line advertising will jump 32% next year, to $16.6 billion. Further evidence of the fragmentation of media, which is making it increasingly difficult to reach mass audiences.

MVC (Most Valuable Companies)

BusinessWeek published their list of the Top 1200 companies in the world, based on market value. Actually, there are 1187 on the list, with the last spot taken by Calpine. I wasn't familar with Calpine, and when I looked them up just now, I learned that they filed Chapter 11 last week. Best wishes, Calpine.

The Top 10 are familiar to all of us:

1. General Electric -- $377b
2. Exxon Mobil -- $361b
3. Microsoft -- $295b
4. Citigroup -- $264b
5. BP -- $236b
6. Royal Dutch Shell -- $212b
7. Wal-Mart Stores -- $202b
8. Procter & Gamble -- $195b
9. Bank of America -- $184b
10. Johnson & Johnson -- $184b

Michelle Kwan's endorsement power

The New York Times has an interesting take on celebrity endorsements, noting that Michelle Kwan has had unusual success in gathering endorsement deals for someone who has never come home with the gold.

As Ms. Kwan gears up for the 2006 Winter Olympics in Turin, Italy -probably the last chance for the 25-year-old figure skater - she has already lined up major deals with Coca-Cola, Visa and East West Bank. She will be the lead Olympian in Coke's 2006 Olympic advertising plans, which include commercials on network and cable television as well as a major in-store promotional effort by Coke. Her image will be stamped on promotions for 14 Coke brands, including Dasani and Minute Maid.

But the choice of Ms. Kwan is unusual. For most athletes, a winning performance at the Olympics is essential - turning gold into big money. After the 2002 Olympics in Salt Lake City, Sarah Hughes, the surprise gold-medal winner in women's figure skating, walked away with endorsement offers in the millions of dollars. Figure skaters like Kristi Yamaguchi and Dorothy Hamill have translated Olympic gold into long-term endorsements, opportunities generally unavailable to athletes who win a silver or bronze medal. Even for Ms. Kwan, sports marketers say, Turin may establish whether she can elevate her career to a new level of marketability.

It's noted that Nancy Kerrigan's star faded rapidly after she unexpectedly lost to Oksana Baiul (though Kerrigan didn't help her own cause any).

The Times also notes that Kwan's personality and clean reputation contribute to her endorsement value:

Part of Ms. Kwan's commercial success can be traced to a reputation rare among well-known women her age. Her name does not surface in gossip columns or police reports. Her picture has never appeared in Penthouse magazine, nor has she made an appearance on Celebrity Boxing, as the skater Tonya Harding has done. What most of her fans know of her personal life is usually limited to her supportive family and California background.

Or, as the sponsors put it:

For Ms. Kwan's employers, her sterling reputation makes her a solid investment during a time when many endorsement deals include "behavioral clauses" stipulating that if the athlete does anything to damage the brand, the company has the right to terminate the contract.

"I never have to worry about her making a bad decision that would embarrass us," said Dominic Ng, the chairman, president and chief executive of East West Bank.

Mergers defined retail in 2005

In a year-in-review piece, AP detailed the many mergers and acquisitions in retailing this past year:

• Sears/Kmart leads the list, of course
• Federated/May isn't far behind
• Bon-Ton took over Saks' midwestern stores
• Belk bought the southern (McRae and Profitts) stores from Saks
• And Neiman-Marcus was bought by private-equity investors (Texas Pacific and Warburg Pincus)

Not on the list, Albertson's put itself up for sale, but couldn't find a taker, and it looks like Hudson's Bay will soon be sold.

The article says that "... the $30 billion merger between Federated and May will have the most impact on shoppers ..."and adds, further on, "given its increased clout, Federated is expected to redefine overall retailing."

Sounds like somebody at AP has been reading too many Federated press releases. Federated is going to redefine retailing? Not likely -- its "increased clout" leaves it still just a bit short of Wal-Mart in the clout department (a couple hundred billion short). And perhaps they ought to take notice of the stats they gloss over in the article: same-store retail sales overall are up 3.9% in 2005, but department stores are up barely half that, only 2.2%.

Market share? Who worries about that, right?

Merger creates #5 retailer

Seven & I Holdings, the owner of 7-11 stores, has become the fifth-biggest retailer in the world by taking over Mlllenium Retailing. a Japanese department store group.

AP reports that, "The deal comes as Tokyo-based Seven & I tries to tap a surge in Japanese-consumer spending as the world's second-largest economy stages a strong comeback after a decade in the doldrums. The merger also may strengthen the company's position against U.S.-based Wal-Mart, which has been building its presence in Japan."

The two companies combined will have revenues of about $39 billion, making them #1 in Japan, ahead of Aeon Corp.

Seven & I is already a bit of a hodge-podge -- in addition to 7-11 (US and Japan), it owns the Ito-Yokada supermarket chain and Denny's Japan restaurants. Now it is adding the Sogo and Seibu department stores. While collectively they an claim a huge volume, I don't see how adding department stores to a mix of convenience stores, supermarkets, and restaurants will "strengthen the company's position."

Is Penney's cool?

The Baltimore Sun addresses an unthinkable topic -- J.C. Penney has some stuff people actually want to buy.

I grew up with the perception that Penney's was Sears, except not as interesting, and I will probably never outgrow that image. But apparently some good stuff has been going on.

Penney has spent five years implementing a plan to rejuvenate its image and distinguish itself from other department stores, which as a group have failed to keep pace with a new generation of shoppers.

And the result:

Early sales figures show Penney is one of the few department stores winning customers back. It reported a 3.5 percent sales increase last month.

Federated Department Stores, whose stores include Macy's and Hecht's, reported a 3.4 percent decline last month.

Even upscale department stores, typically more immune to factors such as high gasoline prices, have struggled this season. Seattle-based Nordstrom Inc. posted a 2.8 percent increase in sales, less than the 4.6 percent increase that analysts expected. Saks Inc. saw a slim 0.1 percent sales increase for all its stores.

If upscale stores can't grow in an economy like this, they have serious problems. Saks may be moving toward the scrap-heap.

Wal-Mart to suppliers: RFID or else

Wal-Mart is telling its suppliers that it's time to jump on the RFID bandwagon.

Linda Dillman, Wal-Mart's chief information officer, said that, in spite of significant improvements this year in the effectiveness of tags and lower costs, "there are some that are still entrenched in their belief that it's not going to work".

As a result, the retailer was becoming increasingly unwilling to spend time working with suppliers who adopted a "slap and ship" approach to tags – meeting the tagging requirement without engaging with the retailer on modifying and enhancing their use.

"We've started communicating to some of the suppliers who have been reluctant – which is a nice way of saying it – to say, 'We can't invest any more time in you'."

That will probably get their attention.

Bottom 10 PR releases

'Tis the season for top ten lists. One of my favorite marketing related lists is this compilation of the worst PR releases of the past year.

I think my favorite, or at least my favorite headline, is the one they rated #3: "Birth of Food Embossing & Imprinting Industry Helps World Peace." But this correction is also good:

"We are advised by a representative of the company that the seventh paragraph, first sentence, should read 'Created by Crispin Porter + Bogusky of Miami, the new Coca-Cola Zero campaign is the first creative work the agency has developed for Coca-Cola North America' rather than, 'Crisping Porter + Bogusly' as originally issued inadvertently."

Toyota to pass GM

Toyota will probably pass General Motors soon, becoming the world's biggest car company, according to Ad Age.

Toyota is planning to increase production capacity by about 10%, at the same time GM is closing several plants.

Like anyone cornered, GM's management is trying to pass the blame: "Toyota’s announcement came two weeks after GM Chairman-CEO Rick Wagoner criticized Japan’s 'unfair trade practices' to artificially weaken the yen in a Wall Street Journal op-ed piece."

Frito won't be in the Super Bowl

Frito-Lay announced that it won't be advertising in this year's Super Bowl -- because the new CEO doesn't see much return:

"I have a little calendar page that says: 'Lay's runs Super Bowl ad. Awareness increases by .000004.' So although it gives you enormous bragging rights, the facts are, at the end of the day, it's a very expensive proposition that doesn't give you a terrific payback.

One wonders how much room these is for F-L's awareness to increase. Visa and McDonalds will also be among the missing on Super Sunday this year.

Newspaper stock prices in the tank

Out of curiosity, I compared stock performance for 2005 for the four big newspaper companies I could think of.

• New York Times: down 33.6%
• Tribune Company: down 28.4%
• Gannett: down 25.3%
• Knight-Ridder: down 6.6%

Interesting that it's KR's stockholders who are screaming to get out of the newspaper business. Maybe they want to get out while their stock is still worth something.

No doubt the whole media biz sucks right now, but it seems to suck slightly worse for the NYT.

Wal-Mart announces growth plans

Progressive Grocer details Wal-Mart's recent growth moves and the plans they've announced for next year, including:

• Taking over majority interest in the 405-store Seiyu chain in Japan
• Buying 140 stores from Sonae in Brazil
• In September, gaining a 33% share in Central American Retail Holdings, including "363 supermarkets and other stores in Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica"
• Planning 370 new stores in North America, and
• 230 stores in other geographies

How to increase your marketing budget

Obviously it's to late for 2006 -- the CFO turned your plan down months ago, right? But Scott's Miracle-Gro has the solution, and it's time to get ready for 2007. What's the plan? Simple -- fire everybody in the company who smokes.

Bob Bernstock, president-chief operating officer of the company, said funding for the increased spending is coming largely from Project Excellence, a wide-ranging efficiency and cost-cutting program that includes more focused product rollouts, headcount reductions and an effort to control health-care costs by eliminating smokers from the company's employment rolls.

Marysville, Ohio-based Scotts is instituting the anti-smoking policy over the course of the next year, meaning existing employees will have to quit smoking or lose their jobs. The company is offering smoking cessation programs to the roughly one-third of Scotts employees who now smoke, Chairman-CEO Jim Hagedorn said.

Pepsi passes Coke

Well, not exactly. However, PepsiCo, Inc. passed The Coca-Cola Company this week in market capitalization (the total value of the companies, according to Wall Street). As of Monday, PepsiCo was valued at $98.4 billion to Coke's $97.9b.

It's a fairly significant milestone in the CPG biz, and one that would have been hard to forecast even a few years ago. As the Atlanta Journal-Constitution noted: "In early 2000 ... Coke's market cap stood at about $128 billion, far ahead of PepsiCo's roughly $44 billion."

Coke is still, by a good margin, the world's largest beverage company, and brand Coke is still tops in the Cola Wars. Pepsi has built itself through smart acquisitions, beginning with the creation of PepsiCo in 1965 through the merger of Pepsi and Frito-Lay, and continuing with the acquisition of Tropicana in 1998 and Quaker Oats (including Gatorade) in 2001.

Radio stations offering co-op money?

Yep -- you read that headline right. According to Billboard Radio Monitor, radio stations are offering co-op funding to encourage retailers to promote the sale of HD radios,

Record-high allowances?

This story in Progressive Grocer says:

A study conducted by research firm Promodata's Price-Trak Group projects a decade-high average promotion allowance of 15 percent by year's end. This high allowance level is being driven by consistent increases across all major product groups, with the exception of refrigerated foods, which peaked in 2002/03, according to the group.

The surprising thing about this report is that 15% is being described as "a decade-high average promotion allowance." Nielsen's studies, if I'm not mistaken, have been showing rates that high and higher for years in the grocery channel.

Perhaps there's something in the full document that I'm missing in this short item.

Wal-Mart testing newspapers

Editor & Publisher informs us that Wal-Mart, in a departure from their normal practice, has been running a newspaper campaign in the Midwest:

Wal-Mart Stores Inc. placed full-page advertisements in 336 Midwestern newspapers after publishers nationally complained they are ignored by the world's largest retailer. The move comes at a time when the company is trying to address accusations it treats workers poorly and drives local shops out of businesses.

The ads, which ran in smaller papers in Missouri and Oklahoma between Nov. 30 and Dec. 6, were a test for a possible change in newspaper advertising policy at Wal-Mart, which publishers say has ignored their dailies and weeklies for years.

A cynic might wonder if Wal-Mart, under assault on numerous fronts, is trying to buy some influential friends, and a Wal-Mart spokesperson hints that that consideration might be part of the equation:

"The question is also whether to advertise to support the local newspaper and generate good will from that. These are probably good, non-traditional reasons to advertise locally and considerations we will also factor in once we have the market test results."

Dollar stores' growth cooling

AP reports that sales growth has been down in the previously hot dollar store category:

Family Dollar's profits have been lower in each of the past four quarters, and the company recently lowered its expectations for both sales and earnings for 2006. The company, which has nearly 6,000 stores in 44 states, had sales last year of $5.8 billion, but earnings were down to $217.5 million from nearly $258 million in 2004 — a drop of nearly 16 percent.

The company's rivals aren't doing much better. Last week, market leader Dollar General said its third-quarter earnings were off by 9 percent from the same period a year ago. The Tennessee-based chain said higher transportation costs and other expenses cut into its profit. On the same day, Dollar Tree, based in Chesapeake, Va., said its quarterly income was down 2 percent; it blamed sluggish customer traffic.

What is strange about the report, though, is to see AP blaming the problems on a bad economy.

That success, however, has been challenged in the past year by the financial woes of its best customers, primarily low-income workers and families earning $25,000 a year or less. Struggling with layoffs and higher energy bills, they've found themselves without enough cash for a shopping spree at the nation's deep-discounters.

That explanation seems strange on two levels. One is that the economy is doing great (growth is currently running at about 3.6%), and the other is that the lowest-priced categories of retailing should benefit when the economy is down. Doesn't it seem more likely, then, that the dollar stores are hurting because the economy is doing well?

Another one bites the dust

Casual Corner announced a couple weeks ago that it was closing all its 525 stores (mostly under the Casual Corner and Petite Sophisticates name). It made such an impact that I never noticed it. (Okay, maybe it was because it was the day before Thanksgiving -- a good day to bury bad news).

Susan Cronan, a spokeswoman for the company, would not say what led to the decision to close the stores or answer questions about the closing.

Presumably it wasn't because business was so good that they didn't know how to handle all the profits.

Argentina: Supermarket price controls?

Under government pressure, the leading supermarkets in Argentina have agreed to cut prices by 15%.

The accord comes days after President Néstor Kirchner accused supermarket owners of acting like a "cartel" when setting prices, and is his latest effort to negotiate price controls with industries.

Price controls have a rotten track record, and I don't expect these to work any better than previous efforts.

Canadian department stores

The Globe and Mail (Toronto) quotes a leading mall developer as saying, "The department store as we know it is dead. It will have to reinvent itself."

The article goes on to speculate that the country's two major chains, Hudson's Bay and Sears Canada, may merge and/or be bought up by an American company.

Hudson's Bay is the target of a $1.1-billion hostile takeover bid by U.S. investor Jerry Zucker and is in talks with parties that have expressed interest in countering that bid.

Sears Canada, controlled by hedge fund billionaire Ed Lampert, is believed to be a possible takeover target, as well. There has been speculation that a financial player could emerge to snap up the two retailers, merge them and weed out unwanted stores.

The major problem with Canadian department stores appears to be the same as here in the south: "The problem with full-line department stores is the fact that, in Canada, there has been no innovation. There is no reason to walk into a department store."

Update: We posted this Sunday, and on Monday it was announced that Sears Holding Company has made an offer to buy the stock it doesn't already own in Sears Canada (currently SHC holds about 54%).

Sarbanes spending = $6b in 2006

Consumer Goods Technology, citing an AMR Research study, says that corporate spending on Sarbanes-Oxley compliance will total $6 billion in 2006, down very slightly from an estimated $6.1b in 2005.

The interesting point is that personnel costs are projected to decline 8%, while technology spending will increase 13%.

"These spending predications support a long-term approach to SOX compliance," says John Hagerty, vice president of research at AMR Research. "Budgets are shifting from headcount to technology so that compliance can become repeatable, sustainable and cost-effective."