Another retail milestone in Chicago

My hometown seems to be getting a lot of attention in the retail sphere lately, with the disappearance of Marshall Fields and the anti-big box law.

And this weekend it was announced that Carson Pirie Scott will be closing its downtown location. The closure of the 600,000 square foot store is part of the long decline of State Street, once one of the world's premier shopping districts:

State was once studded with department stores. Among the names gone forever are Montgomery Ward & Co., Rothschild & Co., Schlesinger & Mayer, the Fair, Mandel Bros., Goldblatt Bros. Inc. and others.

Sears left, then came back. Marshall Field's remains, though it is about to become Macy's. Others are long gone.

CMOs don't last

If you report to the chief marketing officer and you don't like him/her, don't sweat it -- the bum will be gone soon. If you are the CMO, keep your resume polished.

According to a recent study, the life-span of the CMO is short and getting shorter.

The tenure for chief marketing officers at the 100 top consumer branded companies has continued to decline, according to a new study. Over the past three years CMOs at these companies have seen their time on the job drop from 23.6 months to 23.2 months, said Greg Welch, who heads the marketing officer practice for the executive search firm Spencer Stuart, Chicago.

This is the second such study undertaken by the firm.

“The surprising thing is that this trend is continuing,” said Welch. “When we did our first survey three years ago we really didn’t expect this to happen.”

By comparison, CEOs last 44 months, CFOs 39, and CIOs 36.

Free Pepsi in Rhode Island

Rhode Island's new law on rebates (which we reported on last month) has resulted in stores being forced to give away merchandise for free.

People flooded Shaw's supermarkets around the state when consumers spotted print ads that offered four, 12-packs of Pepsi products for free with a mail-in rebate. Shoppers also ran to Stop & Shop stores where ads offered 10 free 2-liter bottles of Pepsi with a mail-in rebate.

Sharp-eyed Walgreen's customers scooped up free toothpaste because of a similar ad snafu.

The law requires retailers to apply all rebates at the cash register and submit the paperwork themselves, rather than having the customers submit the rebates.

More on Rite Aid

Rite Aid's strategy was praised by the New York Times: "Analysts said that Rite Aid is poised to thrive, citing stronger sales and a boom in generic prescription drugs."

But some negative opinions were raised as well. Toronto's National Post questioned the deal:

A deal by Jean Coutu Group Inc. to sell its 1,858 U.S. drugstores in exchange for cash and a 32% holding in Rite Aid Corp. has left both stock investors and bondholders nervous, with some credit watchers predicting a revolt by holders of US$850-million worth of high-yield Jean Coutu debt that is part of the transaction.

Meanwhile, Moody's indicated they might downgrade Rite Aid:

Moody’s Investors Service has put Rite Aid Corp.’s credit rating on review following the drug giant’s announced purchase of Eckerd this week, and said a downgrade is possible.

The buyout puts Rite Aid at risk of taking on an additional $2.3 billion in debt, in addition to the burden of the leases that had been paid by Eckerd’s parent company, the Jean Coutu Group.

Rite Aid buying 1800 Eckerd/Brooks stores

I'll update this when there's more news in, but Rite Aid this morning announced that it is buying 1800 stores from the Jean Coutu Group.

This will give Rite Aid about 5000 stores and make it a closer #3 behind Walgreen's and CVS.

Newspapers cutting staff

The newspaper industry is trimming its staff in response to circulation and advertising declines.

Among others, Belo Corp. said on August 10 its flagship Dallas Morning News wants to cut 85 positions through buyouts as it prepares for a restructuring this fall. A day later, The Plain Dealer in Cleveland, owned by privately held Advance Publications Inc., said buyouts were coming.

In July, Tribune Co. said it would cut 120 jobs at the Chicago Tribune, and The New York Times Co. said it would cut about 250 jobs in its printing operations.

While the NY Times cuts are in printing operations, most of the article deals with newsroom cuts. I wonder if this is the equivalent of manufacturing companies cutting R&D when sales slump?

While I believe there is a decline in interest among readers (and therefore advertisers) in newspapers I don't perceive any decline in interest in news. When they cut back in the newsroom, it looks to me like they're cutting the part of the operation that has a future, in order to milk the remaining profits from the dying part of the business.

Program differentiation by product

In a recent conversation with an industry professional, he quoted a top Wal-Mart exec as saying that manufacturers often don’t realize that they have the upper hand when they have innovative products, and the retailers only have control with commodities.

An excellent point, which raises the idea of differentiating trade promotion approaches by product (and more specifically by product life-cycle). It’s not a new concept, by any means – I recall Levi Strauss withdrawing co-op advertising support from their 501 jeans about thirty years ago, trying to encourage retailers to promote other products, and I don’t imagine they were the first.

While I like the idea, a problem I see is the increasingly-rapid pace of commoditization. I was struck recently, while wandering through Best Buy, at how quickly MP3 players have moved from a totally new idea to near-commodity status (though Apple seems to be able to continue to demand a pricing premium, for the moment). And Best Buy is reported to be about to introduce private-label plasma TVs.

But that’s a problem with execution, not with the concept. It simply means that trade program managers will need to remain alert to the rapid changes in their product’s position in the life-cycle and be nimble enough to make rapid changes to the program in response. Differing marketing goals at different stages (e.g., awareness and acceptance in the introductory period, gaining distribution and grabbing market share in the growth stage, etc) will require managers to alter the program on the fly.

Add into this the need to differentiate your program by channel, and to maintain specific programs for key customers, and it demonstrates the growing complexity of trade promotion.

The in-store agency

Wal-Mart has appointed Saatchi & Saatchi X (conveniently headquartered in Springdale, Arkansas) as their first agency of record for in-store marketing.

It may be that other retailers have named agencies of record for in-store but, because they weren’t Wal-Mart, it escaped my notice. In any case, Wal-Mart’s embrace of the concept indicates (again) the growing importance of the store as a medium.

I have been arguing for years that the store is the most-important advertising medium, an idea that has gained further traction with the fragmentation and decline of what used to be “mass” media – especially TV and newspaper.

While Saatchi has long been working with Wal-Mart on store design projects and promos, it will be interesting to see what being agency of record truly means. In-store communications in most retailers (and my experience with Wal-Mart indicates that they are no different) consists of a wide variety of vehicles (signage, kiosks, endcaps, in-store broadcast, etc), some produced in-house, the rest from various suppliers, offered up in no coherent manner, and presenting competing and often contradictory messages.

Is Wal-Mart, through Saatchi, going to try to impose some sort of discipline?

It won’t be an easy job (to put it mildly), but it will be interesting to watch. And manufacturers, who are trying to get their messages through the in-store confusion, need to watch carefully and adapt their trade promotion programs accordingly.

"Retailer of the Year" goes bye-bye

Tower Records is in Chapter 11. As we noted a couple weeks ago, they had been cut off by their distributors for nonpayment.

According to their press release, they are seeking a buyer:

"Tower Records has conducted an extensive sale process and this step will allow buyers to complete a sale in time for the holiday season while maximizing the value for stakeholders." In March of 2006, the Company retained Houlihan Lokey Howard & Zukin as its marketing and sales agent. The Company is evaluating Letters of Intent from parties interested in acquiring the Company. Mr. D'Amico stated, "Potential parties seeking to acquire Tower Records recognize the strength of the brand and its unique position within the marketplace, making it a very attractive opportunity."

The amusing part of the press release was this:

Last week, Tower was voted 'Retailer of the Year' (Large Division) at the 48th annual National Association of Recording Merchandisers (NARM) convention for the third consecutive year.

How bad are conditions in an industry when the "Retailer of the Year" is in Chapter 11?

Australian rumors: Coles Myer on the block?

Lots of speculation swirling Down Under. Coles Myer, the country's #2 retail chain, which recently spun off its Myers department stores to concentrate on supermarkets and discount stores, is reportedly being eyed for acquisition. Rumored buyers include Wal-Mart, Tesco, and a consortium of private equity firms.

The Times (UK) has an interesting take on the private equity possibility:

If Coles is bought by a private equity consortium it will be the second big supermarket group taken private this year. CVS and Cerberus Capital bought the US-based Albertsons chain for US$17.4 billion (£9.2 billion) in January.

The dominance of private equity bidders for both Coles and Albertsons demonstrates the difficulty that supermarket groups now face in growing by acquisition.

These retailers have become so big, and their supply chains so complex, that trade mergers and takeovers are becoming unattractive — as Wal-Mart’s recent difficulties in Germany and South Korea, as well as Morrison’s complicated merger with Safeway, demonstrate.

This is likely to mean that supermarket retailers will have to concentrate on organic growth in the future.

Quick Notes - Thursday

Just what we need: More advertising overload. No, media's not fragmented enough yet, consumers aren't already tuning everything out -- we need still more advertising, so what we ought to do is turn the checkout conveyor belt into an ad.

A bad week in Bentonville: "... on the same day that Wal-Mart has reported its first overall profit decline in a decade, second-quarter results for its U.K. business on Tuesday were also not quite the vote of confidence the company was hoping for. In a pre-recorded conference call, Wal-Mart said the cutthroat competition of Britain's grocery market had effectively gnawed into Asda's margins, leading to lower-than-forecast profits."

Newspapers to be $20b short

Editor & Publisher reports on a study that says the newspaper industry will face a $20 billion revenue shortage over the next five years, due principally to declining circulation.

The firm based its projection on the industry's reliance on paid circulation, which has been slipping at an alarming rate over the past several years. "The entrenched habits of using the Web will only deepen the circulation decline," wrote lead analyst Ken Doctor in the report. "Couple that change with less-meaty print products, more free daily and weekly competition, and newsprint pricing increasing in the 5% to 8% range, and the problems multiply."

On the advertising front, the report said that only the classified category has shown promise (and subsequently is the one category propping up revenue). Newspapers are feeling the consolidation of retail stores and national advertising is unlikely to spring back unless publishers can track results.

As we reported last month, the Federated-May merger alone, with its consequent change in Federated's ad strategy, may cost the newspaper industry $425m annually.

Off-Topic: Our condolences to Arizona

The local Krispy Kreme franchisee has gone Chapter 11 and all the stores in the state were closed. Sugar addicts are in a panic.

... Stefanie Brown had driven her three daughters to Krispy Kreme in Peoria on Friday morning. One of Brown's daughters burst into tears when she told the kids they'd have to go somewhere else to eat.

More seriously, condolences to the employees, who were given no warning.

Wal-Mart feeling the Houk Effect?

I hope this isn't an indicator of how his career is going to go, but on the very day my son was hired by Wal-Mart (in a high-level position responsible for the efficient removal of shopping carts from the parking lot), the company announced its first quarterly profit drop in ten years.

Odds are it had more to do with Germany and Korea, to say nothing of poor same-store sales increases (up 1.5%, compared to Target's 4.6%), but this sort of thing could blight a promising career.

Tesco will be #1 in non-food

The BBC reports that Tesco will soon be the UK's leading non-food retailer.

Tesco is set to become the UK's largest retailer of non-food goods by the end of the year, according to industry analysts Verdict Research.

Tesco will leapfrog ARG, owner of Argos and Homebase, by the end of 2006 as it sells more than £6bn of non-food goods.

It has expanded into most areas of the retail market, selling clothes, books, electrical goods and seasonal items such as barbecues and garden furniture.

The report also says that this will likely lead to chains folding:

Verdict said it expected some retailers to fold in the face of Tesco's growth.

"Compounded by the effect of rising costs and more demanding customers, casualties from almost every corner of the market are inevitable," the firm said in a study of trends in non-food retailing.

Although no names are mentioned in the context of going out of business, a couple major chains are brought up as being particularly hurt:

Boots and HMV are among retailers which have seen their sales eroded by supermarkets in recent years.

Can we cut syllables instead of prices?

According to a study, prices that have fewer syllables are more memorable than those with more:

... two seconds after taking a product from a shelf, the average person has roughly a 50 percent chance of remembering how much it cost. But few researchers have examined why some prices are more memorable than others.

According to a new study, it is a matter of syllables. Each extra syllable in the price reduces the chances of it being recalled by 20 percent, according to the study, which will be published in the September issue of The Journal of Consumer Research. In other words, someone faced with a $77.51 camera (eight syllables) and a $62.30 bookshelf (five syllables) is about 60 percent more likely to forget the camera’s price than the bookshelf’s, after half a minute.

The question I would have is: How important is it that the shopper remember the price?

Wal-Mart looking to Asia for growth

According to India's Economic Times, Wal-Mart is looking to India and China for major growth opportunities, as it licks its wounds from its Korean and German flops.

Wal-Mart is becoming more serious about its India game plans. The retail behemoth, which has decided to pull out of German and South Korea markets to concentrate on core markets, has identified China and India as its future growth drivers.

As the Arkansas headquarters of Wal-Mart gears up to fine-tune its India entry plans, Amy Wyatt, international corporate affairs spokesperson, Wal-Mart Stores, confirmed the development to ET.

In an email interview, Ms Wyatt said: “The divestitures will allow us to focus on our core markets and to search for new opportunities in growing consumer markets such as India. It will enable us to improve the overall financial position of our international business and focus on our continued growth.”

The problem in India is that Indian law still prevents multi-line retailing by foreigners -- leading to speculation that Wal-Mart will be looking for a local partner:

However, Ms Wyatt refused to comment on several rumours in the market about Wal-Mart entering into partnership with an Indian company. “We are still in the research phase in India and monitoring the Indian government’s policy on FDI,” she said.

Recent reports in the Indian media have, however, suggested that Wal-Mart has initiated discussions with companies like DLF, Bharti, Mahindra & Mahindra and Reliance Industries for possible tie-ups. Ms Wyatt, however, did not confirm this.

Ahold advised to exit US

Major shareholders are arguing that leaving the US market would increase Ahold's value:

The Amsterdam-based company would be worth more than 9 euros ($11) a share, 26 percent above the Aug. 11 share price, if it were restructured, Centaurus Capital Ltd. and Paulson & Co. said today. The hedge funds together own 6.4 percent of the retailer.

Among rumors about the company are that Centaurus may be leading a buyout. Other speculation says that parts might be sold to Super Valu.

Distributors cut off Tower Records

The major music distributors have cut off shipments to Tower Records, apparently because the company has stopped paying its bills.

The move comes just days after Tower Records named a new chief executive: crisis management and bankruptcy specialist Joseph D'Amico. Tower executives informed record companies this week that they would not pay outstanding invoices, according to sources familiar with the conversations.

Tower executives, including D'Amico, did not return phone calls. A Tower spokesperson declined to comment.

Industry insiders and analysts said it was unclear whether Tower Records had run out of money or was attempting to pressure the record companies to extend better terms.

If the music companies suspend shipments for long, Tower Records could be forced to shutter its 89 locations, including the famous store on Los Angeles' Sunset Strip, analysts said.

Tower Records confirmed Thursday that it was working with a Los Angeles investment bank to sell the company.

The retailer reportedly received at least five bids this year from private equity firms. When a sale failed to materialize, D'Amico was hired in what is the third management shuffle in four years.

We wrote on the long, sad decline of the music business in general and music retailers in particular a few months back, when Musicland went belly-up. The loss of music retailers is partially the result of conditions peculiar to that category (music downloading and piracy) and partially the result of conditions common to all of retailing -- the increasing concentration of power in the hands of a few retailers.

The problem is one consumers should be concerned about, because the closing of specialty outlets for music narrows choices dramatically -- a condition that will be repeated in other categories.

It should worry manufacturers, because the closing of alternative outlets reduces their marketing options and increases still further the power of the few remaining retailers.

McKinsey says: TV ad effectiveness dropping

Effectivessness is declining rapidly, and by 2010, TV advertising will be one-third as effective as in 1990.

That shocking statistic, delivered to the company's Fortune 100 clients in a report on media proliferation, assumes a 15% decrease in buying power driving by cost-per-thousand rate increases; a 23% decline in ads viewed due to switching off; a 9% loss of attention to ads due to increased multitasking and a 37% decrease in message impact due to saturation.

The Goldilocks Law

You can't set your prices too high or too low -- they have to be just right.

That appears to be the point of these two stories I came across in Convenience Store News. Today, they reported that gas stations in Kentucky were fined for price-gouging:

The five owners of 11 different gas stations owe the state of Kentucky $47,500 in fines for charging too much for gas in the time after Hurricane Katrina, reported the Courier-Journal.

"On average, for these particular stations, the gross profit margin increased anywhere from more than 33 to more than 100 percent," said Attorney General Greg Stumbo at a news conference. Profits for stations increased from 47 cents to $1 per gallon, he added. The investigation reviewed prices from September and October of 2005.

However, just a couple days ago, they had this item about a chain in Wisconsin that was in trouble for setting their prices too low:

Woodman's Food Markets, operators of 11 stores in Wisconsin and Illinois, has altered its gas discount program after it lost a lawsuit filed by Kwik Trip that stated the grocer was violating the state's law on minimum markup for gasoline, The Associated Press reported.

...

The minimum markup law for the state requires pump prices to be 9.18 percent higher than the wholesale price ...

Toyota passes Ford

Toyota posted bigger sales in the US than Ford in July -- the first time ever. Toyota and Honda showed strong increases while the Big Three (that term is getting outdated, isn't it?) all had decreases.

GM, the world's largest automaker, said its sales fell 22.2 percent, with trucks falling 31.2 percent and cars inching down 2.7 percent.

At Ford, sales of Ford, Lincoln and Mercury vehicles fell 35.2 percent. Truck sales tumbled 44.8 percent, while cars slipped 6.7 percent. Sales of F-Series pickup trucks, long the country's best-selling vehicle and the company's most important vehicle, shot down 45.6 percent.

DaimlerChrysler's Chrysler Group said its sales fell 37.4 percent, with truck sales off 40 percent and car sales off 23.5 percent. That change happened even though Chrysler, alone among automakers, has revived the employee price promotion that fueled sales last year.

Those are some scary numbers.

Smithfield buys ConAgra Meats

Smithfield Foods has bought the meats division of ConAgra, including the Butterball, Eckrich, and Armour brands -- they recently bought the European meat operation of Sara Lee.

[Smithfield will] combine the management of the Butterball turkey business, which it valued at $325 million, with Carolina Turkeys, a business it co-owns with Maxwell Farms Inc. Butterball is the No. 2 U.S. turkey producer, with sales of about $600 million annually. Carolina Turkeys is the fourth-largest turkey producer in the United States.

The combination is likely to pressure Hormel Foods Inc. and the turkey products it produces under the Jennie-O Turkey Store brand. Although Jennie-O currently is the largest, the combined sales of Carolina Turkey and Butterball will surpass Jennie-O.

"For Smithfield this is a big deal," said Greggory Warren, a food analyst with Morningstar Inc., a Chicago-based market research company. "This moves them up the value chain. They might actually make [profit] margins of 6 percent or 8 percent, and that's up from 3 percent to 4 percent."

The two deals add $2.9b in sales.