Tuesday, January 31, 2006
Federated Department Stores, after announcing that they were going to kill the venerated Marshall Fields name, is apparently having second thoughts, and they are considering ways to keep the name alive -- perhaps leaving it on the State Street store (which does $250 million a year in sales, and thus is large enough to be its own operation).
Most of what is mentioned in the article (e.g., having a Fields boutique within the store) would, I think, be meaningless tokenism that would do little to mollify Chicagoans. I don't think Federated's management has figured out yet how much they've alienated a major market.
The biggest effects have resulted from the huge dislocation of population, which has obvious effects on media consumption. Orleans Parish is down from 460,000 to 100,000, and St. Bernard is down almost 90%, from 67,000 to 7,000. The overall TV market has dropped from 1.6 million to a million. Because of the disruption, and because they've lost track of so many of their diary-keepers, Nielsen has suspended audience measurements until fall.
On the positive side, the influx of money for reconstruction is having its effect on advertising sales.
Radio advertising in particular has enjoyed increased demand for ad sales in the New Orleans region, according to Zehnder's report, which cites more commuters driving into the city from temporary residences outside, as well as increased congestion and longer drive times caused by infrastructure damage and repairs.And New Orleans' losses, in population, have been Baton Rouge;s gains. That city is up about 50,000, and circulation of the local paper grew from 91,000 to 106,000.
I wonder about those stats. Who said that 75% of emotions are "influenced by what we smell", and how did they determine it?
The recently established sensory communications group Brand Sense Agency said it was "extraordinary" that 83% of all commercial communication was visual because 75% of our emotions were influenced by what we smell, while there was a 65% chance our mood would change when we hear a new sound.
The agency said branding and marketing were overly reliant on our sense of sight.
I'm more interested in the part where it says that Kellogg's copyrighted the sound of their cornflakes' crunch. Is that for real?
“Some kind of combination is inevitable,” said Hal Vogel, principal of Vogel Capital Management. “The cost of having far-flung bureaus is way too high for any one organization to take on alone.”
The decline of the news power of the broadcast networks, which was once the big money-maker, will play a role.
The decline of the news power of the broadcast networks, which was once the big money-maker, will play a role.
Monday, January 30, 2006
The deals, offered by News Corp.'s News
unit, run as high as eight figures and have been bought by top package-goods marketers, including Procter & Gamble Co., Kimberly-Clark Corp., Johnson & Johnson, Unilever and General Mills. Some of the so-called category buyouts can effectively lock out competitors from in-store advertising for their duration -- even if the marketer is not advertising at that time -- and confer an edge in crucial retail territory described by marketers as the 'moment of truth.' America
Under the terms of the deals it has been selling, marketers pay News
for media and a minimum production expense for in-store ads across multiple four-week cycles whether or not they use the space or services, according to the documents. In weeks they choose not to use the space, competitors can be blocked from using it. America
And people are being shut out:
One package-goods marketer competing with Unilever said he was told when he inquired about buying a shelf-sample dispenser program that the category had been sold out to his rival for a year for $1.8 million. But the marketer said he hadn't been asked to bid on the category-exclusive deal beforehand and wasn't informed of the full scope of Unilever's buyouts across multiple categories.
According to the employee newsletters from News
for November and December, category-exclusive deals with Unilever covering all or most weeks of 2006 in hair care, deodorant and hand-and-body lotion total $14.6 million as part of an overall in-store relationship of $19 million for the year. The hand-and-body deal alone was worth $9 million, according to the documents. America
So is it legal?
It's an interesting case. You could argue that this is just an exclusive advertising arrangement, no different from Coke, for example, buying exclusive rights to an event like the Super Bowl and preventing Pepsi from buying time on the game.
But given that this is in-store, you could also make the case that such arrangements prevent competitors (generally the smaller ones) from promoting their products at the point of sale, which would mean that they could be seen as restraint of trade.
However, that’s my decidedly inexpert opinion. I passed the question by Veronica Kayne, former Assistant Director of the Bureau of Competition at the Federal Trade Commission and now an antitrust partner at Haynes and Boone LLP in
I would phrase the antitrust market definition question as follows: If one manufacturer controlled all the advertising and promotion in all the locations at which its products were sold, would it be able to raise the price of those products or eliminate competitors?
If the answer is "no," then in-store advertising would not be considered a separate antitrust market; it would be part of a much larger market for advertising (direct mail, newspaper, TV, radio, Internet). Once it is part of that big a market, it's hard to see how exclusives in a small segment of that market could hurt competition in the overall market.
My guess is the answer is "no." Manufacturers denied access to the retailers would be likely to increase their advertising and promotion through other channels, proving they are substitutes for in-store activities. Enough people would see advertising on TV or in newspapers that if they went to a store and saw high prices or an absence of products they wanted, they would shop elsewhere. Or the retailer would be forced to drop prices or carry new products. But of course, if I'm wrong about the facts, or if the facts change, then the market definition can change too.
For products to be alternatives, or "substitutes" in an antitrust sense, and thus in the same "market," they don't have to be perfect substitutes. They just have to be substitutes. You'd rather have whole cashews, but if the price goes up enough, you switch to cashew halves, or if the price keeps going up, cashew pieces or even peanuts.
So, pushing the point, I asked how bad a substitute has to be before it makes a difference.
In the world of trade promotion marketing, we are getting to the point where we can assign values to different sorts of promotion, in terms of their relative costs and effectiveness in moving product. Let's say it can be proven that, for grocery products, coupon dispensers in supermarkets are 50% more effective than newspaper/radio/TV ads in ROI terms. The argument is that if Bob's Canned Vegetable Company is prevented from using couponing, I can use the newspaper instead. In the marketplace as economists envision it, newspaper advertising, being less effective, should reduce in price to a point where it's in rough parity with coupon dispensers in value terms.
However, that might not happen in this instance, because newspapers are not selling only to grocery marketers, but to a variety of other products and services, for many of whom it is an excellent medium. Therefore, newspaper advertising rates will probably remain fairly constant in terms of the overall media marketplace, and thus will always remain less cost-effective to BCVC. If Del Monte buys up all the coupon dispensers in the country, we cannot effectively compete because our advertising/promotion costs will go through the roof (if Del Monte's trade promotion costs are 20% of sales, BCVC would be forced to spend 30% in order to achieve parity -- which might be a financial impossibility).
Veronica was unimpressed with that argument as well:
How big does the difference have to be before it's meaningful? I'm going to take refuge and be legalistic: determining the relevant market is a question of fact for the jury, so the standard is could a reasonable jury come to whatever conclusion this jury came to?
Antitrust doesn't guarantee you the best distributors or advertising channels. It just, on a good day, guarantees that no one will pre-empt so much that you can't get to minimum efficient scale. Think about setting up a network of pharmacies to offer an insurance company. The first guy gets the best pharmacies. The second guy to set up a network may have to reach deeper into the array and have more pharmacies to get the same sort of coverage because these don't have quite the right geographic dispersion or the right hours or don't have enough delivery. But you can still set up the network. Only if the first guy has gotten exclusive contracts with so many pharmacies that the second guy can't build a competitive network is there an antitrust problem, under current antitrust jurisprudence.
So it sounds like, if the FTC and the Justice Department are thinking along the same lines as Veronica, which is probably fairly likely, they might look into this question without taking action. So how about an ambitious state Attorney General? Eliot Spitzer made his name in
So the only likelihood for legal action on this issue is private litigation. Conwood showed that this can be a very big deal, collecting a billion from U.S. Tobacco for antitrust violations – but it’s an expensive path to take, and it’s questionable if this issue could engender damage settlements big enough to make it worthwhile.
Veronica Kayne can be reached at Veronica.Kayne@haynesboone.com.
Sunday, January 29, 2006
The article says that the new system is intended, among other things, to overcome objections to in-store systems that run constantly. But most stores that I'm in have multiple customers in every aisle at least in bust time periods -- so won't it be running almost constantly? I also wonder about the sound bleeding over from one device to the next, assuming that stores will have several of these devices.
But I guess that's the sort of thing that gets ironed out in the test. The big question will be competition from the stores' own in-store networks.
- The National System, Inc., was bought by Frontenac, a private equity firm from Chicago. The deal was estimated at about thirty-five to forty million. If the numbers in the article are right, NSI has quadrupled in sales in the last five years. Pretty impressive.
- TradeOne promoted CTO Dan Hickox to President. They also said that they will be doubling the size of their tech staff and increasing their Web offerings.
- CoAMS named a new CEO, Hank Riner. Sorry, I don't have a link. They also announced that they had received SAS 70 approval from their independent auditors.
- MEI made several appointments: Fred Schroeder as Chief Executive Officer, Patrick Thibault as Chief Financial Officer, and Keith Peers as Vice President of Services and VeriSync Operations.
Reebok said Wednesday the companies now expect to close the deal by Jan. 31, a quick conclusion they hope will end the uncertainty that had hurt sales and orders to retailers. Reebok acknowledged three months ago that uncertainty about integration plans had hurt sales, which declined to $912 million in the third quarter of 2005, from $1 billion in the previous year's quarter.The new company will be pretty close to Nike on a worldwide basis (about 31% to 28%), but Nike's lead is much bigger in the US. Adidas leads Nike in Europe and Japan.
Here's one marketing professor's view of how they could use the two brands:
The acquisition of Reebok could allow Adidas to divide and conquer the two major market segments for athletic shoes and clothing — style and performance, Dhar said.
Reebok could focus on the style segment while Adidas could focus more on performance shoes and equipment to expand its market share with a broader offering of products, he said.
Friday, January 27, 2006
It is becoming an increasing issue for manufacturers who need to decide whether to produce private label (as many have always done -- in Europe and the US) or if that will cannabalize their own sales. Another issue is major retailers taking over manufacturing themselves:
“Certainly if retailers can get facilities for knockdown prices from an old famous brand that has collapsed, this might tempt them. In the US it is something that's being mooted at the moment.”One alternative that is offered is to create your own down-market brand to battle or pre-empt private label penetration of your category:
But some manufacturers seem to be shifting direction. American-owned Budweiser has expanded its range to add premium and cut-price alternatives to its famous number-one brand, rather than produce private labels.
“They have taken a leaf out of the private label book by offering a value product too, called Busch beer. It's cheaper, with less packaging but still benefits from the ‘halo effect' of the wider Bud name.”
- There are too many stores -- 19.5 square feet of retail per capita
- Online is cutting into sales -- up 22% in 2005 to $143b (although it is also pointed out that that is still only about 2% of total retail)
CVS has built itself primarily by acquisition:
Major deals have included a 1997 merger with Revco DS that added about 2,500 stores in the Midwest and Southeast, and a 2004 purchase of 1,200 stores from Eckerd Corp. that broadened CVS's reach into Florida and Texas, which are filled with elderly consumers in need of medicines.Last year, according to analysts, CVS trailed Walgreen's $42b to $37b (although they already led in number of stores). This acquisition may be enough to close the gap, since the 700 stores they acquired are estimated to do about $5.5b.
In most other retail categories, there is a leader with a decided edge on #2 (e.g., Best Buy/Circuit City, Home Depot/Lowes, Wal-Mart/Target). It will be fun to watch a battle between equals.
One area of disagreement was Mr. Perez's effort to strengthen ties with Nike's biggest retail clients. Mr. Knight rarely spoke with executives at national chains such as Finish Line. In one of his first gestures as chief executive, Mr. Perez visited the headquarters of several chains, charming the stores but upsetting Nike's sales staff.It also seems that some of Perez's efforts in regard to the channel may have been seen as counter to the Nike brand strategy -- a trade-off that will resonate with many marketers in many companies:
Mr. Perez, for example, believed that the Nike brand had largely saturated the high-end market - Nike controls 90 percent of the market for sneakers priced over $100 - and should grow by introducing more exclusive lines to lower-end retailers.
So he lowered the minimum purchase requirement for chains like Famous Footwear ans Shoe Carnival to 10,000 from 25,000. But some Nike executives believed the move "cheapened the brand," said John Shanley, an analyst at Susquehanna Financial Group who tracks the company closely.
Here's another, earlier report on some competing offers.
Today is Mozart's 250th birthday, and I just want to offer him my sincere thanks.
Thursday, January 26, 2006
"The middleman's cost that was eliminated was also eliminated for the people," Brooks said. "To get a box out like that for $25 just shows me that these guys are not just eliminating the middleman and keeping the middleman's money — that makes me feel very good."Brooks may feel good about it, but I doubt that feeling is shared by the record labels (aka, "the middlemen"). And its a feeling that is familiar to many in other product categories.
"It's analogous to the way they want to deal with their vendors — they want to deal directly and cut out the middleman, whether it's widgets or Rubbermaid, and now they're doing it with stars," said Nelson Lichtenstein, a professor of history at UC Santa Barbara and editor of "Wal-Mart: The Face of 21st Century Capitalism." "Whatever they touch they transform, because they're so big and they have such tremendous market clout and power."The question is, could Wal-Mart apply the concept of private label to music -- could they, in short, become a label themselves? And the answer is -- you bet they could! In fact, some estimates are that, in country music at least, Wal-Mart accounts for 50% of sales.
The scariest thing for the labels is that Brooks, who is no longer a real hot name in the music biz, sold this Christmas like the biggest star around -- the boxed set sold a million copies in fifteen days.
The initial sales — near-record numbers for a multi-disc set — concern some music industry executives, many of whom would not speak on the record for fear of alienating Wal-Mart, their biggest customer.Of course, if you're your own label, that means you do your own promotion:
"If a retailer is going to spend $10 million on an effective ad campaign, there's a huge upside for the artist," said Gary Borman, who manages [Faith] Hill and other artists.As if news hasn't been bad enough for the labels and distributors.
The problem for traditional radio is that these are not only significant numbers of listeners who are deserting their stations, but they are (presumably) among the heaviest listeners. To have lost almost ten million of them already hurts, and another twenty million in the next four years will devastate many stations and chains.
It will also be really tough on marketers, who are losing (again) an effective medium.
Wednesday, January 25, 2006
"Best Buy is taking a leadership position within the retail industry with our plans to eliminate mail-in rebates," said Ron Boire, executive vice president and global merchandise manager, Best Buy. "Our customers told us they hate mail-in rebate programs. As a result, we're working as a company and partnering with our vendors to find new solutions to give our customers a better shopping experience, while remaining competitive on pricing."
Best Buy saw the light on rebates right after the FTC nailed CompUSA.
PC makers' message is simple. Their devices, with built-in Web connections, powerful computing capabilities, and software that discourages illegal copying, are better suited than traditional consumer-electronics gear from the likes of Sony, Samsung, Sharp, and Matsushita's Panasonic. It's computers, not TVs, that will best serve consumers' growing digital desires, delivering everything from music to first-run movies, and shuffling that content to any corner of the home, they maintain.But the CE companies say they have the edge:
It's really the PC-industry stalwarts who should be worried, argues Atsutoshi Nishida, CEO of Toshiba. In his view, PC giants, excluding Apple and Toshiba, have focused on the commoditization of technology, not on adding new innovations that let companies turn a profit.The battle will be worth it: "
"Commodity markets grow for a few years, but then they stall," Nishida says. "To make a market healthy, you need some percentage of new, uncommoditized technologies. Otherwise, the market becomes like a bloody red ocean."
"Cisco is pretty ambitious. They are established in the business marketing, but not in the home," said Marty Brandt, partner at San Francisco-based consultancy TrueBrand. "They want to extend out of B2B. It'll be interesting to see how they take home electronics to the marketplace."Cisco is said to be planning new home entertainment products, coming out of the Linksys division, which markets home networking products.
Last year, Cisco made numerous acquisitions to help it make a splash in the CE field. In November, it spent $6.9 billion to acquire Scientific Atlanta, which makes set-top cable boxes. Last summer, it spent $61 million to buy Kiss Technologies, maker of DVD players.
Politics makes strange bedfellows, as the saying goes, but so does business, and when politics and business converge, it can get very strange. Opposition to the new rule was spearheaded by the Communists ( "We have been opposing it. I don't know why the government has to take such a decision,'' said D. Raja, secretary of the Communist Party of India) and business -- the Communists because they're opposed to business in general, and business interests because they don't want competition.
Still, it is a step forward, and may signal more openings to come.
Analysts said the Cabinet decision was typical of the style successive governments in India have adopted in opening any sector to foreign competition.
"India's economic reforms remain a story of incremental changes at a glacial pace,'' said Rajeev Malik, a Sinagapore-based economist with JP Morgan & Co.
The 26-page suit claims News America has threatened grocery store chains with sharply higher prices on in-store coupons if it didn't agree to distribute newspaper coupons. The suit says threatened penalties have routinely exceeded $1 million.News America holds pretty much a monopoly on in-store couponing, and Valassis says they are using that power illegally.
"News is presently using its market power in the in-store advertising and promotions market to solidify and expand its position in the FSI market," the suit said. Valassis claims News is threatening to raise prices charged grocery chains if they don't "sign long-term exclusive contracts" for newspaper insert service. "Ultimately, News will possess the unfettered monopoly power to raise prices and lower output in the FSI market beyond competitive levels."
Tuesday, January 24, 2006
Monday, January 23, 2006
- Require any item (e.g., product, drivers license) containing an RFID chip to carry notification
- Prohibit use of the devices to track individuals (with some exceptions)
- Prohibit devices from transmitting personal information
- And of course (this is government, after all) create a commission to study RFID
The purchase will triple Super Valu's size and vault it to the #2 spot in supermarkets. The problem for them will be absorbing so much so quickly, and fixing a very broken company -- Albertson's same-store sales have been down eight of the last fourteen quarters.
CVS should close a lot of the lead Walgreens has on them, and this gives them a big piece of the California market, where they've had little penetration. I've heard that they did well with the Eckerd takeover, so perhaps they know how to do this M&A stuff.
Investors and analysts have shown concern over increased competition to Nike from the pending merger between Adidas-Salomon and Reebok International Ltd and over tough market conditions in Europe and Japan.The part that struck me is that they're paying him two years' salary. Work one year, get paid for three -- where do I find a gig like that?
Sunday, January 22, 2006
I don't think I understand this one.
Analyst Bill Sims with Smith Barney said some retailers use gasoline as a loss leader and a way to drive traffic into their stores.
"If Costco's doing it, and Wal-Mart's doing it, why not Home Depot?" Sims said. "I would think it would be a great traffic driver and more of a one-stop-shop."
Excuse me if "Costco's doing it, and Wal-Mart's doing it" doesn't strike me as great logic. Remember your mom saying, "If Billy jumped off a cliff, would you do it?"
Okay – it’s not that bad, but it still sounds strange to me.
I see c-stores as being a great place to pick up a loaf of bread and a gallon of milk, not a loaf of bread and a gallon of paint, which is what the “one-stop shop” part of the argument seems to envision.
Still, in one limited aspect I can see the logic, and that is as a tie-in with their foray into the professional market. I guess I can see builders drinking coffee and buying donuts in the morning as they wait for their orders to be loaded. Still, that seems a weak foundation on which to build a c-store business.
But I could be wrong.
Friday, January 20, 2006
I won't detail the long post -- read it for yourself -- but the basic point is that newspapers need to abandon the expense of reporting all those things that people can get more easily and on time from other sources ("What is the real cost of maintaining stock tables for the few readers who still use them in print?").
He also argues that papers need to push their readers to their on-line sites, even to the point of selling print ads as add-ons to online, rather than vice-versa.
He details a long list of things that are worthless -- TV listings, advice columns, movie critics, national sports coverage -- and suggests that the expense and space devoted to those things be dedicated instead to the one thing the papers can do better than anyone else -- local news.
If, instead, you took those resources to get rid of a crooked mayor or reform property taxes, you’d be performing a far greater journalistic service. It may not get you awards, but it will get you readers.Sounds sensible to me, but what do I know? Well, I know they've got serious problems -- but whether this is the fix or not is another issue.
- Newspapers down 4.2%
- Newspaper ad revenue down 4.5%
- Retail ad revenue down 5.2%
- National ad revenue down 9.6%
- Classified ad revenue up 2.5%
- Circulation revenue down 3.5%
- Broadcasting and entertainment group down 11.9%
- Television ad revenue down 10.1%
I liked this line from the E&P write-up: "The company said [much of the] drop was due to the timing of Christmas on Sunday and the aftermath of Hurricane Wilma in Florida."
Uh-huh. All through 2005, ad revenue drops were, very legitimately, being blamed on the fact that 2004 was both a presidential election year and an Olympic year. Neither of those factors applied to December, however, so they had to go digging for something else.
Thursday, January 19, 2006
With "Amazon Fishbowl With Bill Maher," Amazon.com Inc. is trying to blend commerce with entertainment, much as Starbucks Corp. sells CDs and DVDs alongside coffee to position its brand as a lifestyle. In an e-commerce twist on movie and TV product placement, Amazon will place links to buy the works discussed during the show beside the program's display window.The first show will feature Stephen King flogging his latest book. King "plans to make Amazon his only broadcast appearance."
The company is betting that some of the nearly 50 million people who visit it each month to shop will take a few minutes to watch the show. Amazon was the seventh-most visited website in the United States in December, according to Nielsen/NetRatings.It's an interesting concept, and if it works, you can bet other retailers (both cyber and bricks & mortar) will follow. In any case, it's more media fragmentation.
"Amazon gets a lot of traffic, and if they put it on their front page people will click on it," Card said. "The big question is whether they convert to actually buying the books and songs and movies they're promoting."
By the way, how much do you think publishers will be charged to get their authors on the show?
Coles Myer (Coles supermarkets, Myers department stores, Kmart, Target, and other brands) has been turning in poor performance in recent years. Twice they've brought in top American retail execs to fix things and twice they've failed.
Now, in a scenario that will be familiar to Americans, they are giving up on the department store business and putting the 61-store Myer chain up for sale.
I know the camera and film business has been weak ("has been weak" = euphemism for "sucks"), but Konica and Minolta are huge brand names (I was unaware that they had merged a couple years ago).
They are selling a portion of the camera business to Sony, dumping the rest of it immediately, and getting out of the film business (they're #3 worldwide) by early next year.
By ditching the unprofitable operations, Iwai said the company could focus resources on more promising areas such as color office copiers and liquid crystal display materials, medical equipment and optical devices.They lost over $400mil last year.
The notice asks for $25 each time a Massachusetts child under 8 saw a Kellogg's ad for "nutritionally poor" products; an ad on Nickelodeon for any company's nutritionally poor products; or Nickelodeon characters like SpongeBob SquarePants promoting nutritionally poor food over the past four years....The two viewpoints, as summarized by Ad Age:
Food and marketing groups have maintained any food eaten in appropriate quantities can be part of a healthy diet and note a lack of official definition of "junk food." They also contend breakfast cereal can be more healthy than some other breakfast alternatives, and that parents, not children, buy the products and have ultimate control.
The consumer groups argue that advertising makes parents' job of restraining their children's choices nearly impossible and that advertising, especially to younger children, by its nature is unfair.
"Studies show that children under 8 do not understand the persuasive intent of commercials and are particularly vulnerable to messages," the 30-day notice says.
Though Home Depot said it would slow new-store growth to 400 to 500 through 2010, roughly half the number opened in the previous five years, its plan to derive more sales from professional contractors was seen favorably by analysts....Although sales to contractors is only 4% of HD's business today, it is projected to reach 18% in 2010. They are also pushing for growth in services/installation, and international expansion.
Lowes, by contrast, will be opening 150-160 stores per year on 2006-07. If that keeps up (a big "if"), Lowes will be closing in on HD in store count by 2010.
Wednesday, January 18, 2006
Or maybe I just don't understand it.
- Ashley Furniture Industries -- A Wisconsin combo manufacturer/retailer with 100 stores, growing at 40% a year.
- The Fresh Market -- A Whole Foods wannabee from North Carolina with about 50 stores.
- Steve & Barry's -- Marketers of low-price merchandise labeled with university names, they doubled in size in both 2003 and 2004. Started with near-campus shops, but now expanding into malls with big stores that take over those empty department stores.
- Metropark -- They didn't describe this one much, other than that it appeals to young adults, and it's by the people who created Hot Topic.
- Culvers -- Not a retailer in the sense that we discuss them here, this is a midwestern fast-food chain that is rapidly expanding -- now about 300 locations. I love their Butter Burgers.
Tuesday, January 17, 2006
The moves were outlined in a letter Sears President and CEO Aylwin Lewis wrote to employees last week. The missive, posted on employee online message boards, came after Kmart consultants visited 70 stores over the holiday shopping season and found 65 percent of their experiences as "below expectations."Depends on what your expectations are, right?
Okay, I'll stop being nasty. The good news, such as it is, is that maybe Kmart really intends to do something about their problems. Maybe -- if it's not already too late.
This is in addition to the 62 closures they announced in September.
Monday, January 16, 2006
The reasons given are continued high energy prices and a slowdown in the housing market, which will cut back on spending by those who have been cashing in on their home equity.
This is in line with most of the economic projections I've seen. The consensus seems to be that overall economic growth will be strong in 2006, but it will be business spending that drives it more than consumers. If you're in a B2B channel, this is good news.
Saturday, January 14, 2006
Satellite services, they tell us, more than doubled their subscriptions in 2005 (from 4.5mil to 9.3mil), and Jupiter Research says they'll hit 55mil by 2010. But that's not the end of it -- BW says that Motorola is preparing to introduce a service as are several cell service providers, and maybe Apple.
The response of the radio industry is to put on a big push for high-definition radio, on the grounds that listeners are upset over sound quality (supposedly HD FM sounds as good as a CD). I think they're delusional. My own feeling (supported by the comments to the BW article) is that radio's problem is content (or lack of it), not sound quality. From my days as a commuter, I recall the endless yammering of the "morning crew" that every station feels they need, at whom I used to often scream, "Shut up and play the #$@% music!" (I very much recommend screaming at the radio -- it's a great release for commuting stress). Putting these stations on an HD signal just means being able to hear their drivel better.
Enough of my anti-morning crew prejudices, however. The point for trade promo people is that it will be even tougher in the future to reach your local audiences.
The cards accounted for 15 percent to 18 percent of consumer spending this holiday season, more than expected, and more than the 14.5 percent, or $30 billion, spent a year earlier, according to Michael Niemira, chief economist of the International Council of Shopping Centers.
The fascinating thing is the size of the Times' drop -- down from 320k to 260k between 2001 and 2004, a 19% decline.
This of course is city circulation, and the Times has been following a strategy of turning itself into a national publication. Nonetheless, a big part of their advertising is from local retailers, and the numbers have to be a shocker to them (the Times stopped breaking out local circ figures several years ago -- now we know why).
"The local retail advertiser will care because they've been paying advertising increases of 6 to 9 percent a year every year since 2000," said Shelly Kravitz, president of Plus Media Buying Services in New York.
That means local advertisers are paying 30 percent more to reach a New York audience that has shrunk by almost one-fifth, Kravitz said.
"I'm just amazed at that," he added.
In the complaint against Home Depot, ex-employee Michael Davis alleges the Atlanta-based chain processed false claims and reported fake quantities of defective or damaged items to vendors to collect added revenue that could reach $40,000 to $50,000 a week at a store.That sounds wildly exaggerated to me. $40k/week = $2mil/year x 2000 stores = $4bil/year. Sorry, but I'm not buying it.
Friday, January 13, 2006
"After a thorough review, we have concluded that Lord & Taylor does not fit with our strategic focus for building the Macy's and Bloomingdale's national brands," said Terry J. Lundgren, Federated's chairman, president and CEO, in a statement. "However, Lord & Taylor is a niche specialty retailer with a great name, many outstanding locations, an experienced management team and a strong customer following that makes it a desirable business."Right -- it's such a great business you're trying to get rid of it.
Meanwhile Saks has put their Parisian chain up for sale.
The question is: How many departments stores can be up for sale at any one time? There's a supply/demand issue here. Saks is putting Parisian up for sale right after selling their northern stores to Bon Ton and their other southern stores to Belks. Presumably Saks Fifth Avenue itself will go on the block soon after.
Are there that many buyers out there?
Second issue: How many upscale department stores can the market sustain? At present there are five chains -- Nordstrom, Neiman-Marcus, Bloomingdales, L&T, and SFA. All other retail categories are winnowing down to two:
- Home Depot/Lowes
- Best Buy/Circuit City
- Staples/Office Depot
Why should an investor be interested in buying Lord & Taylor or Saks Fifth Avenue, which are fourth and fifth in their category?
Just last month, Musicland said it would close its 61-store Media Play chain; this month it is shuttering 59 Sam Goody and Suncoast stores, leaving it with about 750 locations. Another recent sign of difficulty was CEO Jack Chadsey's departure in December after just two months on the job.Yes, I think it's safe to say that when a CEO quits after two months, it's a bad sign.
A fixture supplier filed suit yesterday: "Excel Fixtures alleged the company misrepresented its financial condition when Excel took on a large job with Musicland, and said it has not been paid for nearly $800,000 worth of work."
The "advertising" increases will apparently also include promotional activities and pricing:
Since then, sales of General Mills' Big G cereals have improved as competitors' prices, particularly on promoted products, have crept up. General Mills also lowered its prices on promoted products, further narrowing the price gap.
"We adjusted our merchandising strategy and competitors eventually moved their merchandising prices upward," Sanger said, adding that the company expected to log year-over-year market share gains in the coming months.
Thursday, January 12, 2006
Somewhere in the forest, a tree is cut down. It is loaded onto a giant truck and hauled a vast distance to a factory, where the trees [are] turned into huge rolls of paper. These rolls are loaded onto another truck and hauled another vast distance to another factory, where they are covered in ink, chopped up, folded, stacked, tied and loaded onto a third set of trucks, which fan out across cities and regions dropping bundles here and there.
Printing plants no longer have the clickety-clack of linotype machines and bubbling vats of molten lead. The letterpress machines that stamped the ink on the paper have been supplanted by offset presses that transfer it gently. There is computer-controlled this and that. Nevertheless, the process remains highly physical, mechanical, complicated and noisy. As we live through the second industrial revolution, your daily newspaper remains a tribute to the wonders of the first one.
Meanwhile, back to those bundles. Some of them are opened and the newspapers are put, one by one, into plastic bags. Bagged or unbagged, they are loaded onto a fourth set of vehicles -- bicycles by legend; usually, these days, a car or small truck -- and flung individually into your bushes or at your cat. Other bundles go to retail establishments. Still other newspapers are locked into attractive metal boxes bolted into the sidewalk. Anyone who is feeling lucky and happens to possess exact change has a decent shot at obtaining a paper or, for the same price, carting away a dozen.I'd like to go on quoting, because it's all good, but I might get into copyright trouble, so I suggest you follow the link and read it at WaPo's site. They need the readers.
For instance, Philips Lighting Company, a unit of Royal Philips Electronics, provided the Home Depot store in Aspen Hill, Md., with a $1,000 monthly credit to cover the cost of damaged light bulbs, according to Davis.
As long as the amount didn't exceed $1,000, Philips would accept the charge, no questions asked.
Davis said he was told by his superiors to charge Philips slightly less than the $1,000 ceiling each month, even if the actual damages totaled less than that amount.
As the Post notes: "The SEC investigation and legal action at Home Depot mirror similar complaints against other retailers, notably Saks Inc. and Federated Department Stores, which are accused of overcharging suppliers in a variety of ways."
Home Depot denies the charges.
One is that China still does not have many solidly-established national brands and that 90% of the market is held by local brands, a factor that will change no doubt, but is currently supported by requirements that many products be sourced locally through state-approved vendors.
The historical/political basis for this is particularly interesting, I think:
Of the factors leading to the current localized structure of the Chinese market, one is a definite holdover of the Maoist period when every village was designed to be self-sufficient. Moving goods from one city to another, as in an inter-store transfer or conventional regional distribution strategy, would require approval of local officials.
Recordkeeping is critical in an environment that focuses on local sourcing for local consumption. When Wal-Mart started in China, there were 21 documents for every purchase order. Every store had to write its own purchase orders by hand and issue checks. Now, many of the suppliers use Retail Link, the same online portal Wal-Mart's suppliers in the U.S. use to communicate electronically with the retailer. Things may be easing up a little, but the rules are still there, says Hatfield.
Wednesday, January 11, 2006
Being #3 is a bad position to be in these days.
Thursday Update: Yesterday's link included a sentence saying, "Its largest shareholder, K Capital Partners LLC, demanded in November that the board of directors take immediate steps to improve its "dismal" financial and operating performance."
Now, K Capital has asked in a filing with the SEC that the company be sold:
"We believe the best path forward for your shareholders is obvious," K Capital said in a letter on Tuesday and included in Wednesday's filing. "Why should a company's shareholders have to run a proxy contest to convince its board to do the right thing?"
Tuesday, January 10, 2006
At first glance, the figures are disastrous: During the last nine weeks of 2005, Sears' sales were down a stomach-turning 12%. The Kmart half of the merger looked good, by comparison, even with a miserable 1% sales increase. And some analysts weren't slow to point out the obvious:
... the disappointing finish to 2005 raises questions about how long Sears can continue to hemorrhage customers and remain in the game with more nimble players such as Target, Home Depot and Kohl's.Big parts of the reason for the miserable sales were the decisions to cut back on promotional pricing and on advertising -- both driven by Chairman Lampert's philosophy on retailing.
"As a retailer, you can't do what Eddie Lampert is doing and stay in business," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York City.
A hedge fund operator who lives in Connecticut, Lampert is a strong believer in not giving away merchandise at bargain prices to pump up top-line sales numbers. Likewise, he is leery of spending heavily on advertising. Gross profit margins are what Lampert talks about and cares about. He is willing to sacrifice sales if it means bigger profits at the end of the day.Thus far, the retail professionals hate Lampert's approach, but Wall Street loves it:
"It's his strategy to be less promotional," Stern said. "You're cutting advertising expenditures and you are going to sell product at more regular pricing and higher margins. It's very contrary to what most retailers do. It's not about the top line, it's about the bottom line."
Davidowitz concedes the strategy is intentional, but he also believes it is misguided. "Cut the inventory, cut the assortment, raise the prices, cut the help, cut advertising and promotions. It's a unique approach to retailing."It will be interesting to see how this plays out in the long run. Lampert is following one of my core beliefs (profit is more important than volume), but violating another (I have a strong pro-advertising bias), so I'll be watching closely.
That doesn't seem to bother Wall Street.
Sears Holdings stock closed up $1.89, or 1.6 percent, to $117.90. That's a far cry from Sears' 52-week high of $163.50 per share but still well above its 52-week low of $84.51.
The purchase is Home Depot's biggest ever and will double the size of its supply division to $12 billion in revenue, allowing the company to continue its drive to win more professional customers. Chief Executive Officer Robert Nardelli has made three acquisitions in the past year to expand beyond do-it-yourselfers.Bloomberg speculates that the move is at least partially an attempt to diversify because of incursions into its core business by Lowe's:
Home Depot is making acquisitions as it has become more challenging to find new store locations and sales growth lags behind Lowe's Cos., the second-largest home-improvement retailer.
Home Depot has about 2,000 stores, while Lowe's has about 1,175 and is still expanding into large U.S. cities. Home Depot has boosted sales an average of 12 percent a year over the past five years, compared with an average gain of 18 percent at Mooresville, North Carolina-based Lowe's.
The move would continue a sell-off of stores by Saks, which announced in late October that it is selling roughly 140 stores in its Northern department store group to Bon-Ton Stores Inc. for $1.2 billion. Belk Inc. purchased its Proffitt's and McRae's stores for $623 million in July.But it also featured a big management shuffle -- the Chief Executive and the CEO/Chairman were dumped. I loved the wording concerning the CEO: "The company said Wilson quit after directors decided to eliminate the position." Doesn't having your position eliminated mean you've been fired? How do you quit at that point?
Today, the Times talks more about the management change and about the likelihood of Saks Fifth Avenue being sold, in addition to Parisian.
An interesting point in today's article is the comparison of operating margins at three leading luxury chains:
- Neiman-Marcus 9.7%
- Nordstroms 7.7%
- Saks Fifth Avenue 3.0%
Monday, January 09, 2006
Sir Terry Leahy, chief executive of Tesco, has ruled out making a significant acquisition in the United States, but plans to expand in China, where he wants the company to be a major force.
In an interview with The Observer, Sir Terry said: 'People have talked about businesses in the US that could be bought, but I don't think they are right for us. We have had researchers in America, but I can tell you that we have no current plans to make an acquisition there.'
China is viewed differently. Tesco last year announced a £140m investment by taking a 50 per cent stake in China's Hymall chain. Leahy said: 'We will have to scale up in China, it's such a big place that you either have to ease out or commit quite a bit.' But he adds that this would take many years to achieve.
Leahy didn't explain his reasons for not wanting to enter the US, except to say that "the US is a competitive market; it's a challenging place."
Saturday, January 07, 2006
The Chicago Tribune reports that TRU will close 73 stores this spring, in addition to converting twelve other stores to Babies R Us outlets. This will leave 587 Toys R Us stores.
Schumer asked for the following rules on rebates, according to Promo magazine:
- Companies must provide consumers at least 30 days to redeem their rebates and must fulfill the terms of the rebate within the same amount of time required of consumers but it should not exceed 60 days.
- Companies must take steps to send the rebate check in a manner which identifies the piece of mail as the expected rebate check.
- Companies must accept copies of receipts, not just originals.
- Companies cannot require consumers to write identifying information on the rebate form unless the receipt does not identify the purchased product.
- Companies offering rebates may not require information that is not necessary to process the rebate, including information other than name, address and phone number.
- Companies must provide telephone numbers or contact information for rebate inquiries so consumers are able check on the status of their rebates.
Thursday, January 05, 2006
A jingle campaign today would be expensive and high risk because jingles require head-banging repetition, says Larry Londre, a professor at the University of Southern California's Annenberg School for Communication. In the past, national advertisers could guarantee jingle saturation by buying time on the big three TV networks, whereas now they would have to include technology's new media platforms: cable, the Internet, satellite radio.
"You need the old media environment to make it work," Garfield says.
The jingle, the article notes, has been replaced by old rock songs, which hearers already recognize.
- Wal-Mart up 2.2%
- Aeropostale up 11.4% (double what had been predicted)
- American Eagle up 9.8% (3.3% had been expected)
- Federated up 3.4%
- Kmart up 1.0% (and announcing layoffs and closings)
- Sears down 11.9% (ouch!)
- J.C. Penney up 2.2% (considering the talk about how hot they are, not that impressive)
- Kohls up 4.6% (double JCP)
- Limited Brands up 3%
- Gap down 9.0% (and the analysts want the CEO's scalp)
- Target up 4.7% (more than double Wal-Mart)
- CVS up 7.3%
- Nordstrom up 7.7%
- Abercrobie & Fitch up 29% (with this and Aeropostale and American Eagle, the teens must have shopping up a storm this year)
- Wilsons down 7.0%
- The Bombay Company down 3.5%
Wednesday, January 04, 2006
The article suggests that branded manufacturers should broaden their product lines to compete:
Private label variation is the key to success, with retailers creating value, mainstream and premium product lines under a single private label banner, thus managing to capture all consumer groups.I think this could be one approach, but I would worry, if I had a premium brand, that I might be diluting the brand image by going downscale, if I followed this advice.
Datamonitor suggests famous brands may gain from following suit as consumers demand a greater range of choice, and expect similar product quality combined with greater value.
The answer, of course, is that there is no connection.
However, in Chisinau, the capital of Moldova, we have the opposite extreme. There, the local authorities have banned billboards that show women's legs -- in an ad for panty hose.
Acting mayor Vasily Ursu said earlier that showing women’s legs on billboards was contrary to the standards of ethics and advised designers to look for a more creative solution than just capturing bare legs.Actually, perhaps Mayor Ursu can be swayed by the fact that the legs are unlikely to be bare in a panty hose ad.
California passed one of their strange laws saying no seafood could be labeled as "organic". So New Leaf is responding by labeling their Ecuadorian prawns as "Organic-Everywhere-But-California".
By category, the spending was:
- Clothing: $5.2 billion (up 42% from last year)
- Computer hardware and peripherals: $4.8b (+126%)
- Consumer electronics: $4.8b (+109%)
- Books: $3.0b (+66%)
- Toys/video games: $2.3b (-9%)