Steve & Barry's: Quick rise, quick fade

It was only six weeks ago that I posted an item headed "Retail expansion slows, except for Steve & Barry's", detailing some recent retail cutbacks, but noting that Steve & Barry's was planning to add seventy stores this year, on top of their current 264.

I probably should have been skeptical -- how can you finance expansion like that when you're selling sneakers and dresses and jeans and shirts for $8.98? And paying licensing fees to celebrities? Answer: you can't. And now Steve & Barry's is facing bankruptcy.

“[Their] expansion was much too fast. The infrastructure wasn’t there,” said Gilbert Harrison, CEO of Financo Inc., a New York-based investment bank and consultancy firm. “More important is that when they pay these huge amounts of licensing fees ... it takes too much away from the gross profit margin to give them the profitability needed.”

Steve & Barry’s declined to comment at press time, but the news of the Long Island, N.Y.-based chain’s financial woes left many insiders concerned about its future. Several of the chain’s vendors remain unpaid, and press reports hinted that a bankruptcy filing could come as soon as next week if the firm didn’t get some last-minute financing.

It's too bad, because I really like S&B. And I'm not alone:

“They were the darling of everything,” said Emanuel Weintraub, CEO of management consultancy Emanuel Weintraub Associates Inc. “Everybody loved the product and loved the prices. ... [But] they didn’t have revenue sufficient to meet their expenses. They did not understand their costs.”

NPD Group Chief Industry Analyst Marshal Cohen, who has worked in an advisory capacity to Steve & Barry’s, said the retailer’s financial troubles weren’t a surprise to him given the company’s rapid growth strategy and major investments, which he said are “pretty hard” for a retailer to finance on its own.

In March, GE Commercial Finance Corporate Lending gave Steve & Barry’s a $197 million asset-based loan to fund “ongoing capital needs,” and Steve & Barry’s has reportedly defaulted on that loan.

The retailer is now looking for additional financing, reportedly around $30 million. However, analysts said it is unclear whether Steve & Barry’s can get the necessary last-minute funds amid tightening credit markets.

“The lenders are extremely cautious today,” Weintraub said. “Unless [Steve & Barry’s has] a revised business model, it could have a lot of problems.”

Of course, they could stop selling everything at $8.98. How about $10.98?

Update Tuesday, 7/1: There's a report from the Wall Street Journal today that they may close 100 stores and possibly liquidate. Liquidation would be a shame -- it is an innovative format and could be re-worked, I think.

Newspapers: the slo-mo train wreck

I have a friend in the newspaper business who remarked a couple years ago that watching what was happening to the papers was like watching a slow-motion train wreck. The good news is that he’s wrong; the bad news is that he’s wrong only because it’s no longer slow-motion.

On top of long-term changes in the industry, the weak economy is also hurting ad sales, especially in Florida and California, where the severe contraction of the housing markets has cut deeply into real estate ads. Executives at the Hearst Corporation say that one of their biggest papers, The San Francisco Chronicle, is losing $1 million a week.

Over all, ad revenue fell almost 8 percent last year. This year, it is running about 12 percent below that dismal performance, and company reports issued last week suggested a 14 percent to 15 percent decline in May.

“Never in my most bearish dreams six months ago did I think we’d be talking about negative 15 percent numbers against weak comps,” said Peter S. Appert, an analyst at Goldman Sachs. “I think the probability is very high that there will be a number of examples of individual newspapers and newspaper companies that fall into a loss position. And I think it’s inevitable that there will be closures in this industry, and maybe bankruptcies.”

This is not a problem peculiar to newspapers, of course; it’s in part a media fragmentation issue, with the proliferation of new media meaning that radio and TV are seeing hard times as well. Newspapers are especially hard-hit because classified ads have proven the easiest form of advertising to move to the web, and because classified was a huge cash cow for the papers.

I examined the issue of media fragmentation in general and as it impacts trade promotion back in 2005 (time really flies, doesn’t it? I was shocked when I saw that date on that piece) and later the same year, I went into it a bit more, focusing more closely on newspapers, as the primary vehicle for trade promo in many product categories.

On the rare occasions when I’m right, I like to trumpet that fact, and so I’ll point out that I predicted back then that a result of the decline of the media would be a greater reliance on in-store marketing. Okay, so it was pretty obvious – still, I was right.

The future of TPM outsourcing

It being an election year here in the US, it is inevitable that we hear concerns about jobs being outsourced overseas. I was reminded of this when I came across this item, in India’s Economic Times, about Wal-Mart outsourcing some of their IT functions to Bangalore, and possibly looking into setting up their own operation there, as some other major retailers (Tesco, Target) have done. The article mentions that “Wal-Mart may firm up plans only after the US presidential elections.”

Putting aside that point, there’s certainly nothing unusual about jobs moving overseas. What I find interesting, though, is that one of the first business processes to be outsourced in the US was trade promotion administration, but it has yet to be outsourced overseas.

Outsourcing of co-op advertising management began in the early 1950s, mostly as a protection against regulatory agencies rather than as a quest for efficiency. It has continued through the ensuing decades as a small but thriving niche business in the US, possibly too small for the major overseas BPO firms to take an interest in it.

As I was reading the Wal-Mart article, though, and pondering why TPM outsourcing remains firmly on-shore, it occurred to me that the opportunity for foreign (Indian and other) BPO providers may lie in providing TPM IT and/or process outsourcing to CPG manufacturers.

The companies that do TPM outsourcing in the US focus almost entirely on the consumer durables and business-to-business sectors – not a surprise, because that’s where back-end checking of documentation and processing of claims is still done. They have practically no clients in the health and beauty care, food and beverage, or related categories.

The categories not served by the existing US outsource companies are the largest spenders in trade promotion, and make the largest investments in IT and human resources to manage that spending. They have elaborate and very expensive software (home-grown or licensed from companies such as Oracle and then customized to their needs) to manage their programs, plus in many cases additional software to analyze the results of the program, and perhaps another package to manage the deductions associated with the program.

In some cases these various software packages are integrated, in other cases not (in most cases, probably, they are somewhat integrated). In all cases, there are significant numbers of people to perform the human tasks connected to program management, deductions, and analytics, in addition to the staff assigned to maintain the software.

Two opportunities exist, therefore: First, to manage the TPM IT needs of customers, perhaps helping them integrate their software into a coherent whole; and second, managing the business processes associated with TPM.

A BPO who could take these burdens off a company’s hands, and allow the company to concentrate on the strategic uses of trade promotion rather than administration, could find a lucrative new revenue stream, and one that is currently uncontested.

Intel fined by South Korea

In the latest development in the ongoing saga of investigations and lawsuits concerning Intel's trade rebate practices, South Korea has fined Intel about $25mil for rebates:

Intel offered about $37 million in rebates over 2 1/2 years to Samsung and Trigem on the condition that they wouldn't buy from Advanced Micro, according to commission's statement. [...]

The commission's description of the funds from Intel is a ``stretch'' because they were used to jointly market products, Trigem said in an e-mailed statement. Samsung Electronics spokesman James Chung declined to comment.

Intel denies the charges and is expected to appeal the ruling.

Bigger than the fine from South Korea, which is probably pretty much a rounding error in Intel's books, is the possibility that this might have an impact on the EU's investigation of Intel and/or on AMD's lawsuit against them in the US, both of which are based on pretty much the same set of facts as the Korean case.

The verdict is a setback for Santa Clara, California-based Intel as it awaits a ruling from the European Union, where regulators can fine companies up to 10 percent of annual sales for antitrust breaches. In 2005, Japan forced Intel to remove clauses restricting Japanese computer makers from using rival chips. Intel has also been sued by Advanced Micro in the U.S.

``An investigation in Korea invariably has some effect on the outcome of investigations in the United States, in the EU and elsewhere,'' said Brendon Carr, a business attorney at the law firm of Hwang Mok Park in Seoul. ``Every domino that falls is a painful one for a global enterprise.''

Previous Intel items, several of which deal with these cases, are here.

Hershey to increase ad spending

Hershey has been criticized for a failure to promote sufficiently (resulting in the Hershey bar losing its long-held top spot in candy to Mars' M&Ms).

Now they are pledging to increase advertising spending by 20% in each of the next two years. This is unlikely to mean decreased trade spending, however -- here's what they said in their call with investment analysts last week:

What you would see around trade spend is if you were to go back several years, you would have seen trade spend be more important than where we were in terms of our advertising and consumer spend. What we think is the right thing to do is not let the pendulum go back the other way but necessarily bring them into balance.

So we would see trade spend as a percent of net sale continuing to be relatively constant going forward because we think we’ve got that about right, and then the thing that we’ve remodeled is how do you get the consumer spend with the working media back to the right levels. That’s what we think is the right thing to do there.

It's also good to see that they credit trade promotion (and trade promotion management) as a major driver in past success:

Let me now take a quick look back at our historical performance. From 2001 to 2005, the company enjoyed a period of strong, top-line growth, behind closed-in news on new chocolate items as well as unlimited editions.

This closed-in pipeline was executed by a redesigned selling organization. Hershey led the category in innovative customer marketing programs and a redesigned trade promotion architecture. This was complemented by enhanced retail capability.

In addition to strong revenue, gross margin improved during this time ...

In another note, the head of the Hershey Trust says, "Simply put: We will not sell the Hershey Co." There has been much M&A talk around Hershey ever says the Mars/Wrigley merger was announced.

Update on the Tesco/Wal-Mart battle

Here are a few links on Tesco's Fresh & Easy and their upcoming battle with Wal-Mart's Marketside stores:

This item says that F&E is revamping its interior to be "warmer" and increasing the signage in the store.

A Tesco spokesman said the design has been "tweaked" and, while it will maintain its clean look and feel, the changes should help shoppers "dash in and find the milk or whatever other products they want to find quickly and easily".

They also report on the restarting of store openings after a three-month pause to rethink the format, and on F&E's increase in private-label (adding another 250 PL products to a mix that was already about 50% PL).

Here's an interview with Tim Mason, the head of F&E, that has a bunch of interesting stuff. He explains the "pause", and discusses the increase in PL, acceptance of packaged fruit and veggies, and comments on the competition from Marketside and Safeway (Market by Von's):

You always have to assume that competitors will respond. Running small stores is a very difficult thing to do if you think how long Tesco took to running Express [its UK convenience chain] before turning it into a scale business. That is because it is different and there are different policies and procedures. I have been to the Safeway, it is a very pretty store.

Interesting interview -- worth a read.

And finally, this is an article suggesting that Wal-Mart is planning to go up-market with its Marketside stores:

Wal-Mart has indicated that its new Marketside grocery stores will be built around a “premium” rather than low-cost offering, suggesting its new small format stores will be less focused on price than the rival Tesco-owned Fresh & Easy chain. [...]

Job advertisements for the new Wal-Mart business say the stores will deliver “unique solutions for time-starved consumers in a premium fresh/convenience oriented format” – an indication of the pricing position of the new 15,000 sq ft stores.

Wal-Mart has already indicated that the neighbourhood stores will be focused on delivering “meal solutions”. Store planning documents indicate that food will be prepared and served on the premises, in contrast to the minimalist utilitarian approach of Tesco’s hard discount Fresh & Easy stores.

I think this is particularly interesting, because my opinion of Wal-Mart is that they have a track record of great success in pummeling rivals on price, but have been less successful in situations where they have less of a price advantage and have to compete on other factors. Examples are Germany, where fair trade laws restricted price-cutting; UK, where Tesco cuts prices just as well or better; and China, where, well, importing goods from China is not an advantage.

When will M&A come back?

This article suggests "at least nine months" before we see the return of mergers and cquisitions in retail (and, presumably, elsewhere).

"Beyond that it is quite difficult to predict because people are keen to get back in. Private equity is keen to second guess the starting whistle because someone is going to make a lot of money on the rebound."

European retail shares have shed nearly 30 percent of their value in the past six months, almost equal to the losses sustained by the European bank stocks.

Still, retail stocks are predicted to have further to fall because the impact from the credit crunch and rising commodity costs is only just starting to be felt by consumers.

I'm not into predicting the stock market, so I won't make a guess. Actually, my interest is primarily because I figure when M&A picks up, it will mean the economy in general is on the rise, and therefore it might make sense to get my house ready to sell.

What happens to companies like Circuit City and Borders, though, if private equity takes too long to return?

Fila: Resurrecting a brand

Fila seems to be a hot brand in South Korea, fueled by endorsement ads by Paris Hilton:

... Paris Hilton makes a splash in conservative South Korea. In ads for Fila, the sportswear brand, Hilton strikes a fetching pose in a belly-baring $180 white tracksuit. Hilton, who is reportedly paid $1 million a year to endorse Fila in Korea, prances around in teeny tennis togs in a TV commercial. Off camera she recently acquired a pooch she named "Kimchi" after the spicy Korean dish, a gesture that delighted her fans--and Fila brass.

Korea accounts for almost three-quarters of Fila's worldwide sales, however. In the US, the brand has dropped from $687mil in sales a decade ago to $61mil last year. Fila was once the #3 sports shoe brand in the US, and its downfall was related in part to legal problems involving accounting for payments to retailers.

... the Securities & Exchange Commission charged him with fraud for helping the vendor inflate its earnings. Epstein, the sec charged, signed documents stating that Fila owed $1.38 million to now defunct Just for Feet, a Birmingham, Ala. retailer.

The current ownership blames the downturn largely on an effort to go up-market: "Chasing luxury for us was not meaningful." The boss has cut costs, closed company stores (only one remains open, in New York, because they can't break the lease), and are now trying to re-establish the brand in the US:

The new focus: selling workout sneakers and apparel through a number of mass-market retailers, including Foot Locker and Kohl's.

Worldwide, they have what sounds like an interesting approach:

Yoon aims to inspire licensees in Europe, the Middle East, Africa and Latin America to put more energy into brand building by giving them ten-year rolling contracts in which they pay only a small portion of the expected royalties up front. Yoon believes the longer contracts encourage licensees to spend more money marketing.

Good luck, Fila. I like the emphasis on the long-term and on marketing.

Of Woolworth's and Sears

The last Woolworth's stores disappeared from the US more than a decade ago and had become irrelevant long before that, though the company goes on (it's called Foot Locker today). Woolworth's has gone on being a powerful retail name around the world, however. Spin-offs of the US company continue to operate under the original name in the UK, Germany, Mexico, and South Africa. (The biggest retailer in Australia is named Woolworth's, but has no connection to the US company).

If this item is correct, Woolworth's UK may be on course to follow its American parent into oblivion:

Going, going, not quite gone, but most definitely in the departure lounge of life: Woolworths is suffering a long, slow death. For those, like me, who were children in the Fifties and early Sixties, it's painful to watch. An old friend, with whom too many of us have lost touch, awaits the coup de grâce.

This week, the company finally ditched its genial but ineffective chief executive, Trevor Bish-Jones. His six-year reign was largely a story of mitigating failure: much promised, little delivered. In the City, where sentimental attachment counts for zero, Woolies is an unfunny joke.

The company has 800 outlets, with annual sales of about £1.7 billion, but barely makes a profit. At 9p each, Woolworths' shares cost less than a handful of goodies from the pick'n'mix counter. Its stock market worth is down to £130 million, a tiny fraction of Tesco's £30 billion. Woolies' investors have lost nearly 85 per cent of their value in three miserable years.

The former king of British retailing is now worth 1/200th the value of the current monarch. That's gotta hurt.

Read the full article, if only for the delightfully nasty comments the author throws in, such as: "... Woolies lumbers along like a corporate stegosaurus, a beast the size of a bus, with a brain no bigger than a walnut."

When I read it, though, it kept reminding me of the long, slow, and on-going death of America's former retail leader, Sears. It's hard to believe that up until about twenty years ago, Sears was the biggest retailer in the world (I'm going by memory here, I couldn't find the exact figures and dates). In the late 80s, Sears, Wal-Mart, and Kmart were virtually tied for the top spot -- today, Sears and Kmart combined are about 1/7th of Wal-Mart in sales.

The reasons for the decline of Woolworth and Sears are similar, but can be summarized as a failure to adapt to changing conditions, abetted by flailing, inconsistent attempts to adapt (frequent strategy changes, management upheavals, etc). Much of the article about Wolworth's could have been cribbed from a history of Sears:

• "In the accelerating evolution of Britain's high street, fleet-footed rivals have adapted far more readily to changes in consumer behaviour; in some cases they have led them."
• "Most successful retailers stand for something distinct, whether it's price, quality, value, range or convenience. By contrast, Woolies has, in the jargon of professional marketeers, no unique selling point (USP)."
• "'Woolies' brand is an empty shell,' says Rita Clifton, chairman of Interbrand, a brand consultancy. 'There are lots of memories but nothing current, clear and vibrant. The stores are a shabby, disorganised nightmare.'"
• "On its bags, Woolies boasts: "Over 500,000 products to choose from with easy ways to shop." Inside the store, however, were rows of empty shelves."
• "It was a similar story throughout. On the shelf for light switches and bulbs, there were 18 price tags without corresponding items. In the Price Crash box for DVDs and CDs, there were 21 display units, but only four had anything in them. The confectionary rack at the main till appeared to have been supplied by militant weight watchers: no Twix or Galaxy bars."
• "The main headache for Woolies, however, apart from its self-inflicted wounds, was just around the corner: Tesco, the nemesis of many weak retailers. I could have hurled a bowling ball down Woolworth's aisles and hit no one. In Tesco, such action would have scattered shoppers like skittles. They were queuing eight deep at six checkouts with baskets fully loaded."

Sound like any of your recent experiences at Sears (assuming you've recently been in a Sears, which is unlikely)?

The real lesson to be drawn from this is that no one stays on top forever. Wal-Mart has made a number of missteps in recent years (mostly in their international operations), and the long-term effects of internet retailing are still not known. The stegosaurus, Woolworth's, and Sears were unable to adapt. Will Wal-Mart do better?

The top ten vendors

I was reading an interview with the new president of Beall's (an 80-unit department store chain in Florida), and I was struck by this comment regarding her past experience heading the men's/boys' business for JCPenney:

We narrowed it down to the 10 top brands, then tried to make the big ones bigger.

Concentrating on your biggest suppliers is not necessarily a bad idea, of course, but I just wonder how she would feel if (as is likely to happen) she finds that many of her suppliers take a similar approach to their retailers, and see limited value in spending a lot of time working with Beall's, which is unlikely to be in many top ten lists.

Apple changes direction

Although in a great many ways Apple has blazed trails, both in products and in marketing, it's interesting to note that in one regard at least, they are belatedly following the industry standard. In discussing the latest iPhone and its reduced price, The Economist notes:

What Mr Jobs did not say was that the reduction comes largely from a change in Apple's relations with mobile operators, such as AT&T in America. Operators will subsidise the new handsets to make this low price possible, but will also increase monthly usage fees—and will no longer pass a share of those fees to Apple.

This brings Apple in line with the business model used by other handset-makers, such as Nokia and Samsung.

Cott returning to roots

Cott, the private-label soft drink supplier for numerous retailers (most prominently Wal-Mart), seems to be looking to re-emphasize that portion of their business, after making a go at other products:

... the Canadian company, known for making beverages for big retailers such as Wal-Mart Stores Inc. (WMT) and Loblaw Cos. (L.T), said it will host a conference call Thursday to discuss initiatives to "refocus the company on retailer brands."

That was precisely Cott's core business until Brent Willis came aboard as president and chief executive in 2006, bringing along a strategy to reduce reliance on soft drinks and expand into better-selling energy drinks, teas, and vitamin-enriched water.

While a loss of focus on the core business may have been a part of the problem, they had problems with the core as well -- a major blow came a few months back when Wal-Mart announced plans to cut back on shelf space for their Sam's Choice products, manufactured by Cott.

As I noted in this post, it's never a good idea to allow one account to become 40% of your business, as Wal-Mart had become for Cott. In Cott's case, it cost the CEO his job.

Another entrant in the small grocer race?

German retailer Lidl is planning to enter the US market in the next five years, as well as expanding in Germany (adding 1000 stores to their existing 3000) and entering Switzerland as well.

Lidl's stores are in the 10k-15k square foot range, which means they would be similar in size to Tesco's Fresh & Easy and Wal-Mart's forthcoming Marketplace stores, although Lidl puts less emphasis on fresh products than those formats, and tends to be discount oriented. Lidl will probably be more similar to their German rival Adli, which has been in the US for about thirty years and has about 900 stores here now.

Exxon quitting the retail biz

Exxon Mobil is selling of the last of its company-owned gas stations to distributors.

Motorists, however, will continue to see Exxon's Tiger-themed stations and Mobil outlets in their neighborhoods. Already, about 75 percent of Exxon Mobil's roughly 12,000 stations in the U.S. are owned by branded distributors, who buy Exxon Mobil products and pay to use the name.

Irving-based Exxon, the world's biggest publicly traded oil company, said it now plans to sell to distributors its remaining 820 company-owned stations and another 1,400 outlets operated by dealers.

There's practically no profit in selling gasoline at retail. The narrow margins tend to be eaten up by credit card fees.

Most gasoline retailers long ago got past any illusion they can make money by selling gas. They rely on gas sales to drive traffic to their shops, where they hope auto repairs or food and drink sales will help them turn a profit.

Airline baggage fees and the law of unintended consequences

This is off-topic, except for the fact that many of us fly a lot. United and American, as most have probably heard, have started charging for checked baggage. I have no particular problem with this -- the airlines are hurting, as we all know, and they have costs connected with baggage-checking, so they have sufficient justification for passing the costs along.

My only concern is whether they have thought through the consequences of incenting people to carry more luggage onto planes. Most flights I've been on recently have overstuffed luggage bins as it is, and people who try to force too-large bags into the bins are already holding up the boarding process.

My predictions: More late departures because of slower boarding, and more angry customers because of full bins.

My questions: Will they charge for gate-checked bags, and if not, will this become a way around the fee? Also, might this lead to actual enforcement of the rules on over-sized carry-ons?

More on Anheuser-Busch and InBev

We reported on the rumors of a takeover bid for A-B a couple weeks ago, and it seems to be coming true, though whether it will go through or not still seems to be in question.

Here are a few developments:

• The Wall Street Journal is speculating that such a merger could have some significant marketing impacts (sorry, no link to WSJ, since it's subscription only -- here's a short item in Smart Brief). A-B spends very heavily on advertising ($475mil last year) while InBev is more into pricing: "Tom Pirko, president of the beverage industry consultancy Bevmark, said, 'The money InBev will spend will be on discounting and price wars, something that A-B built its empire to avoid.'"

• There's also a rumor that A-B is interested in buying Mexico's Grupo Modelo (they currently own 50%), which could make them too big for InBev to swallow.

• The Economist opines that the deal is all about distribution -- InBev's brands have little penetration in the US, while their networks in other countries could speed Budweiser's international expansion. Sounds right to me.

Article in Journal of Trading Partner Practices

I had an article in the Spring issue of JTPP (published by TPMA and their partner groups), which is now online. The article, "The Importance of Recession Marketing Remans Constant Through Time", is (as the title implies) on advertising/promoting during a recession, and examines numerous academic and business studies on the subject, covering economic downturns from 1921 through 2001. I don't want to give away the ending, but it comes down to saying that you ought to keep on promoting, and that trade promotion optimization might help you do so.

Given that some level of cuts may be inevitable, no matter how persuasively we argue otherwise, how can a marketer make the most of a bad situation?

Technology may now give us the means to make a smaller budget look bigger. The use of predictive modeling and trade promotion optimization tools give marketers an opportunity that didn’t exist even as recently as the last recession – they can now work with their partners to produce promotions that stretch budgets by producing as much or more consumer impact with less money.

My article is, of course, absolutely brilliant (well, okay, it's pretty good), but there's also a bunch of other good stuff: A couple of my Oracle colleagues, Ajay Koul and Colin Mccomb, wrote a good piece on forecast accuracy. Armen Najarian of DemandTec has "Lather, Rinse, Repeat: Why Yesterday's Promotions Won't Wash", and Wayne Spencer of Store Eyes discussed Shopper Marketing metrics and measurement.

Give it a read.

More private-label music at Wal-Mart

The New York Times describes Wal-Mart's push into exclusive deals with big but somewhat faded acts, which have led to some pretty big sales for the bands:

On Tuesday Wal-Mart started selling on an exclusive basis a three-disc collection by the popular 1980s band Journey called “Revelation.” The difference, however, is that there is no middleman: the album was bought directly from the band without the help of a record label. Journey went right to Wal-Mart and kept most of the money a record company would normally take as profit for the group. Last year Wal-Mart made a similar deal with the Eagles, who like Journey are represented by Front Line Management, the nation’s largest music management company.

The Eagles CD sold three million copies, and Journey started of with 45,000 in its first three days. Good numbers even back in the good ol' days of music, and huge in the age of downloads.

I find the info about cutting out the labels interesting:

“It just goes to show you that fewer artists need to be associated with record companies,” said Larry Mestel, chief executive of Primary Wave Music Publishing and former chief operating officer of Virgin Records. “They don’t need to give up a big chunk of money to the record companies when they’re iconic. They can go direct to Wal-Mart and make four to five dollars per CD.”

It’s hard to tell how much traditional labels are threatened by the prospect of artists’ selling directly to retailers. New albums from more established acts can be less profitable if they have negotiated a higher royalty rate. And although the Eagles are reliable sellers, Journey is what industry executives delicately refer to as a “heritage act,” a steady summer concert attraction that sells relatively few albums of new material.

In addition to being a moneymaker (one presumes) for Wal-Mart, such deals are also traffic-generators and brand-builders. For the labels, though, it's just another problem:

“Shelf space has shrunk so much over the last five years that for anyone to give you shelf space and exposure is a big deal,” said Terry McBride, chief executive of Nettwerk Music Group. “Should the labels be worried? There’s been a move away from the labels for a number of years now. And it’s not necessarily their fault. The shelf space to have those records sell just isn’t there. That’s the market reality.”

These older acts have long been a reliable source of income for the labels -- steady sellers that don't require much promotion. They also appeal to older consumers who are less likely to download and pirate music.

Oh, and the NYT left out another such deal, announced today, with AC/DC.

Wal-Mart's Marketside sounds a lot like Fresh & Easy

The first description I've read of Wal-Mart's new format, to be called Marketside, sure sounds an awful lot like a Fresh & Easy wannabee:

... the stores will feature a smaller assortment than a traditional grocery store and will focus on fresh goods.

The world's largest retailer, which has described Marketside as "the neighborhood market for busy people with a taste for fresh and delicious food," is preparing to open four of its first stores of this format in the Phoenix, Arizona, area. Plans have been in development for 18 months.

Sound familiar? Here's the same article describing Fresh and Easy:

Tesco wants to woo U.S. shoppers with smaller convenience stores that emphasize ready-to-eat meals and fresh produce.

The Marketside stores will be about 15,000 square feet

Once upon a time in the radio biz

In the early days of my career in advertising and marketing, I had a job where buying media, especially radio, was one of my responsibilities. Later, I sold radio time (a rotten business to be in, I assure you). Thus I was interested in this item about a media usage study among teens.

In one study for a CHR-formatted station in a top 20 market, 84% of 14- to 17-year-olds reported listening to music on a computer, iPod or MP3 player every day. 78% listen to AM or FM radio.

In a separate study, when asked the question, "Where is the first place you go to hear music?" 41% of 15- to 17-year-olds said iPods or other MP3 players, 27% said their computers and 22% said FM radio.

Nothing terribly surprising about this. Radio stations spend so much time chattering that they have little time for music -- even a person of my age wouldn't go there for music. In the car, I hook up my MP3 player to the radio. At home, I listen to XM via DirecTV.

But the fascinating thing for me was that in my earlier career, the one absolute certainty in media buying was that, if you wanted teenagers, you had to buy radio. Now, as noted in the item below about the blurring of media, you might want to advertise on a video game.

(Another point to be considered is that, although the study only mentions radio, I suspect there is a similar drop in teen usage of TV, which is also be replaced by iPods, other personal video devices, and video games).

Home Depot cutting promotions

Home Depot announced that they are cutting back on unproductive promotions:

"We learned that numerous promotions were not providing sales lift, and therefore have reduced unproductive promotions," Craig Menear, Home Depot executive vice president of merchandising, said during the home improvement industry leader's analyst meeting ...

I'd like to know more about their data and analysis, but that's pretty much all the article says. It's so frustrating sometimes, when an article in the general media touches, ever so lightly, on a subject of interest to me, and then moves on.

Smuckers plans more purchases

J. M. Smucker's purchase of Folger's, the #1 coffee brand, from P&G is apparently just going to be one of many.

Family-run Smucker cultivates a folksy image while pursuing acquisitions with an aim to dominate its markets, ranging from biscuits to evaporated milk.

After the purchase, which Smucker will pay for with 63 million shares once P&G splits or spins off the unit to shareholders, the foodmaker will have enough cash to keep buying, executives said on a conference call with analysts and investors.

"We expect acquisitions to still contribute roughly half of our growth," said Chief Financial Officer Mark Belgya.

Chairman Timothy Smucker and President Richard Smucker, great-grandsons of founder Jerome Smucker, have built what started as an Ohio cider mill into what would be a foodmaker with annual sales of $4.7 billion.

This will be Smucker's biggest purchase ever, and will roughly double the size of the company.

The purchase is seen as a good one for Smucker's, which has a reputation as a brand-builder. Folger's is the top supermarket coffee brand, but supermarket coffee has been being drubbed by coffeehouse brands recently. Smucker's may do a better job than P&G of restoring some luster to a solid name.

Analyst reaction was positive. Stephens Inc. said it viewed the deal positively in view of the Smucker practice of buying up strong brands "and revitalizing them with management attention and advertising support."

Just because I'm feeling snarky

According to this report, Bloomingdale's was selected as Department Store of the Year. The article unfortunately did not tell us who won the coveted Typewriter Manufacturer of the Year award.

Microsoft foresees the end of media

There was an interview in the Washington Post with Steve Ballmer of Microsoft; interesting and not very long, so I suggest you read it all. The part I want to comment on was this exchange:

What is your outlook for the future of media?

In the next 10 years, the whole world of media, communications and advertising are going to be turned upside down -- my opinion.

Here are the premises I have. Number one, there will be no media consumption left in 10 years that is not delivered over an IP network. There will be no newspapers, no magazines that are delivered in paper form. Everything gets delivered in an electronic form.

10 years?

Yeah. If it's 14 or if it's 8, it's immaterial to my fundamental point. . . . If we want TV to be more interactive, you'll deliver it over an IP network. I mean, it's sort of funny today. My son will stay up all night basically playing Xbox Live with friends that are in various parts of the world, and yet I can't sit there in front of the TV and have the same kind of a social interaction around my favorite basketball game or golf match. It's just because one of these things is delivered over an IP network and the other is not. . . .

Also in the world of 10 years from now, there are going to be far more producers of content than exist today. We've already started to see that certainly in the online world, but we've just scratched the surface. . . . I always take my favorite case: I grew up in Detroit. I went to a place called Detroit Country Day School. They've got a great basketball team. Why can't I sit in front of my television and watch the Country Day basketball game when I know darn well it's being video-recorded at all times? It's there. It's just not easy to navigate to.

A couple points:

Ballmer may be behind a bit on the last item (or perhaps it's just Detroit Country Day that's behind). Last fall, my alma mater (Brophy Prep, in Phoenix) made it to the state football championship game, and I was delighted to find that I could watch the game on the web (we won -- Go, Broncos!) But his point is still valid: to equal the Xbox experience, I should have been able to interact with other alums during the game. I'll bet that will be happening before long.

This sort of programming will open up huge opportunities for niche content providers, as he says.

His other important point -- that all media will be delivered via IP in ten (or so) years is also right, I think, as long as "all" is taken not totally literally. My guess is that there will be a residual market for people who demand print content. Because this will be expensive, it will be a premium market for advertisers.

Everything’s getting blurry, Doc!

You know how, when you go to the optometrist and get those drops put in your eyes and everything becomes a blur? That’s the way I’m starting to feel about … well, everything.

Channel-blurring is an old subject, of course. The first time I had experience with it professionally was when I was doing a consulting gig with Circle K in the early eighties – one of the first things I learned was that a third of their volume was gasoline (a third of the remainder was beer, which I thought was an interesting combo). The blurring of the lines between gas stations and c-stores reached the point where 7-Eleven became the number one gas retailer, gas stations converted their service bays into stores, the oil companies opened c-store divisions, and, eventually, two channels merged into one.

Then there’s the blurring between manufacturing and retailing. One of the more prominent features of Chicago’s Magnificent Mile is Niketown; close by is the American Girl store (owned by Mattel); Apple has become a trend-setting retailer; outlet malls long ago ceased to be what their names imply – outlets for seconds, overstocks, and discontinued lines – and became instead a significant channel of company-owned or franchised stores. Meanwhile, retailers turn increasingly to marketing their own brands, and even marketing those brands through other retailers, as Loblaws has done with Presidents Choice and Sears is considering doing with its powerful private labels.

Let’s add in the increasing usage of retail as media and the movement of retail into media. The store’s development as a medium has been a steady process over the past decade or more, recently recognized by being given a name – Shopper Marketing. But I’ve been struck by a couple of developments within the past week or so that indicate that this particular picture is growing blurrier still, both involving – no surprise – Wal-Mart.

The first is that Wal-Mart has begun offering free classified ads through its website. Only time will tell, of course, what if any effect this will have on Craigslist, Cars.com, and Trader. What interrests me is that a retailer is turning itself into an advertising medium in a manner more explicit than selling display space at the end of its aisles. And then, a couple days later, I saw an item saying that Yahoo had signed an agreement with Wal-Mart to sell display and video ads on Wal-Mart.com. When a manufacturer buys such an ad, will it be booked in the national advertising or trade promo budget? That depends, I suppose, on whether they see it as purchasing advertising from a retailer or from a medium.

And then, to complete the confusion, there are a couple developments from Sony. First, we see them selling advertising on Play Station games:

Owners of PlayStation 3 consoles will soon see adverts inside video games after Sony struck a deal with IGA Worldwide, a company that specialises in 'in-game' advertising.

The adverts, which can take the form of anything from a bottle of soft drink a virtual character consumes to a large billboard inside a sports stadium, are updated by the PS3's internet connection.

Sony is also planning to do original programming over the Play Station Network, as Microsoft is already doing on Xbox Live – advertisers seeking out young males (increasingly absent from their traditional media hangouts – radio and TV) are already lining up to buy.

The three sides of the trade promo triangle – manufacturer, retailer, media – were once three clearly different things. Today manufacturers are retailers and vice versa, and both are media.

Oh well, it wouldn’t be fun if it were simple, right?

Shopper Marketing metrics still need definition

Marketing Daily reported here on Shopper Marketing, with a few interesting points. The main one, to me, is this:

Only one-third of both retailers and manufacturers report that they agree on the metrics for evaluating programs even "most of the time," while nearly two-thirds of marketers say they only reach agreement with retailers about how to measure success "occasionally" or "never."

The metrics for Shopper Marketing are going to be difficult to define, and even more difficult to get agreement on, in part because it's both brand marketing and trade promo at the same time, and in part because the definition is still in flux -- how can you measure it if you can't define it? I addressed these points here.

HEB expanding in Mexico

I wasn't even aware that HEB was operating south of the Rio Grande, but apparently they are and are planning to expand.

Just 11 years after opening its first Mexican supermarket, H-E-B controls 29 percent of the northeastern Mexico market, according to numbers provided by the company.

H-E-B has 19 stores in Monterrey and another 10 stores in cities like Saltillo, Torreón and San Luis Potosí, as well as border towns like Nuevo Laredo and Reynosa.

As a consumer I loved HEB when I lived in Texas -- great selection and quality, competitive prices, and outstanding service. What else do you need. I also consistently see them at the top of vendor listing of the best retailers to work with.

I'm curious, though, whether any other American grocers are expanding into Mexico. I know Wal-Mart is -- but any others? If anybody can make a success of such an operation, I'd be inclined to think it's HEB.

Plans are in the works to open another four stores over the next 10 months: two more in Monterrey as well as the chain's first store in Piedras Negras, across the border from Eagle Pass, and a first of its kind discount store in Rio Bravo, in the border state of Tamaulipas.

Industry analysts and company officials say H-E-B, which was founded more than 100 years ago in Kerrville, has managed to export not just its stores, but also a fierce brand loyalty. Many of its northern Mexico shoppers have deep ties to Texas and had shopped in H E-B before the chain expanded in Mexico.

Rumors of EU decision on Intel case

Rumors have been rampant about an imminent decision by the European Union on their investigation of Intel concerning the use of rebates to dominate the chip market.

If Financial Times Deutschland is correctly informed, EU antitrust commissioner Neelie Kroes' sentence on Intel in the ongoing antitrust case is almost completed. The sentence will only be published in late summer, but Intel can expect a high fine, the paper writes.

The EU described the report as "misleading" and said the investigation is ongoing.

If there is a finding against Intel, the fines could be huge (up to 10% of annual revenue), but we can also assume there would be lengthy appeals.