Tweeter will liquidate

It's only a coincidence, I guess, that this item follows immediately on the report that Circuit City is in danger of being de-listed by the NYSE, which followed an item about Kmart starting early on cutting holiday prices on consumer electronics.

Tweeter was purchased by a liquidator Thursday night after closing all of its distribution centers and pushing all inventory out to its stores, TWICE learned.

Company managers are currently being notified by conference call.

The retail consumer electronics category seems likely to consist of Best Buy and the discounters, with a sprinkling of locals, unless Circuit City can come up with a really good plan, really fast. I wonder if vendors would see it as in their best interests to have CC surviving?

Circuit City warned by Big Board

Circuit City has run into the same problem Rite-Aid had a few weeks ago -- their stock price has dropped so low they're in trouble with the NYSE.

On Friday, Oct. 24, NYSE told the chain it was “below criteria” because the average closing price of the company's common stock was less than $1 per share over a consecutive 30-trading-day period, as of Oct. 22.

Circuit City’s stock price closed today at 29 cents per share.

Rite-Aid dealt with the problem through a reverse stock split, which would seem to be the most likely approach for Circuit City as well. Dealing with CC's underlying problems is another matter.

Christmas comes even earlier this year

Retailers have long been putting up the holiday decorations right after Halloween, so why not start the sale pricing at the same time? That seems to be Kmart's logic, as they are starting the Black Friday sales this weekend.

The retailer, part of Sears Holdings, said it will offer the deals exclusively in the home-electronics category to help customers kick-start their holiday shopping. The category has become an area of particular concern for retailers, as consumers pull back on discretionary items. Earlier this month, MasterCard Advisors' SpendingPulse service reported that spending on consumer electronics and home appliances dropped 13.8% in September, following a 5.5% drop in August.

It's certainly tough to argue, when you're trying to pare back the family budget, that a new, even bigger HDTV is an absolute necessity, so home electronics is probably a vulnerable area. And it certainly has always been one of the big categories for Black Friday promotion.

Kmart says that they are not putting an increased budget behind these promos, which will run weekly through November (up to the traditional Black Friday, that is).

The deals are being worked into existing circular plans and will not garner additional advertising or promotional spending on the part of the marketer.

Big mall open in London

Not the best timing perhaps, but the huge new Westfield London has opened. The mall has 265 stores in 1.6mil square feet.

Mayor of London Boris Johnson is due to open the scheme in an official ceremony at 10.30am this morning and a day of events has been organised to welcome shoppers to the new centre, including an appearance by Australian pop star Danni Minogue at the HMV store.

Anchor tenants on the scheme are House of Fraser, Debenhams, Next and Marks & Spencer.

It also includes more than 50 cafes and restaurants, 4,500 parking spaces, a 14-screen cinema, a gym and a spa.

CVS buys Longs

The purchase of Longs Drug Stores by CVS has finally been completed:

Rhode Island-based CVS can take control of Longs through the transaction as early as today, CVS said. Longs will become a wholly owned subsidiary of CVS.

The purchase will close a 70-year-long chapter in East Bay corporate history that began in May 1938 when brothers Thomas Long and Joseph Long, pioneers in the self service drug retail concept, opened their first store. That initial Longs store was located on Piedmont Avenue in Oakland.

Coupon redemption rate flat

Coupon usage is something we would intuitively expect to increase when the economy slows, like Chapter 11 filings and private label sales. It's not happening -- at present, according to this report, it looks like there will be about 2.6 billion coupons redeemed this year, pretty much the same as 2007, which was the same as 2006.

The positive for the coupon people is that they were expecting significant declines, similar to previous years:

The soft economy has actually slowed the decline of coupon redemptions, breaking a long-term trend of declining response. Through 2006, coupon redemption declined about 5-7% annually.

Those 2.6 billion redemption come from 300 billion distributed. Seems awfully inefficient to me.

Successful retailers

Here's an interesting article on ten retailers who are doing well -- which is a topic I enjoy posting on these days. Family Dollar and DSW being on the list didn't surprise me, but Radio Shack did:

Digital television converter boxes as well as AT&T post-paid wireless upgrade services may have given the electronics chain an edge with profits growing 8.4 percent in the third quarter ended September 30. In addition, sales rose 6.4 percent to $1.02 billion, while same store sales grew 7.7 percent. The retailer also posts solid sales of GPS navigation systems, video games and laptop computers.

Others on the list: Target, Aeropostale, The Buckle, Tractor Supply, Ulta, PriceSmart, and KB Toys:

Christian Science Monitor ceasing print

The Christian Science Monitor has announced that next year it will stop publishing its daily paper and go to an on-line format.

The Christian Science Monitor plans major changes in April 2009 that are expected to make it the first newspaper with a national audience to shift from a daily print format to an online publication that is updated continuously each day.

The changes at the Monitor will include enhancing the content on CSMonitor.com, starting weekly print and daily e-mail editions, and discontinuing the current daily print format.

Although the Monitor is not among the largest papers, it is highly-respected ("... it has been awarded seven Pulitzer Prizes and numerous other journalistic accolades. Three Monitor editors have been elected president of the American Society of Newspaper Editors") and the move is certain to be felt throughout the publishing industry.

The major motivators appear to be the declining circulation, together with the cost and delays inherent in printing. News organizations that want to have immediate impact cannot wait for the presses to run and the trucks to deliver tons of paper. Nor can they afford the costs associated with printing and distribution.

The Monitor will be charging a subscription fee, which they may be able to get away with, since they have a loyal audience and somewhat specialized content (it's worked for the Wall Street Journal), but most daily papers don't have sufficient loyalty among their readers and their content is freely available elsewhere. These papers will need to figure out a way to get enough advertising to pay the bills.

The weekly print edition will be competing against the newsmagazines. Good luck there, since magazine circulations are also down.

P&G: On-line channel conflict?

Procter & Gamble has opened a website to sell its products on-line, risking possible unhappiness among its channel partners. The website is owned independently, so P&G is not itself competing with its customers.

In an indication of the sensitivities involved, the site is being operated by a third party, which owns the inventory. “We treat them like any other retailer as they buy product directly from us,” said Paul Fox, a company spokesman, of the site, which is still covered by P&G’s legal terms and conditions.

However, as e-commerce expands, manufacturers of electronics, clothing and other goods have shown themselves increasingly ready to overcome traditional concerns over potential conflicts with their retailers.

For consumer packaged goods companies, industry analysts argue that direct online sales are also a way to respond to lower prices from retailers’ private label brands.

If the site is successful, will P&G start selling direct?

TPMA meeting in Phoenix in November

The Trade Promotion Management Association will be holding their fall meeting in just a couple weeks. The meeting will be held in partnership with the Vendor Compliance Federation, November 9-12 at the Camelback Inn in Scottsdale.

TPMA & VCF are joining this November to bring Innovation, Collaboration, and Execution to Scottsdale, AZ. Retail and manufacturer/vendor industry leaders will meet together and refine their Promotion Strategies and Supply Chain Operations for the changing business climate. This change is at the vanguard of competitiveness and profitability tailored to retailers and suppliers who are preparing for 2009 and beyond.

The agenda looks really good. I'm hoping to be there, and you should make it if you can.

Value City will liquidate

Value City filed for bankruptcy, and has announced it will liquidate. The chain had about a hundred stores a year ago, but most had already closed. The remaining 37 will be closing between now and January.

I was struck by this item in the article:

The chain's ownership changed in January, when Retail Ventures paid a group of private-equity investors $500,000 to take over the rest of the retailer's stores.

They paid the buyer to take it?

The closure does not affect Value City Furniture Stores, which is a separate operation

CPG faces pricing pressure

A few CPG companies (e.g., Hershey and Kraft) have raised prices recently -- passing on their increased commodity, packaging, and transportation costs -- and have managed to make the increases stick, with increased revenue the result.

The recent decreases in some of those costs, together with increased sales of private label goods, are now putting those price increases in question. Private label market share is up close to a point thus far in 2008, and retailers are starting to ramp up their PL efforts.

The analyst quoted in this article says:

He said he anticipates that any increased marketing spending made possible by falling commodity costs will go heavily into incentives and price promotion, given the weak economy and rising unemployment. "Everyone I talk to is worrying about what their revenue is looking like in the next few weeks or months," he said. "So value-conscious offers I think will dominate."

Which is pretty much what I said a few weeks ago.

Still more bleeding at the papers

Following up on the "media bloodletting" post from just last Friday, the latest newspaper circulation figures are out, and the bleeding (can't think of another metaphor) isn't just continuing, it's speeding up.

Of the top twenty-five papers, twenty-three had significant declines in circulation (this is for the past six months, compared to the same period in 2007). The other two, USA Today and Wall Street Journal, were flat (both were up 0.01%). The Houston Chronicle, Boston Globe, (Newark) Star-Ledger, Philadelphia Inquirer, and Atlanta Journal-Constitution were all down by more than 10%.

The papers will argue (justly) that their website readership offsets, or maybe even more than offsets, these losses. The problem from a financial standpoint is that they haven't been able to monetize that readership, and from the advertisers' standpoint, there are questions whether an online ad pulls like a paper ad -- or like an endcap in a store.

Tesco tells the government to ...

Complete the sentence any way you please.

A week or so ago, the UK government asked the major retail chains to speed up payments to small suppliers, as noted in this post.

In response, Tesco has notified their suppliers that they will be slowing down payments.

The grocer wrote to its suppliers saying it had changed payment terms from 30 to 60 days, effective from December 1, according to a letter seen by the Financial Times.

To be fair, the government request specified food suppliers and Tesco's message apparently went out only to non-food suppliers, but I think the odds are against Tesco lengthening terms in one category and voluntarily shortening terms in another. But maybe I'm wrong.

Of processes and systems

I have a lot of friends in the software business, selling trade promo systems, analytics packages, or enterprise software. Many of them are saying that it's getting tough to close deals these days. The rest are lying.

Wise marketers know they need to manage their trade promotion expenditures more tightly now than ever. Those who have good management tools know that they need the ability to forecast and optimize their pricing and promotion. A few weeks ago, I presented the argument for why optimization tools matter now more than ever (it's here), but it can be summarized quickly: If it's an advantage to be able to optimize pricing, then the more important pricing becomes, the bigger the advantage. How important is pricing right now?

So it would be wonderful if you had all the tools you need to manage, analyze, and optimize your trade promotion programs. But what if, as is true for most companies, you don't?

Well, you could go ask the CFO for a supplemental million or two to be added to the 2009 budget. In a few cases, in companies that have the ability to think long-term, you might get it -- there's no doubt that such an expenditure would pay for itself many times over in 2010, and keep returning benefits in the years beyond.

But the reality is that many companies, even many who pride themselves on taking the long view, will be focussed relentlessly on the short-term for at least the next few months. Any proposal that requires spending significant money in 2009 for a return (however big) in 2010 will not get far.

But that doesn't mean there's nothing you can do. Management of a trade promotion program involves both systems and processes. Too often, we focus on the systems because they are more glitzy and exciting, but the best systems will fail if laid on top of inefficient processes. In any well-run implementation project, the processes are fixed before the software is turned on. There is even a mathematical equation for describing the too-frequent cases where this is not done:

Bad Processes + New Software = Expensive Bad Processes

Identifying the bad processes and fixing them is not glamorous (to say the least), nor is it fun. But it also is not outrageously expensive. It can even (sometimes) result in fairly significant and fairly immediate savings. It also is something that should be done in any case, and very much needs to be done before you implement that new system that you want and need, but can't afford right now.

If you lay the groundwork now, you will be ready when things start turning around to act quickly and take advantage of the recovery

The media bloodletting continues

I've mentioned several times (probably to the point that readers are tired of hearing it) that, bad as the economy is, it's just an excuse for many poorly-run companies that are facing problems. For the most part, businesses that were healthy going into the storm will (with cutbacks, belt-tightening, and much pain) survive. Most of those that die will be those that were already in trouble when times were good. In the retail sector, for example, Steve & Barry's was playing accounting games, while Boscov's made an expensive and unwise expansion.

The same is true in media, although there the problem is more widespread and not entirely the result of mismanagement or poor business decisions. The media business was in trouble going into the downturn because of media fragmentation: a business model had developed over time that was based on assumptions about how people got their information and entertainment, assumptions that are no longer true. Under the conditions that now exist, even when the economy is healthy, the income generated by advertising and/or subscriptions is not sufficient to support the cost structures of most media companies. After limping through the past few years and (too) slowly trying to make the needed adjustments, some media companies are now hitting the wall.

The New York Times Company has reported a 18% drop in print advertising revenue and says it's looking to cut its debt load. The problem is that the best bet for cutting debt would probably be to sell The Boston Globe. But that raises the question of who would want to buy it.

The newspaper said it expects to write down the value of its New England assets, including The Boston Globe, by up to $150 million, illustrating the dismal state of print advertising. [...]

"We plan to continue to explore opportunities to reduce our debt levels," Chief Executive Janet Robinson said in a statement earlier in the day.

Benchmark Co analyst Edward Atorino interpreted her remarks as a sign the newspaper would consider selling properties. "The word 'opportunities' you could put in quote marks," he said. "I'm not sure they can sell The Boston Globe anymore."

Media experts repeatedly have said the New York Times could sell the Globe, but Robinson told analysts on a conference call it is a difficult time for publishers to sell. Many newspapers now are worth far less than they were just a few years ago.

Standard & Poors dropped the company's rating to junk.

The Newark Star-Ledger, one of the biggest papers in the country, today gave buyouts to almost half its newsroom. That, however, is comparatively good news, since a couple months ago there was a possibility it might shut down completely.

Jim Willse, the Star-Ledger's editor, said Friday that the newspaper accepted 151 buyout offers from its news staff, or about 45 percent of its 334 editorial employees. He said 17 buyout applications were rejected. [...]

The Star-Ledger, with daily circulation of about 350,000, has posted losses for at least three straight years and was on pace to lose between $30 million and $40 million in 2008.

Television isn't doing much better. All the networks (except Univision) are showing serious ratings declines:

... the top 5 English networks are down 9% in average viewers and between 10% and 12% in adult demo group viewers.

Local TV, which is heavily dependent on retailers and car dealers, is hurting as well. Radio hasn't figured out how to deal with satellite competition and digital music:

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.

It's not limited to traditional media. Yahoo has just announced a slew of layoffs, and Wall Street is wondering where the company is headed.

This will be Yahoo's second significant round of layoffs in nine months. The battered Internet portal fired 1,000 workers in late January, but the cutbacks have done little to boost investor confidence. Analysts hope Yang will address a new strategy to boost Yahoo's share price in a severe economic downturn.

And it's best not to even think about what will happen to many of the "new media" companies (virtual worlds, mobile messaging, etc).

Experimental marketing, still in its infancy, may be in for a rude awakening in 2009. Last year, out of the $21.1 billion spent on online advertising in general, about $878 million was allocated to mobile, while a much more diminutive $15 million was spent on widgets and apps. With budgets being slashed left and right, that’s a lot less capital to go around in an increasingly crowded field of players.

The difference between the problems faced by retail and media is that the strong, healthy retailers will come out of the current downturn stronger and healthier than ever. Individual companies will suffer, but the sector itself is fundamentally solid. For media, the problems stretch throughout the entire sector. Media companies, even the best of them, are going to face a long, hard fight, and fundamental restructurings, before things turn around.

Good news break -- leading indicators up

The Conference Board's index of leading economic indicators, which began dropping in the summer, showed an increase in September, taking a lot of people by surprise.

The New York-based business research group said its index of leading economic indicators rose 0.3% in September. Economists were expecting the index to have declined 0.1%, according to a survey conducted by Briefing.com.

In August, the index fell a revised 0.9% after a 0.7% decline in July.

Economic conditions started deteriorating this summer, and the recent volatility in the stock market and the credit crunch will "no doubt weaken the economy further," Ken Goldstein, a Conference Board economist, said in a statement.

"But latest data suggest that conditions in the non-financial economy are not falling apart," Goldstein said. "Data on hand reflect a contracting economy, but not one in free fall."

So things are bad, but not horrible. Which, compared to much of what we hear, is good.

More liquidations, fewer reorganizations

If it seems that this economic cycle has more bankruptcies resulting in liquidation than in the past, that's because it's true. Changes in bankruptcy law, combined with extra-tight credit, have made it tougher for companies to recover from Chapter 11.

Private-equity firms, once flush with cash and eager to buy retailers for their real estate, aren't in the hunt.

And big chains that had been obvious buyers in the past, such as Nordstrom, Target, J.C. Penney, and Kohl's, are cutting back expansion plans.

"There is less of a population of people to sell these things to and it is creating more difficulty for those retailers to get out of those leases ... "

Retailers have less time for reorganization under the new bankruptcy laws, which might once have allowed a company to stall a bit until things improved enough that bad leases could be shed and credit arranged.

Overall, as the graphic shows, the number of bankruptcies is not unusually high -- this year and next will probably roughly equal the last downturn in 2000-01, but fewer of those companies going into Chapter 11 are likely to come out.

Smithfield beef division sold to JBS

Smithfield Foods has sold its beef business to Brazil's JBS.

The deal, worth $565 million in cash, received clearance by regulators on Monday when they said they wouldn't challenge the merger, which pairs Smithfield Beef Group Inc., the nation's fifth-largest beef producer, with JBS, the nation's third-largest beef producer.

The Justice Department, though, is blocking another acquisition by JBS, the #4 beef company, National Beef Packing.

Federal regulators and attorneys general from 13 states said that deal, worth $560 million in cash and stock, could push up costs for consumers and drive down prices paid to ranchers and feedlots.

Smithfield remains the largest pork producer in the country.

The Economist looks at retailing

The Economist has a worthwhile read on the state of retailing in the US noting, not surprisingly, that the chains that were struggling before the downturn are most vulnerable now. They name some names (not all of which are not the usual suspects): Sears, Target, Whole Foods.

Beyond that point, though, they argue that retailers must respond quickly:

No retailer can afford to delay its response to this downturn in the hope that sales might somehow recover, argues an article by Ashish Kotecha, Josh Leibowitz and Ian McKenzie in the McKinsey Quarterly, published by the consultancy of the same name. This contains a study of the past two downturns in American retailing, in 1990-91 and 2000-01, which found that retail revenues were quick to fall and slow to recover, even once the economy started to pick up. Thus, the authors argue, “retailers should move quickly to minimise performance deterioration”.

That may be easier said than done. Efficiency-enhancing restructuring was already needed in many cases. If retail bosses failed to make necessary changes before, analysts say, it remains to be seen whether they can implement them now.

I was pleased to see, also, that they agree with the point I have made about the importance of getting pricing right in this environment::

Another conundrum is how far to cut prices to shift stock. [...]

Some retailers are finding that deep price cutting may have a perverse effect, according to Mr Silverstein. Rather than see an opportunity to snap up a bargain, today’s value-obsessed American shopper is “just as likely to push the pause button, thinking that if the shop is cutting prices this much now, I might get it even cheaper in a few weeks when the economy gets really bad”. In other words, wait while stocks last.

Not quite such a conundrum if you have the right data and the right tools to analyze the data.

Are slotting allowances anti-competitive?

A law firm's blog, Consumer Goods and Retail Industry Litigation, has an interesting post about a recent study by a couple Norwegian economists: Do Slotting Allowances Harm Retail Competition? Since I let my subscription to the Scandinavian Journal of Economics run out, I can't access the full article (which is probably way over my head anyway), but here's the abstract:

Slotting allowances are fees paid by manufacturers to get access to retailers' shelf space. Both in the USA and Europe, the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists. One school of thought claims that slotting allowances are efficiency enhancing, while another school of thought maintains that slotting allowances are used in an anti-competitive manner. In this paper, we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized. Using a formal model, we show that there are good reasons to expect anti-competitive effects of slotting allowances. We further point out that competition authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances.

It sounds like the authors are arguing that slotting is anti-competitive. The blog entry summarizes briefly the arguments generally advanced by both sides, but I was pleased to see their conclusion, because it adopted a view that I've long held, that paying slotting fees is probably, in most cases, a violation of the Robinson-Patman Act, because it results in discriminatory pricing (and/or discriminatory allowances):

Price Discrimination - While substantial attention has been devoted to assessing the antitrust implications of slotting fees, commentators and the government often focus on the relatively simple antitrust issues associated with slotting – i.e., whether the fees are a result of collusion or impede entry of new products – but fail to grapple with a much more complicated issue: whether slotting fees give rise to price discrimination concerns under the Robinson Patman Act. Not all retailers and wholesalers charge slotting fees. Price discrimination concerns arise when a vendor pays slotting fees to one retailer, but not the retailer’s competitor. If the vendor does not reduce its product pricing to the retailer’s competitor by the amount of the slotting fee given to the retailer, paying the retailer’s slotting fee may violate the Robinson-Patman Act. For this reason, we believe that, in assessing the legality of slotting fees under the antitrust laws, the fees must be considered along with other discounts and allowances vendors give retailers and wholesalers.

I know of few manufacturers who make slotting payments on anything resembling a proportional basis. OK, let's be honest: Nobody pays them on a proportional basis. Now, some might compensate by offering larger payments of other types to those retailers who get little or no slotting, but I'm pretty sure this seldom happens. Also, since slotting payments are by definition (per FASB 01-9) price reductions rather than marketing allowances, other problems might be created by giving trade promo funding to offset a slotting payment.

When I've posted recently on the possibility of increased regulation of trade promotion in the next administration, I probably should have mentioned slotting fees -- it's one of the few areas of channel marketing that the FTC has paid attention to in recent years, and one that gets some consumer and media attention, and might therefore be an area for action.

Shake-up at Woolworths

In trouble even when times were good, UK's Woolworths chain is really hurting now. The result is that several top execs are gone, and a "retail operations board" has been created.

Woolworths has made a raft of changes to its management structure, including the creation of a retail operating board, two new appointments and four senior management departures. [...]

A Woolworths spokeswoman said: "The creation of a Woolworths retail operating board will help create the strategy to take the business forward and provide the leadership to make that happen. Steve Johnson said he wants to accelerate the pace at which he can develop and implement plans within the retail business and this is a big part of being able to do that."

Obviously changes need to be made, but since when does a committee "accelerate the pace" of anything?

Private label sales set a record

Not a big surprise, really. PL sales have been increasing even in good times, and of course an economic downturn gives PL an extra bump.

Generic brands made up 13.5 percent of all household and personal-care products in September, a record, according to the report, which used data from research firm AC Nielsen.

As the article notes, many branded products have had price increases recently, to offset increased costs of raw materials, packaging (especially plastics), and transportation. Many consumers, predictably, have reacted by switching to lower-priced alternatives.

What will happen to Chrysler?

The consensus seems to be that Chrysler will be sold soon (with Cerberus, the company that bought it from Daimler last year, taking a huge hit), with the questions being who will buy it, and what they'll do with it. Most speculation has centered on General Motors as the buyer, although Renault-Nissan has also been mentioned.

Brandweek speculates that the big prize is Jeep, which is still a powerful brand name, and which they say might be combined by GM with Hummer (which has been a major dud brand and is down almost 50% in sales this year):

"Whoever buys Chrysler is buying it for Jeep," said Gordon Wangers, an independent auto consultant based in San Diego. He said that General Motors, one of the possible buyers of Chrysler, would be able to bolster its Hummer brand, for which it built enormous dedicated dealerships for (sic) but has failed to perform.

Ad Age takes a similar view, noting that GM already has a bunch of brands it doesn't need (Buick, Pontiac, etc.) and certainly doesn't need the Chrysler name. One consultant suggested re-selling some of the brands and dealership networks to foreign buyers:

Mr. Tynan said GM could raise more cash if it flipped some or all of Chrysler's vehicle brands, which do some 90% of their business in this country. The most likely buyers would be from China, Russia or India, because it would provide "instant penetration" into the U.S. with an already-established dealer network.

Do food brands mean anything?

According to this study, only one-third of Americans (and even smaller numbers in Europe) think brand name is important in buying food.

Taste, quality and price are the dominant factors in choosing food in all of the countries except China, where foods' health benefits are most influential, according to the study, "Food 2020: The Consumer as CEO." On average across the countries, 74% cited taste, 73% quality and 70% price.

There were certainly some variations by country. For instance, price was cited by nearly as many American and U.K. consumers as taste and quality, and price had a slight edge over these other two factors among Germans.

I'm not so sure that the results really support the article's headline (Brands Lose Relevance in Food-Buying Decisions). Putting aside price for the moment, if the major factors are taste and quality, then doesn't that pretty much equate to brand? I might, for example, tell the pollster that taste and quality are how I decide on my food purchases, but when I'm shopping in the canned vegetable aisle and reaching for a can of creamed corn, my decision will be determined by which brand has in the past delivered the best taste and quality.

And then, of course, price enters the equation, and I might ask myself whether Del Monte creamed corn tastes enough better than Jewel's store brand to justify the price difference.

So I think the survey, while probably accurate, is misleading. Of course we buy food based on taste, quality, and price. But the brand names are shortcuts in that process.

UK government asks supermarkets to pay faster

Well, it's a nice thought, of course, but I hope nobody's expecting much.

The UK's minister of the environment asked UK supermarket chains to pay small suppliers more quickly:

Hilary Benn, the environment secretary, met leaders of the main food chains to emphasise that small businesses were far more dependent on the timing of payments than larger companies.

"A single late payment can be the difference between survival and collapse. That will be truer now more than ever in the coming weeks and months," Benn said after the meeting in London. Small businesses and farmers were the lifeblood of the food industry and should be helped through "turbulent times".

For an idea of the most likely outcome, scroll down two posts to Tesco demanding more money.

I know I'm terribly cynical sometimes, but I really don't think the big retailers are going to help out suppliers' cash flow at a time when they can quite justifiably say, "Hey, I've got my own problems."

A case can be made that helping small suppliers survive is in the retailers' long-term interests (the existence of alternatives gives them more leverage against their big suppliers), but I suspect that most folks are going to be thinking very short-term (even more so than usual) until the storm passes.

And the dumbest headline of the week is ...

Reuters wins the "Mr. Obvious" award for this headline:

Circuit City store closures seen aiding Best Buy

You wouldn't kid us, would you?

Tesco demanding more money

No surprise, of course. I predicted this would happen (not that I'm claiming to be a genius -- it's pretty obvious). This was in a newsletter I sent out last month on how the economic downturn would affect trade promo:

Herewith, a few guesses:

1) Retailers are going to demand significantly increased funding. Well, okay, I admit I’m not going out on a limb with this one – retailers always demand more money. But I’m talking about the possibility of demanding a lot more.

1a) An increased portion of the increased funding will go into pricing, to support the sort of pricing actions Home Depot is doing.

So what is Tesco doing? According to The Times, they held meetings last week demanding huge payments from suppliers to fund a price war:

Tesco is locked in a battle with suppliers this weekend after allegedly demanding one-off cash payments and keener terms to help fund its price war with rival Asda and discount supermarkets Lidl and Aldi.

Britain’s biggest supermarket chain spent last week conducting the tense negotiations. One supplier, who refused to be named, said that during a 40-minute meeting he was handed a document with the new terms Tesco was suggesting to maintain its profit margins.

It had no Tesco heading or logo. The supplier said he had been given a deadline of November 2 to agree to the new terms. “It was aggressive to say the least,” he said.

How should a supplier deal with this? The ones who will be prepared, as I said last month, are those who have the capability of analyzing pricing and promotion data and doing accurate forecasting.

... let’s examine the question of who benefits from this. The answer is not going to be a surprise: If there is an increasing emphasis on pricing, then the manufacturers who have tools in place to analyze and optimize pricing will be ahead of their competitors. Actually, they are already ahead, of course, but to whatever degree the emphasis on pricing increases, their lead increases.

I thought Wal-Mart was going back to basics

It seems like Wal-Mart has been responding to the economy by returning to the basics -- more private label, cutting toy prices for Christmas, etc.

And then we see a Wal-Mart with valet parking? What's that all about!?!

Goody's out of bankruptcy

A slimmed-down version of Goody's Family Clothing has emerged from Chapter 11:

During the Chapter 11 bankruptcy, Goody's streamlined and reorganized its operations to improve the business model, significantly reduced operating costs, and maximized the value of core assets. This included the closure and liquidation of 69 underperforming retail locations in 18 states, the closing of a distribution center in Arkansas and a corporate office in New York, and the elimination of excessive corporate spending. In addition, Goody's eliminated the Company's e-commerce business, as well as an associated distribution center in Tennessee.

Paul White, Goody's Chief Executive Officer, stated, "We believe we have significantly strengthened both our business and capital structure and this will allow Goody's to continue to build on its 55-year heritage. Our Plan has enabled us to eliminate considerable costs from our business and we now have a profitable store base that is more efficient and productive. Importantly, this was all done while continuing to manage our stores without interruption and successfully serve our customers.

The chain still has 287 stores in twenty states, mostly in the southeast and midwest.

This is really cool

Somebody has figured out how to print electronics on packaging, creating the opportunity to have moving images on your labels and POP displays. A test, for Right Guard, is now being conducted in Chicago-area Walgreen's stores.

Henkel's Right Guard is testing use of printed electronics to power flashing lights in corrugated in-store displays at Walgreens stores in the Chicago area, a first step for a technology from Arizona start-up company Nth Degree that could eventually bring low-cost streaming video to printed displays, packaging, direct mail or magazine inserts.

Other tests are in the works involving other marketers and formats, according to people familiar with the matter, including one expected next year involving printed electronics on packaging for a Procter & Gamble Co. brand, believed to be a tissue-towel brand. P&G declined to comment on the project.

Anil Selby, VP-business development for Nth Degree, declined to comment on tests involving marketers, though he said the company has been in discussions with P&G, General Mills, Coca-Cola Co. and PepsiCo, among others.

Interesting that it's two Phoenix-area companies (Nth Degree and Henkel are in Tempe and Scottsdale) and the display looks remarkably like the Phoenix Suns' logo.

The Shopper Marketing applications for this are obvious, especially as the article notes that displays could be adapted for different stores.

Update on Circuit City

Last week, I posted on a report that Circuit City might go into Chapter 11 early in 2009. Now the rumor is that CC might close a bunch of stores in order to avoid having to declare bankruptcy in the midst of the holiday shopping season:

Circuit City is considering closing at least 150 of its 712 stores and cutting thousands of jobs to stave off a Chapter 11 bankruptcy filing before the holiday selling season, according to a report in today’s Wall Street Journal.

The newspaper, citing anonymous sources, said the retailer has retained bankruptcy counsel, a turnaround consultant, and is working with the Rothschild investment bank to help secure debtor-in-possession financing, which allows a company to pay for its day-to-day expenses while in Chapter 11.

Circuit City has had little success securing financing amid the tight credit market, and is looking at liquidating $350 million in inventory that would be freed up by the store closures, the report said.

The good news is that credit markets appear to be loosening a bit, which could make life much better for CC and the various other retailers who are currently suffering.

Wall Street surged on a burst of optimism Monday, propelling the Dow Jones industrials up more than 400 points on more signs of a reviving credit market and comments from Federal Reserve Chairman Ben Bernanke. Investors who had sold furiously in recent weeks in response to immobile credit markets became more optimistic as bank-to-bank lending rates eased further. There's also less demand for the safest Treasury bills.

Aldi has a room for rent

And now for something completely different.

This is off-topic, I guess, but I just found this strange and wanted to pass it on. Aldi is going to start building stores in the UK with Travelodge motels above them:

Aldi and Travelodge have joined forces to launch hybrid supermarket-hotel developments to serve cost conscious consumers in the downturn.

The two companies are developing a site together in Newquay, Cornwall, where Travelodge will build a 74-bed hotel above Aldi's 14,500 sq ft store. A similar project is also under way at Aldi's Middlesbrough site. In both cases, Aldi has the freehold of the sites and Travelodge has taken a lease.

The Middlesbrough site will be completed by the end of next month and Newquay is scheduled to open in autumn next year.

I don't have the slightest idea whether this will be successful, or whether it's adaptable to the US. I'll leave that to you to decide.

Our Christmas gift: A toy price war?

It looks like one of the things on the horizon this holiday season is a price war in the toy aisle.

Here's a Meijer press release announcing cuts on 300+ toys:

The price reductions are part of the retailer's ongoing Price Drop program, where thousands of unadvertised items - ranging from health & beauty products to garden supplies - are reduced in price every day.

The Toy Price Drop program includes virtually all toy categories, with discounts up to 30% off Meijer's normal low prices. The Meijer Toy Price Drop includes everything from Hannah Montana and Playskool to Star Wars and Disney Princess toys. Other reduced-price items include toys from such popular brands as Lego, Bratz, Barbie, Monopoly, Fisher Price, Batman, Indiana Jones and Leap Frog, plus the ever-popular Hot Wheels cars available for just 88 cents.

And here's Wal-Mart announcing a $10 toy program, with the responses from Toys R Us, Target, and others:

Wal-Mart Stores, accounting for more than one-fourth of U.S. toy sales, has sent a clear message that it doesn't plan to be undersold when it announced 10 well-known toys, including some Barbie dolls and Hot Wheels car sets, for $10.

KB Toys, the nation's largest mall-based toy seller by stores, told Wal-Mart to bring it on. It cut prices to $10 or less on more than 200 toys, including other Hot Wheels sets, Matchbox cars and classic games such as Yahtzee.

Following Wal-Mart's cuts, which were 25 percent to 40 percent below the prices of Toys "R" Us and Amazon.com, Target began matching prices on three of the four toys it shares with Wal-Mart's $10 list.

Just as a guess, I suppose some retailers are planning to sacrifice margins on toys to lure shoppers in and hope to make it back on other sales -- a "loss-leader" strategy. Given their selling costs, though, I'm not sure trying to match Wal-Mart on low prices is a healthy strategy.

Some folks are still growing

Not every retailer is closing stores, filing Chapter 11, or liquidating. Anna's Linens is still opening stores:

Anna's Linens last month opened a second Santa Ana store that sits less than 3 miles away from its other location in the same city.

The Costa Mesa-based discount home furnishings chain signed the lease for the new 9,200-square-foot store in August.

"It was not on our original 2008 new-store plan," said Scott Gladstone, chief operating officer. "However, we are always looking for opportunistic real estate to add to our portfolio of stores."

This makes 263 stores for this chain, which I guess makes them #2 in their category, now that Linens 'n Things is gone.

Target opened 45 stores last Friday, and Kohl's is opening 47 stores in the last quarter of the year, bringing them up to 1000 stores total.

The news is never all bad or all good.

Update on Mervyn's

Mervyn's is expected to announce today that it will liquidate:

Department store chain Mervyns LLC will announce Friday that it is filing for chapter 7 bankruptcy protection — which means the Hayward-based retailer must shut its doors and liquidate its inventory, sources told CBS 5.

Over the summer, Mervyns had filed for chapter 11 protection from its creditors in U.S. bankruptcy court for the District of Delaware. The company said at the time that it planned to continue business as usual while it reorganized.

Update on Rite-Aid

It looks like Rite-Aid is going to do a reverse stock split to avoid being de-listed from the big board. Recent stock prices have been in the 75-80 cent range and they have to get up at least over a buck.

The company has not yet selected a ratio for the reverse split. Rite Aid will hold a special meeting of stockholders in December to vote on the reverse stock split.

Rite Aid received notice from the NYSE yesterday that its shares had fallen below the $1 limit for more than 30 days, meaning that the stock was no longer in compliance with listing standards. To regain compliance, its shares have to be worth more than $1 apiece for 30 consecutive days, by the end of a six-month period.

Update on the update: Rite-Aid announces that the reverse split will be between 10x and 20x:

Once stockholders approve the split, Rite Aid's Board will select a reverse stock split ratio of either 1-for-10, 1-for-15 or 1-for-20 so that, depending on the ratio chosen, either10, 15 or 20 shares of issued and outstanding common stock will convert into one share of common stock. The price of each common share would increase by the same ratio so that a stockholder would have fewer but higher priced shares, keeping the total investment the same when the market opens on the date a split becomes effective.

Update on Boscov's

I mentioned a few weeks ago a rumor that the Boscov family is interested in buying the chain out of bankruptcy; apparently that has been confirmed.

Members of the family that founded and ran the Boscov's department store chain for 97 years before it landed in bankruptcy in August reportedly have submitted a bid to buy back the business.

Albert R. Boscov and his brother-in-law Edwin A. Lakin are among the group that put in an offer for Boscov's Department Store L.L.C. in a bankruptcy auction that culminates next week with the selection of a winning bidder, Boscov said in a report published today.

The question now would seem to be the financing, a pretty big question these days:

A successful buyer would also have to be able to produce financing to satisfy the banks holding sizable loans to Boscov's and that have considerable sway over bankruptcy proceedings.

If the Boscov family can come up with the financing needed to pass muster with the company's biggest banks, "this could be a tremendous deal for them," said Pittsburgh lawyer John C. Rodney, who specializes in bankruptcy buyouts with Thorp, Reed & Armstrong L.L.P.

Creditors are hoping for competing bids, both because the family would like to keep the chain going rather than liquidating it, and because the only current bid would pay them about twelve cents on the dollar for existing debts.

Liz is becoming a retailer

This is a link to an article about some management changes at Liz Claiborne. The COO is gone (and not being replaced), and the CFO got a new title and some additional duties.

But the interesting thing, I think, is this paragraph:

The company is overhauling its business to become more of a retailer than a wholesaler, in order to reduce its dependence on other retailers.

It's another case of the blurring about which I've posted often (most recently here) -- retailers are manufacturers (private label), manufacturers are retailers (outlet stores, Niketown, Apple, etc), and the stores are the manufacturers' prime medium.

Private label manufacturer expanding

Perrigo, the largest US manufacturer of private label pharmaceuticals, is expanding their manufacturing facilities:

The expansion will boost manufacturing capacity by at least 10 percent, Perrigo Chief Executive Officer Joseph Papa said.

The company currently has 1.8 million square feet of manufacturing and office space in seven Allegan area facilities.

"Right now, the market demand for health care pharmaceutical products is up 3 percent, while store branded product sales are up 16.8 percent and our sales are up 40 percent," Papa said.

This is Perrigo's second recent expansion:

In September, the company announced the $44 million purchase of JB Laboratories in Holland that added $70 million in annual sales and 160,000 square feet of manufacturing space.

Thailand looking at anti-hypermarket laws

The new Thai government is considering legislation that would restrict the growth of big stores.

The long-awaited retail industry regulations have moved at a snail's pace despite operators of small stores calling for years for legislation to regulate the rapid growth of hypermarkets, chain convenience stores and other large operators.

Critics say that the Interior Ministry's current urban planning and building codes are not adequate for the changed business environment, in which chains are squeezing out family businesses. [...]

Under the current draft, which focuses on protecting local retail businesses, existing giant retailers can expand but must comply with new regulations - restricting operating hours, size and proximity to the city centre - to leave room in the market for small players.

In the current global economic downturn, it is likely that populist legislation will be enacted in many countries.

A bidding war for UK retailers?

In the current environment it's heartening to see multiple parties scrambling to buy assets -- a sign that investors are willing to buy strong companies and that they see an end to the downturn, perhaps not too far off.

Anyway, that's how it looks to me, and why I'm happy to see several groups lining up to try to take over some of the UK retailers currently belonging to Iceland's Baugur group. I mentioned a few days ago reports that Britain's Sir Philip Green was interested in buying up the group's debt. Subsequently, some other private equity groups came forward, and now there are reports that management of some of the retailers may want to buy themselves.

The management of a number of Baugur-backed retailers are putting plans in place to buy back equity and debt now controlled by the Icelandic government.

Management of House of Fraser, Mosaic, Iceland and Jane Norman are understood to be considering mounting their own bids for the retailers. [...]

Following the collapse of Iceland's banking system, the Icelandic government controls the debt connected to Baugur's investment as well as the bank's stakes in the retailers.

Sir Philip Green is one of a number of parties circling Baugur's £2 billion debt, including private equity firms Permira, Alchemy, TPG and Blackstone.

The latest rumor is Bon-Ton

This one was fairly predictable: Bon-Ton is facing rumors that vendors may cut back shipments. Predictable, because Bon Ton is facing almost exactly the same circumstances that recently put Boscov's in Chapter 11. Both are mid-sized department store chains that expanded dramatically in the past few years -- Boscov's by buying a bunch of May Company locations from Macy's, Bon-Ton by buying Saks' midwestern stores. When the economy went wrong, they were left with slowing cash flow and a lot of debt.

But Bon-Ton says that their cash situation is good and that the rumors are false:

"We have plenty of cash on hand to get us through the holiday season without any issues," Bon-Ton spokeswoman Mary Kerr said, noting the retailer had $241 million available on a revolving credit line on Sept. 30.

Still, sources said big clothing manufacturers, including Liz Claiborne and Jones Apparel, have tightened terms on shipments to York, Pa.-based Bon-Ton, demanding quicker payment as the uncertainty mounts.

Unless the financial crisis takes an unexpectedly drastic turn, those larger firms are expected to keep merchandise flowing to stores through Christmas. Last week, Bon-Ton reported better-than-expected September sales, although they still declined.

But in recent weeks, some smaller suppliers to Bon-Ton have said credit they need to make deliveries is drying up. So-called "factoring" companies, including the giant commercial lenders CIT and GMAC, have all but stopped extending credit for deliveries during November and December, the suppliers have said.

Update: I was just looking something up, and the very first post on this blog, almost three years ago, was about Bon-Ton buying the Saks stores in the midwest, and (if I do say so myself) I pretty much nailed it:

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

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

Another Update: Bon-Ton made a strong statement yesterday refuting the rumors:

Bergren added that 281-unit Bon-Ton Stores is “financially strong. When you look at the facts of our balance sheet, we have an appropriate debt structure that was put in place in March ’06. Then only covenant we have on a revolver is $75 million of excess capacity and we currently have about $241 million in excess capacity. We’ve consistently paid down our debt, which is $80 million less than it was last year at this time.”

In addition, he said, Bon-Ton’s inventory is running 10% below last year, “which is appropriate for this environment. And we’re happy that our inventory is very much under control.”

Admittedly, Bon-Ton’s sales are down year-to-date, but Bergren said these sales trends are “right with all of our competitors, too, so it’s not that we are losing market share.”

Linens 'n Things will liquidate

Linens 'n Things has given up trying to find a buyer who will continue operations and will close its remaining 371 stores after close-out sales.

The company had agreed to a $475-million "stalking-horse" bid for Linens 'n Things' assets from a joint venture of several investment groups specializing in liquidation. The retailer had hoped to court a buyer that would keep the retail chain running. It called off the auction, which was scheduled for yesterday, after it failed to draw any other qualified bids, court documents stated.

My daughter is very excited and is keeping her eye on the store in River Forest, Illinois where, she reports, they are currently offering 40-60% off.

Steve & Barry's may have timed their bankruptcy just right. It's going to be tough to find anyone willing to put forward large amounts of money to rescue a floundering retailer right now. A couple months ago, when it was S&B's turn -- yes; a few months in the future, when things settle down a bit -- perhaps. But Linens 'n Things needed to find an angel now, and even angels can't get credit today.

EU fines Dole and Del Monte for banana price-fixing

The European Union fined Dole over $60 million for engaging in price-fixing on bananas. A German company, Weichert, was fined $20mil, but Del Monte will have to pay the fine because they owned Weichert at the time of the violations. Chiquita escaped fines by blowing the whistle:

Chiquita also participated in this activity, but the EU’s competition commission said it could not have opened the investigation without that company’s initial cooperation.

Chiquita escaped a fine of $113 million (83.2 million euros) by bringing the activity forward and applying for leniency, EU officials said in a press release.

Maybe it really could happen here

Back in March, I did a newsletter and blog entry titled Could it happen here?, which noted an increase in regulatory activity related to trade promotion in several places around the world (most notably, investigations of Intel’s channel practices in Korea, Japan, and Europe and repeated investigations of the grocery chains by the UK’s Competition Commission and by the EU). The question, as indicated by the title, was whether similar action might be forthcoming in the US – specifically whether the Robinson-Patman Act might be dug up from wherever it’s buried, dusted off, and actually enforced.

The conclusion I arrived at in March was:

Six months or a year ago, I would have said absolutely not (in fact, I think I did say so in my book). Now I’ll still say “absolutely not” in the short term, but modify it slightly to “probably not, but maybe” in the medium- to longer-term.

Now that another seven months have gone by, I think we’ve moved much closer to a point where there might be serious regulatory action involving trade promo. But I hedged a bit last time, and I’ll continue to hedge now. The current economic turmoil increases the likelihood that the next congress will include a substantial majority favoring populist legislation and strong regulatory oversight of business practices – which pretty much summarizes R-P.

But R-P has so faded from the scene that it might be beyond resuscitation. When I discussed this question recently with a couple knowledgeable observers, Rob Hand of Oracle and Mike Kantor of TPMA, Rob’s comment was, “How many members of Congress even know Robinson-Patman exists?”

As we discussed the question, the three of us came to the conclusion that the phrase “populist legislation and strong regulatory oversight of business practices” applies equally to other legislation – most notably Sarbanes-Oxley – and that a more likely result (somewhere near certainty) is increased enforcement of Sarbox and tighter scrutiny of accounting practices such as those dealt with in FASB 01-9 and 02-16. Those who were hoping for revisions that would weaken Sarbox can kiss that dream goodbye.

Whatever form the regulation takes, I’d be willing to bet my house (not that it’s worth anything at present), that there will be increased regulation of trade promotion in 2009-10. How long the increased pressure will last is another issue, but marketers would be well advised to take a look and see if there are any embarrassing pieces of paper lying around.

The new normal: private label or inferior goods?

It is pretty much a given that private label market share will increase in times of recession or economic uncertainty. So it was no surprise to read that Wal-Mart has decided to increase its emphasis on private label products.

This is a bit of a reversal for Wal-Mart, which has actually been de-emphasizing private label for the past year or so (their decision to cut back on private label soft drinks drove Cott to the brink of disaster).

But there are some other possible directions consumers can go to save money, and a report from Booz & Company offers some thoughts on an alternative movement toward “inferior goods” in a setting they refer to as the "new normal."

The word “inferior” is used here as economists might use it – goods “that attract consumers more when purchasing power declines.” An example cited is that consumers who once used disposable antibacterial wipes might choose to switch to a private label version; or they might instead switch to an “inferior good”, such as paper towels (or they might switch from paper towels to a washcloth).

Manufacturers who have become used to premiumization – consumers constantly moving up to higher-priced brands within a category, or further up into higher categories – will now need to adjust to the “new normal”, in which consumers trade down.

As always, there are opportunities in any major change, even a downward trend. The Booz report offers as an example how Kraft is positioning its DiGiorno pizza not against other frozen pizzas, but against pizza delivery services ("It's not delivery -- it's DiGiorno"). Preparing a frozen pizza might be an “inferior good” for many consumers, compared to calling Dominos, but if the cost is half, it’s a choice many more consumers might make.

The report offers some recommendations for taking advantage of the new normal. I suggest you read the full report to get the thinking behind each, but they are:

• Don’t blindly lower prices to regain volume. If the consumers are moving to a different category, lowering your price will not necessarily keep them in your category.
• Find the inferior products that will attract consumers as their purchasing power decreases. This might mean introducing a sub-brand (at the risk of cannibalization) or finding new channels or distribution formats (e.g., Starbucks selling ground coffee at the supermarket).
• Cement consumers to your brand. If you attract consumers with your inferior good – give them a brand experience that will keep them around when good times return.
• Make the new normal feel better. Give the consumer a reason to feel good about trading down (e.g., your product is more environmentally responsible).

And, amidst all the gloom, let’s maintain some perspective. Bad as the economy is, it will not stay bad forever. Good times come and go, and so do the bad times. We will dig our way out of this and the companies and people who prosper will be those who work now to lay a foundation for future success.

Mars taking shots at Hershey

Mars recently took over the top spot in the candy biz, with its takeover of Wrigley, and now it seems to have set its sights on catching up to Hershey in the chocolate arena. There's a ways to go, Hershey's market-share lead is 42-30, but Mars is attacking hard, following the dictum that aggressive marketing in a downturn is an effective way to grab share in the recovery.

Mars is using recent ingredient changes to suggest quality problems with Hershey products, as well as trumpeting Hershey plant closures in the US.

Mars also has pivoted its PR messages to chide its rival: Its premium brand Dove is "Made in the USA" and Mars can be trusted "to provide pure, rich chocolate," it says.

And just to drive the point home, Mars recently opened the "Dove Chocolate Center of Excellence" right on the outskirts of Hershey, Pennsylvania.

Will Circuit City go Chapter 11 next year?

Twice quotes an analyst who predicts that Circuit City will go into bankruptcy early in 2009:

“We believe a Circuit City bankruptcy has become a question of ‘when’ rather than ‘if,’” Bradley Thomas observed in a research note.

... [The analyst] said the challenging economic environment is accelerating the retailer’s trajectory toward Chapter 11, and will also diminish the likelihood that it can emerge from bankruptcy.

This is consistent with a Forbes report from a few weeks ago. After noting that CC had reported a bigger-than-expected loss and that sales were off 10%, they suggested that the Christmas season might be CC's finale if Wal-Mart decides to go in for deep discounting:

As the holiday season approaches, all industry eyes will be on Wal-Mart to see how low it sets the price bar for flat screens and other electronic toys. If the discount giant makes a Black Friday splash by advertising big screen television for as low as $599, which ARG President Britt Beemer thinks is possible, it will be a long Christmas season for Best Buy, and, potentially, a fatal one for Circuit City.

This suggests, as we've speculated before, that consumer electronics might be another category that falls victim to the Wal-Mart Corollary to the Two-Per-Channel Theory. This holds that, when Wal-Mart decides to dominate a particular category, the two survivors in that channel will be Wal-Mart and somebody else. The leading example of this has been toys, where Wal-Mart took over the top spot, leaving room for only Toys R Us to survive, while FAO Schwartz and Kaybee shrank to the role of niche players.

In consumer electronics, we've recently seen the disappearance of CompUSA and the severe downsizing of Tweeters.

Jones Soda loses its cool

Not so long ago, Jones Soda was tres cool, but an ill-advised expansion has caused a need to lay off 40% of its staff.

The 21-year-old cult soda company's struggles are a microcosm of the challenges facing small companies in a weakening U.S. economy. With consumer spending down and credit tight, any misstep becomes a potentially fatal mistake.

"Given the financial crisis we're in, you have to preserve cash," CEO Stephen Jones said. "Cutting back people is a horrible thing to go through, but you do it as a result of strategy. And my strategy is to focus on the core of what Jones Soda is."

Although that statement lays the blame, predictably, on the economy, the problem appears to be that Jones tried to expand in ways that undercut the brand's image. First, the company, whose distinctive glass bottles were part of the brand appeal, introduced cans. Then they went head-to-head against Coke and Pepsi in the mass market.

Jones told FSB he would grow the brand more efficiently as it continued to penetrate big chain grocery stores, beefing up his company's distribution network and sales staff.

Unfortunately, those tactics - which included pushing Jones' canned soda into new markets - backfired in an already faltering economy and an industry that has seen better days.

The soft drink market is in decline -- three years in a row of declining sales. It might be better in such a market to be a niche product with a cool image that can command a premium price than to chase after volume. Time will tell if Jones can get its cool back.

Green may take over Baugur retailers

Sir Philip Green, a leading UK retail tycoon, is apparently in talks to take over the debt of Iceland's Baugur group, and thus effectively gain control of the company.

In a television interview yesterday, Baugur's founder and chairman Jón Ásgeir Jóhannesson said: "The person that owns the debt controls the company." He admitted that, should Green take charge, even the fire sale prices achieved for some of Baugur's companies would be the right thing for employees and others concerned.

Green flew into Iceland last week and has been locked in talks with the Icelandic government and Jóhannesson over a deal that would enable the billionaire owner of Arcadia to take control of Baugur's debt at a discounted price.

Green's Arcadia Group owns a number of retail chains in the UK, including Burton, Dorothy Perkins, Evans, Miss Selfridge, Outfit, Topshop/Topman and Wallis -- a total of over 2000 locations.

Meanwhile ... Van Maur is expanding

Are you tired of reading bad news? I am, and I'm certainly tired of writing it, so it's good to come across news of retailers expanding. Van Maur, a midwestern department store chain, is moving into the Kansas City market:

The upscale department store chain is entering the market in November with a 142,000-square-foot, two-level store in Overland Park.

The company, which is based in Davenport, Iowa, is carefully expanding in the Midwest, backed by a variety of goods at different price points and a 136-year history of customer service that it says will make the stores a success, even in today’s tough climate.

Live long and prosper.

Is Rite Aid on the brink?

I've posted many times about the "two-per-channel theory" -- the idea that there's only room in today's marketplace for two (at the most) major players in any channel. If it's true, and I've seen nothing to indicate otherwise, that's bad news for a #3, like Rite Aid.

When the economy has gone smoothly, we've seen the #3s hurting, and in some cases dying (e.g., CompUSA), but most of them manage to scrape by. A poor economy, however, may be the end for many of them. This week we got news that Rite Aid may be delisted from the NYSE, since it's stock price has dropped well below a buck.

This Forbes article indicates that the problems are a combination of poor store performance ("... weak sales at the Brooks Eckerd stores it bought in mid-2007 ...") and heavy debt. There is hope though:

... Raymond James analyst John Ransom said the company's debts are particularly worrying to investors at a time when credit conditions are tight.

"All stocks have gotten destroyed lately, especially any company with a shaky balance sheet," he said in an email. "Rite Aid has the worst balance sheet of any company I follow."

In a client note, Ransom said the company is carrying $6.1 billion in long-term debt. But because Rite Aid has refinanced its debt, he believes it has the financial flexibility needed to implement its turnaround plans.

The slo-mo train wreck continues

I got in trouble with some of my friends in the newspaper business a few months ago when I posted this item (and put it in my newsletter). Cathy Mills, at the San Jose Mercury News, sent me a gently chiding message, pointing out, among other things, that the newspaper biz still has profit margins that many other industries would envy (20% or so in recent years) and that total readership is up, even if circulation is down.

She's right, of course. And I certainly don't think the newspaper industry is going to disappear. Radio was supposed to be dead sixty years ago when TV started to establish itself. Instead, the broadcasters adapted, re-formatted, re-targeted, and have (mostly) prospered. The same will happen, I suspect, with newspapers.

But during the period of adaptation, I fear there will be many casualties. This week:

• The East Valley Tribune, the #2 paper in metro Phoenix, lays off almost half their staff, pulls out of Scottsdale and Tempe, cuts to four days a week, and converts to free circulation.
• The LA Times announces another big round of layoffs.
• Freedom Communications, the owner of East Valley Trib and the Orange County Register, is in violation of its loan agreements.
• And a Forbes report adds that the New York Sun closed, the Minneapolis Star-Tribune skipped a debt payment, and S&P put Gannett on credit watch.

Again, while the industry will survive, many individual papers won't, and those that do will be smaller in every way -- fewer pages, fewer reporters, less coverage; and on the ad side, there will be fewer readers and therefore less reach for advertisers.

Forever 21 wants to buy Mervyn's stores

Forever 21, the Los Angeles based retailer of low-priced fashion merchandise wants to buy 150 Mervyn's stores and convert them into larger versions of their format. Current Forever 21 stores are in the 20,000 square foot range, most Mervyn's are at least four times that.

"Our vision has always been to get a bigger box," said Christopher Lee, senior vice president of Forever 21. "We've been looking at these assets for many years."

I have read that Forever 21 tried to buy Mervyn's when Target put it up for sale a few years ago.

Buying when the economy is in the pits can look like genius if it works out, so I wish them well, but you have to wonder if there is a bit of Steve & Barry-ism involved when you read this line:

Lee said the company hadn't decided yet what it would do with the stores if its offer is accepted, but it would probably convert many of them to the Forever 21 brand and close the rest.

Seems like having a plan might be a good idea.

Kineticsware buys Flintfox

Kineticsware announced today that it has acquired New Zealand TPM software firm Flintfox. According to the press release:

The acquisition will enable Kineticsware to provide a new generation of full lifecycle TPM solutions to consumer goods companies delivered both directly and through selected partners globally. The combined company will have 141 customers and operations in 12 countries across North America, Asia Pacific and Europe.

Kineticsware has built its reputation in the supply chain, and the acquisition of Flintfox would be intended to improve its trade promo capabilities as an extension of that basis. Or, as the press release puts it:

“Significant margin impact from skyrocketing raw materials costs such as wheat and oil have driven consumer goods companies of all sizes to explore ways to protect their margins in the contractual trading relationship with their retailers.” said Jeff Sampson, CEO, Kineticsware. “With this acquisition, Kineticsware increases the breadth of its functionality to support the entire lifecycle of a trade promotion from budgeting, planning, execution and settlement to monitoring and analysis."

Flintfox has a solid base in AsiaPac that will complement Kineticsware geographocally, plus they have some very good people.

Icelandic bankruptcy saga has channel implications

Bad joke alert: Be on the watch for headlines with "meltdown" puns. I was just barely able to restrain myself.

But the jokes will probably not go over too well in Reykjavik, where the possibility exists that the whole country may declare Chapter 11, where the currency has lost half its value, and:

"The country's top four banks now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion.

I've only commented a few times on the stockmarket and banking situation recently, mostly because I'm utterly ignorant on the subject, but this aspect of it has a direct application for channel marketers, since Icelandic investors have gone in heavily for retail ventures, especially in the UK.

Investment group Baugur, baed in Iceland, owns outright or has stakes in a number of UK high street companies, including Woolworths, Debenhams, frozen food retailer Iceland and Whistles.

Hamley, House of Fraser and other large retailers also have Icelandic ties.