Sunday, November 30, 2008

Comcast uses in-store

Here's an interesting switcheroo -- the media uses in-store marketing to promote itself:
Sears is allowing Comcast to promote and sell its digital-cable TV, high-speed Internet and digital-voice services in Sears stores nationwide.

Consumers can sign up for Comcast’s services in more than 400 Sears location. Comcast will set up a HDTV display in 100 of those stores so customers can see the features of the operator’s services and products.
The selling of services is nothing different from traditional leased departments being set up in stores. But I love the idea of television using in-store marketing.

(Thanks to Co-op Connection for catching this one).

Sampling increases sales

Arbitron and Edison Media Research found that in-store sampling increases sales of the product sampled (this is in line with the study mentioned immediately below).
Over a third (35%) of consumers who tried a sample purchased the product during the same shopping trip. This effect spanned across all customers – regardless of whether this was their first introduction to the product or a repeat purchase.
About half of those who sampled also expressed an intent to buy in the future, including 85% of those who had never bought the product before. In addition, 24% said they would switch from the brand they had previously planned to buy.

Displays are more effective than price cuts

A study by Ogilvy's shopper marketing arm says that in-store displays drive more impulse purchases and more brand selections in considered purchases than price cuts.
OgilvyAction's research from the spring indicates that 29% of U.S. shoppers impulsively buy from categories they didn't plan to when they entered the store. Of that group, 24% said they were influenced by secondary displays (away from the product's usual aisle), 18% by in-store demonstrations, and only 17% by price promotion.

The study also found 39% of U.S. shoppers have a category in mind but pick their brand in store, and of those, 31% were influenced by in-store demonstrations -- more than the 28% by price promotion and the 27% influenced by some other form of consumer promotion.
I'm always suspicious of surveys based on what shoppers say influenced their decision, but this seems like a reasonable result, and is in line with previous studies I've seen. Most studies I recall, however, indicate that the best results come from combo actions, e.g., display + price cut or, better yet, ad + display + price cut.

Looks like Woolies might be broken up

Their are some buyers who want to take over Woolworths in its entirety, but it sounds like most bidders are interested in buying up individual locations.
Supermarket groups including Asda and Iceland have said they would be interested in individual stores. Tesco is understood to be interested in up to 20 Woolworths shops. Other retailers such as Poundland, Primark and Wilkinson are also probable contenders to acquire sites.
Deloitte (the administrator of the bankruptcy) says there are some interested in the whole enchilada, but one potential bidder says they see no hope for such a deal:
Iceland chief executive Malcolm Walker, who looked into buying Woolworths earlier this year, has cancelled himself out of the race for the retailer. "To run Woolies as Woolies, which is what we wanted to do, is now a lost opportunity," he said.

Tuesday, November 25, 2008

A comeback for Limited?

Recessions usually kill off many businesses that were weak and struggling during good times. An exception may be Limited Stores, which over the last several years of ownership by Limited Brands had closed one-fourth of its stores and dropped in revenues from $638mil to $493mil. Limited Brands basically gave away 75% ownership to Sun Capital last year.

But Sun is putting money into Limited -- $50mil capital and a $75mil line of credit, and Limited is responding with new store formats and plans for modest expansion (four new stores this year, 10-20 next year), redesigns of existing stores, and introductions of new product categories (lingerie and cosmetics).

Local media in worse shape than national

Which really should be no great surprise. In addition to the long-term effects of media fragmentation combined with the short-term (we all hope) effects of the recession, which are clobbering the national media, local media are faced with the loss of much of their trade promotion spending as retailers and suppliers shift to in-store ads and promotion. A huge proportion of local media advertising has always been paid for with trade spending.

So the effect is that we see this:

The reality is worse, since this represents measured media, and does not include the money taken out of the media by stores. I suspect that if the chart did so, the "in-store" line would be rising almost as fast as the line for the internet. (Another note is that in one sense, the graph overstates the decline of newspapers, since much of the local internet spending is on newspaper websites).

But when you see a decline in market share from 35% to 20%, with no sign of slowing, you have to ask how much longer can things go on without a recognition that major changes must be made in the business model.

Monday, November 24, 2008

Survey on global trade promo practices

Infosys and TPMA are conducting a Global Trade Management Maturity Study. The early findings, based on partial results, are interesting -- I don't want to give away too much yet (and results might change), but a couple points that are showing up thus far:
  • Data problems are the biggest problems in global TPM implementations -- incomplete data from retailers, lack of standardization, and inconsistencies in how data is analyzed are all among the top barriers for suppliers
  • Most respondents use TPM systems for fund management and planning, but far fewer have modules for post-event analysis
  • 56% say that their TPM system is mostly customized
  • The one-time cost of a TPM system implementation was in the range of 1%-2% of revenue for most respondents
There's lots more. The survey is still open, so go here to complete it (you'll get a copy of the full results).

Sunday, November 23, 2008

Sony imposes RPM on high-end products

Sony has decided to take advantage of the Leegin decision by imposing resale price maintenance rules on some of their highest-priced products.

Eliminating price competition among retailers for high-end cameras and TVs is a great benefit for consumers — or so Sony executives argued Thursday.

At a chat with reporters in New York, Stan Glasgow, the president of Sony Electronics in the United States, and Jay Vandenbree, the company’s president for consumer sales, discussed its new rule that bans retailers from discounting Sony’s Alpha digital camera line, its more expensive televisions and some other high-end products.

Mr. Vandenbree said that by having the price for these products be the same at all retailers, Sony had eliminated stress for buyers.

“Consumers don’t have to worry about whether I can get a better deal at retailer A or retailer B,” he said. “Everybody gets the best deal.” He said stores can now compete on other attributes, like education and support.

Mr. Vandenbree said this program was part of the reason that the Alpha line was gaining share in the single-lens reflex camera market.
The Leegin rule allows manufacturers to set retail prices under certain circumstances, although the Supreme Court seemed to make clear that they would be more suspicious if the manufacturer imposing RPM had significant marketing power (which, to belabor the obvious, Sony has more of than Leegin does). Still, I'm sure Sony had a battalion of lawyers study this before proceeding.

As a reminder, the FTC is going to have workshops soon on this subject.

Department stores increasing marketing, price cuts

A number of department and specialty stores are planning to increase both the amount of marketing and the level of price cuts during the holiday season.
  • "Kohl's, a mid-priced retailer of clothing and home goods, said it would substantially increase its marketing and cut prices to attract bargain-hunters on Black Friday, the day after Thanksgiving."
  • "J.C. Penney Co Inc and other department store chains plan similar increases in holiday promotions and marketing ..."
  • "Limited Brands, whose main chains are Victoria's Secret and Bath and Body Works, also expects to be more promotional than previously planned, the retailer said Thursday on a call with investors."
I don't think a lot of retailers and suppliers in those sectors have very sophisticated pricing optimization tools. Too bad -- they'd be a big help. It's good to see, though, that they are looking at more than price cuts, and that they are planning to also market their way through the storm.

Best Buy to continue with European expansion

Best Buy says it has no plans to cut back on its previously announced expansion in Europe, in partnership with Britain's Carphone Warehouse.

Although Best Buy warned of a "seismic shift" in consumer behaviour, Best Buy Europe chief executive Roger Taylor said there would be "no effect at all" on the duo's plans to launch four or five Best Buy Europe stores next year and 100 across Europe by 2012.

"Best Buy has a strong balance sheet and no debt," said Taylor, who is also finance director of Carphone Warehouse. "We don't need an excessive amount of capital in terms of our plans next year."

Rebate firm goes bankrupt

Continental Promotion Group, a rebate-processing firm with several major retail and supplier clients, has filed for Chapter 11, leaving some questions about whether recently issued checks might bounce. Clients include Canon, Adobe, Logitech, Samsung, and Costco.
Canon warned its customers that CPG checks issued for printer and video products may bounce. A spokesman said the company has also secured a new rebate fulfillment partner.
According to another report I saw, Canon had hired Advertising Checking Bureau to take over its rebates. ACB handles trade promotion outsourcing but, like some of its competitors in that field, also does rebates.

The financial health of outsource services is always a concern, but probably ought to move up a few points in priority these days.

Thursday, November 20, 2008

GM's troubles ripple through sports and TV

General Motors is being forced to cut back, and some of its cuts are causing pain far beyond Detroit and far outside its circle of suppliers and workers. Like, for instance, in sports and sports TV. GM has in the past been by far the #1 advertiser in TV sports, but now they are reducing their spot buys and sponsorships considerably:
G.M. has been scaling back its sports presence for at least a year. Cadillac, a G.M. brand, withdrew its sponsorship of the Masters golf tournament in January, and this summer, G.M. ended its relationships with two Nascar racetracks: Bristol Motor Speedway in Tennessee and New Hampshire Motor Speedway. The company is not renewing its longstanding partnership with the United States Olympic Committee when their contract expires at the end of this year. In one of the most dramatic examples of the company’s diminishing sports profile, G.M. said recently that it would not buy television commercials in this season’s Super Bowl broadcast.
GM had eleven spots in last year's Super Bowl. The company recently reported that it plans to cut advertising 20% and promotional spending 25%.

Much of sports advertising and (especially) sponsorships is image-related and intended to have long-term brand-building effects. That's not easy to justify when you're close to bankruptcy and every expenditure is looked at in terms of immediate benefits.

They might be wiser to put their money into dealer advertising, where it can do double duty in producing immediate sales and in helping out the dealers, many of whom are themselves teetering on the edge.

Wednesday, November 19, 2008

Deja vu: Steve & Barry's rumored to be closing

Just three months ago, it looked like Steve & Barry's had dodged a bullet and would be continuing operations, slightly downsized. But now there are new reports that the chain will be closing.
The company, which was bought out of bankruptcy in August, laid off many of its corporate staff Monday, including its newly appointed chief executive, Harold Kahn, sources said. Only a skeleton crew of about 30 remains.

The layoffs came as a surprise, and no reasons were given, the source said. The chain has four Long Island locations and more than 5,000 employees.

Investment firms Bay Harbour Management and York Capital Management bought the ailing clothing retailer out of bankruptcy at the end of August as the economy and the retail sector continued to slide. Even as the greater economy appeared to be crumbling in October, Steve & Barry's seemed to be pushing forward, announcing Kahn's hiring and preparing for a new Manhattan store opening that had been planned months earlier.

But in reality, the company was not generating enough sales, according to a source. Gun-shy vendors were demanding upfront payment for spring inventory and the cash infusion needed grew far beyond original expectations, the source said.
If the reports are true, I'll be sorry, since I really like S&B's clothes, the stores' ambience, and (of course) the prices. The chain enjoyed sufficient success, combined with some obvious errors, that I imagine someone will try a similar plan soon.

Update, Thursday 20 Nov: The rumor has been confirmed.

What is Woolies worth? A buck and a half

Actually one pound, but I don't know how to insert a pound symbol in Blogger..

One pound is what Britain's Woolworth's chain will reportedly be sold for, although the buyer, Hilco, may be balking at taking on the pension shortage of $150mil.

Woolworth's was in trouble before the economy soured (I posted this item back in June), and there has been takeover talk for a while. Reportedly there was a bid to take it over for 50 million pounds in August. Bet they wish they had taken that offer.

Any deal will also require the approval of the pick and mix retailer's banking syndicate, which recently appointed restructuring advisers Deloitte.

In a statement this morning, the Woolworths' board confirmed that it is in preliminary discussions regarding a possible offer for the retail business. However, it added that "there can be no assurance that any offer will be forthcoming".

It is widely believed that a demerger of Woolworths' underperforming retail arm and its media and distribution business – 2entertain, the DVD publisher, and EUK, a specialist distribution business – would be the best outcome for the struggling business.

One possible bidder for 2entertain is BBC Worldwide, which already owns 60 per cent of the joint venture.

Update, Sunday 23 Nov: According to this report, Hilco is now willing to take on more of the debt, but a decision must be reached very quickly or Woolworth's will have to declare bankruptcy.

Tuesday, November 18, 2008

Mexican billionaire wants Circuit City

Ricardo Salinas Pliego, head of the family that runs Mexico's Grupo Salinas, has acquired 47 million shares (28%) of Circuit City, buying 30 million shares for $0.24 each in the days following CC's bankruptcy filing.

Ricardo Salinas Pliego, who is on Forbes magazine's list of the world's richest people, is "banking on a great trademark, which is Circuit City," said Luis Nino de Rivera, a spokesman for Grupo Salinas, a conglomerate that controls television, retail and cellular businesses in Latin America.

"That's a very important name in the retail industry in the United States and it has great value. ... There's a great market opportunity here that certainly has to be looked at in detail," Nino de Rivera said in an interview with The Associated Press. [...]

Salinas and his family have been involved in the retail industry for the last 100 years, Nino de Rivera said. Among Salinas' businesses is Grupo Elektra, which operates more than 1,000 stores that sell electronics, furniture and appliances.

"Circuit City is right in line with that experience and with his family tradition," he said. "He is furthering his investments in a business he knows very well."

I think it's encouraging that someone who knows the business sees a future in it. And (presumably) sees a reasonably short-term return to growth.

Carrefour fires the boss

The CEO of the world's #2 retailer got the ax today. Carrefour announced that Jose Luis Duran would be replaced January 1 by Lars Oloffson, a top exec at Nestle. Things had not been going well at Carrefour even before the current downturn:
The company has consistently missed market expectations for its results in recent years, and the onset of the global economic crisis has further hurt its business, as French consumers increasingly seek out discount stores.
The company's stock is down 44% this year. Carrefour has been very active internationally in recent years, especially in China and Brazil, but it hasn't been enough to offset poor performance in France.

Monday, November 17, 2008

FTC offers workshops on resale price maintenance

There has been a lot of discussion about what constitutes price-fixing by a manufacturer since the Leegin decision last year: Under what circumstances can a manufacturer dictate prices to its retailers?

If your company might be interested in using some form of price maintenance program, but aren't certain if you would be safe in doing so, you might wish to send your corporate attorneys to these workshops at the Federal Trade Commission.
The Federal Trade Commission today announced that it will hold a series of public workshops early next year to explore, for the purposes of enforcing Section 1 of the Sherman Act and Section 5 of the FTC Act, how to best distinguish between uses of resale price maintenance (RPM) that benefit consumers and those that do not. The Commission expects the workshops to focus on legal doctrines and jurisprudence related to RPM, theoretical and empirical economic research, and business and consumer experiences.
There will be 4-6 workshops in the January-March timeframe, although exact dates haven't been set.

(Thanks to Consumer Goods & Retail Industry Litigation Blog for letting us know about this).

Sunday, November 16, 2008

Deflation and trade promo: A bit of speculation

Having just written an item about how things aren't really quite as bad as we sometimes worry, now I'm going to offer a bit of speculation on the effect on trade promo if things got considerably worse in one area. What would happen to trade promotion if we entered a period of deflation?

Although it remains very much a long-shot (the WSJ economists' survey referenced below says that we'll have mild inflation next year in the US, about 1.5% or so), the possibility of deflation has gotten a bit of buzz lately, not just in the US, but around the world. A quick round-up:
  • India's Economic Times has an article on the (remote) possibility of deflation there.
  • This item says that consumer prices in Ireland will decline next year (by a modest 0.5%).
  • The UK's Times reports on concern about deflation in that country.
There are lots more, just enter "deflation" into Google News and you'll get your fill. All make the point that deflation is unlikely, and that it has severe consequences only if it continues for a protracted period, which is even more unlikely.

But still: what if?

The reason I ask it in regard to trade promo is that it is often argued that the great increase in trade funding (which was in the low single digits when I got into this business -- a 5% co-op allowance was considered generous) began in the high-inflation seventies, when consumer goods manufacturers began raising prices dramatically as a hedge against the possibility of federal price controls (which were imposed, then withdrawn). The idea was to have a pro forma price increase so that the high price was on the books, but to give most of the increase back to the retailers as allowances.

Would deflation reverse that process? Would an extended decline in what suppliers could charge retailers cause cuts in promotional spending?

Given the large percentage of spending that goes into cutting prices at the shelf, especially in CPG and food, would there be a need for large trade promo budgets in a deflationary environment? What's the point of promoting your price cuts when shoppers have come to assume that prices are going to decrease?

Again, this probably won't happen, but occasionally it's interesting to consider possibilities. It would certainly be different, since none of us have seen deflation in our lifetimes (unless we've lived in Japan), which is what makes guessing the results difficult.

Is this the bottom?

I've become a bit frustrated with news reports about the economy, which have often carried pessimism to extremes. I realize that bad news sells better than good (TV news has long been guided by the mantra "If it bleeds, it leads"), and there certainly is no basis for dancing in the streets; but comparisons to the Great Depression (25%+ unemployment) seem a bit premature (to put it kindly) when inserted into articles reporting that the unemployment rate has risen to 6.5%).

I thought, therefore, that I would pass on an item on some forecasts by people who, unlike journalists, actually know what they're talking about -- the Wall Street Journal's quarterly survey of leading economists. It's certainly not good news, except in comparison with what your local paper is reporting. A few of the consensus findings:
  • GDP, which declined 0.3% in the third quarter, will hit a nasty -3.0% this quarter. It will be a little better (but still bad) in the first quarter of 2009: -1.5%. Then it will be flat (+0.3%) in Q2, and the return to modest growth in the second half (Q3: +1.6%, Q4: +2.1%).
  • Employment, as we've seen in recent recessions, will be slower to recover -- they predict 7.5% in June 2009, and 7.7% in December.
  • Oil is a bright spot, since the consensus is that the price will stay below $65/barrel through 2009. Inflation will be below 2%.
  • Housing will stay bad (which means I'm stuck in my house for another year at least),with prices dropping another 3.5%.
Again, this is not at all what any of us would like to see as an economic forecast. But I point it out only because it is nowhere near the "sky is falling" that we often read and hear.

Here's a write-up on the survey by one of the economists who participated in it. He's slightly more pessimistic than the consensus (he forecasts unemployment topping at 8.5%), but the main point of his piece is that the recessions of 74-75 and 81-82 are far more accurate comparisons than the 1930s.

Friday, November 14, 2008

$400mil debt coming due at NYT

An analysis of the New York Times Company's 10Q filing says that they have almost $400 million in short-term debt coming due in May, and might not have the financial resources to cover it.
Specifically, the company must deliver $400 million to lenders in May of 2009, six months from now. The company has only $46 million of cash on hand, and its operations will likely begin consuming this meager balance this quarter or next. The company has been shut out of the commercial paper market, but has a $366 million short-term credit line remaining that it entered into several years ago, when the industry was strong. It has not yet drawn this cash down, and given the current environment and the trends at the company, we would not take for granted that it will be able to do so.
This does not mean that NYT won't be able to pay its bills, but that it must start acting soon to do so. The writer suggests three things the company needs to look at:
  • Sell assets (Boston Globe, Red Sox?)
  • Use the credit line (this assumes the credit line remains available)
  • Cut costs (including cutting the dividend, which the Sulzberger family probably won't like)
The article summarizes the situation as follows: "Will this cash crunch force the New York Times into bankruptcy? No. (Or at least not yet.) The company still has assets, and it is not yet burning so much cash that it can't take steps to save itself. Those steps are likely to be unpleasant, though. And they will be taken at gunpoint."

A big comeback for Noxzema?

Alberto-Culver has bought the Noxzema brand in the Americas from Procter & Gamble (P&G retains the brand in Europe), and plans to upgrade the brand's marketing spend significantly, possibly to the point of 100% of sales in a re-launch effort.
... Alberto-Culver clearly is looking to spend much more. Though Ms. Boswell declined to specify a budget, one person familiar with the deal said the company may spend as much as one year's sales on an initial marketing push.

Noxzema had $39.9 million in sales across numerous categories for the 52 weeks ended June 15, according to Information Resources Inc., but U.S. retail sales likely reach closer to $60 million in all channels, not counting other countries. That would peg annual sales out Alberto-Culver's door in the U.S. at more than $40 million.
P&G spent about $2mil last year on Noxzema in measured media (probably a good deal more in-store).

The brand has a strong name and a following, and will certainly mean much more to Alberto-Culver ($1.4bil in sales) than to P&G ($85bil).

Thursday, November 13, 2008

A personal note

I’m happy to say that I’ve joined Trade Promotion Management Associates, our industry trade association, as Executive Director. We will be working to build on the solid work done in the past and to define new areas of service for the industry and the association’s members.

In the coming months, we will be focusing on building the membership of the organization and communicating our value proposition. It’s pretty obvious to me that the hundreds or thousands of companies who spend many millions or billions of dollars on channel marketing programs, and the many companies who serve their trade promo needs, should be part of a network to share ideas and gain insights and meet with industry thought leaders. That to me is a no-brainer, but we need to communicate exactly how that is done, and will be done, through TPMA.

As these ideas develop, I’ll be sharing some of them with you here, and will solicit your input on them. But TPMtoday and my newsletter, TPM Update, will not become advertising vehicles for TPMA. The newsletter and blog will continue to serve wide areas of interest and concern, and will be my personal communications formats, as they have always been. Therefore, it's important to note that TPMA and its partner organizations bear no responsibility for anything posted here – the views expressed here are my own.

Time for another look at retail consolidation

It’s been a while since last I ranted about the increasing concentration of retailing, but current events dictate that we’re about due for another such rant.

The graph illustrates the levels of retail concentration (the share of market held by the four largest players in each category) in four major channels – the ones where people buy the essentials: food, medicine, clothing, and similar items. (Other channels – such as books, sporting goods, electronics, hardware – all show similar patterns). The data is from the Census Bureau's Economic Census, conducted every five years (another such census was done in 2007 but, this being the government we’re discussing, the results won’t be known until 2009-10).

As you can see, the degree of concentration increased significantly in most channels. Although department store concentration dropped slighly in 2002, since then #3 Marshall Field was bought by #2 May Company, which was then absorbed into #1 Federated/Macy’s. I have no doubt the 2007 results will show far greater concentration in all categories, and the recent wave of bankruptcies, liquidations, and store closings ensures that those results, when they finally arrive, will greatly understate reality.

The drug channel has seen the recent takeovers of Eckerd and Osco; discount obviously has reached a point of absolute concentration, at least by this measure.

The big increase in the relatively unconcentrated (on the national level) grocery business between 1997 and 2002 reflects the entry of Wal-Mart into that channel and their immediate rise to dominance – the 2007 figures will be interesting. Despite the national numbers, the grocery industry is extremely concentrated at the local level: Concentration in Chicago in 2003, for example was 68.5%, Los Angeles was 61.8%, Phoenix was 84.7%, Boston was 70.8%, and so on. No major city except New York was below 60%.

Take another look at the chart and then reflect that the rule of thumb in antitrust is that 60% concentration is the point at which free competition begins to suffer, and 80% is the crisis point. When everything shakes out, how concentrated do you think the consumer electronics channel, as one example, will be?

We most often hear references to the dangers presented by too few sellers (oligopoly), who control a market and thereby set prices unfairly. There can, however, also be a problem with too few buyers (oligopsony), who can also control a market and dictate prices.

This problem already exists in some categories, as I hear endlessly from various vendors (though they are, to be sure, not unbiased sources). But I’m fairly sure that we will come out of the current economic turmoil with more channels impacted and with some channels in severe situations.

I have often advocated that manufacturers undertake efforts (through their trade promo programs, or perhaps by other means) to nurture their smaller customers. While such efforts might not pay the immediate dividends that can be gained by running promotions in the big boxes, the long-term interests of the manufacturer are advanced by having a thriving channel and lots of smaller customers to serve as a counterweight to the few big ones. Unfortunately, in some channels, it may already be too late.

It will be interesting to see if the new administration will pay any attention to this problem.

Tuesday, November 11, 2008

35% of CPG sales are on promotion

I've heard similar numbers quoted in the past, but it's good to have new research confirming things periodically. According to a study by Nielsen, "more than 35% of category sales storewide occurred on promotion; that equates to more than $129 billion in promoted dollar sales (not counting manufacturer coupons) through food, drug and mass merchandiser stores (excluding Walmart)."

The combination of a feature and display produced 176% lift, displays alone produced 87%, features alone 78%, TPR alone 44%.

The average promotional lift was 68% in the grocery channel, and 59% in drugstores.

By category, the highest percentages of promo sales were in soft drinks (63%), ice cream (53%), and crackers (52%)

Monday, November 10, 2008

Circuit City files Chapter 11

It has seemed inevitable -- the question gradually becoming when rather than if. We had a post not quite a month ago reporting speculation by an analyst that CC would file for bankruptcy early in 2009. The problem is that once rumors reach that level, they become self-fulfilling. Creditors reading such things begin cutting back, vendors hold off shipments, and ... bankruptcy follows.

So the only surprise was only that they filed before Christmas rather than after:

Circuit City, the biggest electronics retailer in the U.S. until the mid-1990s, filed for bankruptcy before it had a chance to take in cash from the holiday selling season, when it gets more sales than any other time of the year. [...]

"It's very incongruent for retailers to file bankruptcy before Christmas,'' Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview.

However, subsequent the the analyst speculation mentioned above, there was the news that NYSE had warned Circuit City about their stock price dropping too low to meet Big Board standards, and then the announcement last week that CC is closing 155 stores. The combination proved too much for the vendors

A list of creditors is included in the linked report. H-P and Samsung are the biggest, each on the hook for more than $100 million.

Circuit City will continue operations as it attempts to reorganize.

Sunday, November 09, 2008

The variable value of in-store promotions

I just completed reading a paper by marketing researcher Herb Sorenson, published in the Journal of Advertising Research, entitled Long Tail Media in the Store". I recommend it highly.

I’m not going to go into the details of the paper and the methodology of the research, which would take too long, but I'll pass on a few of the findings and some of the related facts that Sorenson notes.
  • The typical shopper only spends about 20-30% of his/her time in the store actually buying things – leaving the remaining 70%+ (about fifteen minutes of a typical twenty-minute supermarket trip) to be persuaded by the multitude of marketing messages in the store.
  • The shopper, however, only reads about 8-10 text-type messages; most marketing messages are absorbed via color, shape, and icons/logos.
  • Most purchasing decisions are made very quickly (note that only about five minutes of the trip is spent buying the many items that a typical family shopper purchases on a weekly trip – therefore each decision takes only a few seconds on average). Any marketing message that is intended to result in immediate purchase therefore must be presented, seen, processed, and acted upon in less time than it took you to read this sentence.
Sorenson’s research was based on having shoppers wear a small camera attached to their ear, which recorded what the shoppers saw and how long they looked at it. Sorenson then applied weights to the reach and frequency of exposures as well as the length of exposure, to come up with a measure of the relative impact of various in-store marketing tools.

Again, I’m not going to go into detail on his findings – no one will be surprised to learn that endcaps are the most frequently seen type of display and get the most attention from shoppers. I’ll mention one item that I found surprising (though, on relection, it made a great deal of sense): In-store flyers are used by a relatively small portion (21% in the case cited) of shoppers, but those shoppers who do carry the flyer with them refer to it so frequently that it ranks third among all the in-store media.

From a TPM perspective, I think the research, as it is followed up and expanded upon, should be used by marketers to assist them in evaluating in-store promotions and how much to pay for them. It also points up the need to capture full information about promotions – how often is “in-store promo” the totality of information entered into the planner?

Thursday, November 06, 2008

Update on Panasonic/Sanyo

I posted a few days back that Panasonic is planning to buy Sanyo. Here's an updated report, indicating that the bid will come in January, with a goal of completing the deal by March:
The Nikkei news service cited “company sources” in a report today saying Panasonic will launch a tender offer for Sanyo shares as early as January, with plans to make the acquisition a subsidiary after acquiring a majority stake at the end of March.

Panasonic is expected to begin due diligence on Sanyo's assets and hopes to reach a basic agreement with the three largest holders of Sanyo preferred stock about the purchase price and other terms of the tender offer by the end of November, Nikkei’s sources said.

Watching a local go national

Shamrock Farms, long the dairy leader in the Phoenix and Tucson markets, has recently been making efforts to become a national brand.
Based in Arizona, Shamrock Farms is one of the largest family-owned and-operated dairies in the country, according to the company. One of the first dairies to become a nationally-known brand, Shamrock Farms single serve milk has been gaining notoriety as the official milk of Subway Restaurants, as well becoming a staple in vending machines and a must-have for school lunches across the Southwest.
Kroger and Marsh will be selling Shamrock products in Indianapolis and in several mid-Atlantic markets. The marketing plan includes print and broadcast as well as in-store (of course), plus sampling at "high-traffic locations."

Saks will kill Libby Lu

Saks Inc. is going to discontinue its Club Libby Lu operation. Club Libby Lu was a "concept" operation, intended to appeal to girls of about 6-12.

There were 98 units in the group, 78 stand-alone stores and twenty store-within-a-store units operating in department stores (such as Carson Pirie) that used to be part of Saks' department store groups. Saks has sold off the mid-range department stores, reducing the company to its upscale Saks Fifth Avenue core, with which Libby Lu didn't make a good fit..

The Club Libby Lu business generated $60 million in sales last year. Saks will take an after-tax charge of $11 million in the third quarter and after-tax charges of $18 million to $27 million in the fourth quarter for the closing.

Saks has been selling off its non-core holdings. It sold its northern department store group, including Carson’s, to Bon-Ton Stores for $1.2 billion in March 2006, and sold its Proffitt’s/McRae’s business to Belk for $622 million in May 2005.

Wednesday, November 05, 2008

$2bil up for grabs in CE channel

Analysts have calculated that the liquidation of Tweeters and the closure of 20% of Circuit City's stores means that $2 billion in consumer electronics business will be contended over by the remaining players.
According to Piper Jaffray analyst Mitchell Kaiser Sr., Best Buy could conceivably pick up as much as 30 percent of the approximately $2 billion that will be up for grabs, the Associated Press reported.

Looking at Circuit City alone, Credit Suisse analyst Gary Balter believes Best Buy will capture “well above” its 21 percent market share from the 155 liquidating stores, aided by the chains’ close proximity within the affected markets, he wrote in a research note.
Certainly in markets like Phoenix and Atlanta, from which CC is withdrawing completely, Best Buy should gain quite a bit. Where else can buyers go? (Though WalMart and Target will certainly grab a piece of the pie). In other markets, Circuit City will grab up some of Tweeters' former customers.

I think, though, it's time for me to write again about the longer-term effects of retail consolidation. This time I think I'll bring in some thoughts about whether a new administration might seek to reverse the trend. Give me a few days to ponder.

Is Nash Finch back on track?

Nash Finch has had a lot of bad news in recent years. As this article states:

The good news about Nash Finch Co. is that there hasn't been much news lately.

That's probably a welcome relief to the Edina-based food distributor and retailer. Over the past few years, Nash Finch has endured management turmoil, slumping sales, a federal insider trading investigation and lawsuits from competitors, investors, and shareholders. Several Wall Street analysts have stopped covering the company.

But now there is some good news. The stock price was up strongly before the recent market problems, and sales have been growing in both main sectors of the business -- food distribution and military.

Under Covington, Nash Finch has also boosted profitability, invested millions of dollars in marketing and retooling retail stores, and -- perhaps most importantly -- cleaned up the mess left behind by former CEO Ron Marshall.

"Morale seems to have improved," said David Livingston, managing director of DJL Research in Pewaukee, Wis. Nash Finch "has more clear-cut objectives in terms of what they want to do. They certainly stopped going in the wrong direction. They seem to be on the right path."

Boscov's bought back by family

I've posted a few times about Boscov's bankruptcy and the efforts to save it, most recently mentioning here that the Boscov family was trying to buy the chain.

Apparently, it has happened:
Has retail patriarch and larger-than-life Reading philanthropist Albert R. Boscov pulled off the miracle that saves his father's legacy - and the nation's oldest family-owned department store chain?

The irrepressible Boscov, 79, has orchestrated a deal, announced today, that may rescue his family's company from the clutches of bankruptcy.

Boscov signed an agreement to buy back most of the assets of Boscov's Department Store L.L.C. despite the credit and consumer crises that have brought much deal-making to a standstill in the last two months.

There are still hoops to be jumped through, most importantly court approval, but the bid is supported by the creditors and the only competitive bid has been withdrawn, so it seems likely to go through.

The chain will emerge from Chapter 11 with 39 stores that generate about a billion in revenue. Ten stores have been closed.

I am, to put it mildly, skeptical about the department store channel. I think it is dying. But nonetheless, I wish the Boscovs and their employees and vendors the best in proving me wrong. Perhaps they will be the ones, after many false claims, who will truly "reinvent" the channel.

Tuesday, November 04, 2008

Trouble in teddy-bear land

There's a bit of mystery surrounding the firing of the President/COO of Build-A-Bear Workshops.
Build-A-Bear Workshop Inc. has fired Chief Operating Officer and President Scott Seay, and the company said it won't be paying him a severance package.

The Overland-based stuffed toy animal retailer said Monday that the board of directors terminated Seay's employment effective Friday. The company would not disclose why it fired Seay, 45, who has held the two jobs since January 2007.

"The circumstances (of the firing) are not related to business operations or the company's performance," said Molly Salky, Build-A-Bear's director of investor relations. Seay, who was earning a base salary of $368,324, is not entitled to a severance package under termination provisions in his employment contract, and there will be no charge to Build-A-Bear's earnings, she said.
Gee, I usually expect, "We jointly agreed that now was a good time for both ______ and the company to seek new directions." Or at least, "He wants to spend more time with his family."

Monday, November 03, 2008

LG and Samsung report tough times

I've had a lot of items recently on how tough things are in the consumer electronics channel -- especially for Tweeter and Circuit City. But when the channel is hurting, things are likely to be equally unpleasant for their suppliers. Korea Times has an article on the problems the big Korean electronics companies are facing.

Both Samsung and LG posted poor third quarter results -- Samsung's profit down 44%, LG down 93%.

Samsung's plan is to cut back investment in memory chips and to slow production of LCD panels to offset rising inventories. They also dropped their takeover bid for SanDisk to preserve cash. A positive step is to improve their supply chain:
The world's No. 1 memory chip and liquid flat-screen maker plans to maintain its current leadership by cutting costs and solidifying supply chain management networks.
LG is going to move to the low end of the mobile phone market, although there seems to be some concern about risks, some of which involve their channel:
"The recent decision to change handsets policy to low-tier phones is somewhat risky because there is no guarantee of success without selling channels and a stronger brand image. But there isn't an option for the time being,'' said an LG insider.

Short-term prospects for technology spending

The newsletter I sent out last week featured this item noting the slowdown in IT spending (and what can be done to work around it). UK's Retail Week discusses the same thing, focusing on the channel side obviously, but noting that anything that doesn't generate an immediate return is being put on hold. Some key quotes:
  • IT directors admit that projects they had pencilled in for next year are on hold ...
  • "We have continued with a number of projects ... where we have no alternative but to carry on. But new things are being held back."
  • IT projects to support future growth are not a priority for many right now ...
The theme of the article is making the most of what you have, which is what I think a lot of companies will be doing over the next several months.

Circuit City closing stores

Scroll down on the main page and you'll find several previous posts on CC's problems -- so obviously this is coming as no surprise.

The nation's No. 2 consumer electronics retailer said it will shut 155 of its more than 700 stores and leave at least a dozen markets entirely, including Phoenix and Atlanta, by Dec. 31. It will lay off about 17 percent of its domestic work force, which could affect up to 7,300 people.

Circuit City also said it will further cut back on new store openings and plans to work with landlords to renegotiate leases, lower rent or terminate agreements while it deals with tightening credit from its vendors.

The consumer electronics sector seems to be harder hit than any other (or perhaps that's just my perception), possibly because such purchases are highly discretionary. In any case, best wishes to the folks at CC (and Tweeter).

Update: Twice wins the Obvious Award for this week with a story noting that Circuit City's problems represent an opportunity for Best Buy.

Best Buy is anticipating a major restructuring of CE retailing over the next year and is prepared to absorb real estate and market share as businesses fail and storefronts close.

“We're sure there'll be material consolidation in the industry,” said Brian Dunn, president and COO, which will create “potential opportunities” for the No. 1 CE chain.

Sunday, November 02, 2008

Panasonic buying Sanyo?

Here's a report that Panasonic is in talks to buy Sanyo.

If a deal is reached to buy all their holdings, Panasonic, already the world's largest plasma TV maker, could become Japan's top electronics firm by sales.

Panasonic and Sanyo combined are expected to post 11.22 trillion yen ($114 billion) in revenue, according to their forecasts for the year ending March 2009, surpassing projected 10.9 trillion yen at Hitachi, the country's current sales leader.

The motivation might be to gain control of Sanyo's battery expertise. They are #1 in lithium ion batteries, and rechargeable batteries are, for obvious reasons, a fast-growing market. They are also among the leaders in solar cells.

Happy birthday to us

A day late, which is how I usually am with birthdays. Yesterday was TPMtoday's third birthday. We've had 680 posts in that time (here's the first one, still kind of appropriate, posted on November 1, 2005).

We've also had a lot of fun.

Bye-bye , Vista / Hello, Windows 7

Microsoft bid a probably not-very-fond adieu to the Vista name -- a thoroughly damaged brand -- reintroducing the product as Windows 7.
Microsoft introduced what it said would be a slimmer and more responsive version of its Windows operating system on Tuesday, while unceremoniously dropping the brand name Vista for the new product.
Vista got a cold response from both techies and ordinary users, and it will be interesting to see if the new version is a big improvement. Vista is blamed for Microsoft's recent lackluster financial results.
The problem was highlighted last week when Microsoft reported its financial results for the most recent quarter. Its Windows unit reported just a 2 percent rise in revenue against a 4 percent decline in operating income. The computer industry viewed the setback as a shift of historic proportions. The company acknowledged last week that the mix of Windows sales in both mature and emerging markets had tipped more toward low-cost PCs, which come with lower-margin versions of Windows and often not Vista. Sales of Office software rose 23 percent, bringing in more revenue than the operating system.