Are GM and Chrysler stuffing the channel?

There are indications that General Motors and Chrysler, in an effort to make their sales figures look better to the Feds, are using incentives to push car dealers to accept unrealistic shipment levels. If so, this is classic channel-stuffing.

AutoNation, the largest dealership chain, is resisting:

GM and Chrysler "have implemented wholesale incentive programs where they basically say to get the incentives for the inventory you want, you have to buy more inventory," AutoNation Chief Executive Mike Jackson said Thursday in a conference call to discuss fourth-quarter financial results.

"I think this is the wrong thing to do," Jackson said. "We are not playing that game."

[...]

"The channel is full, and they are trying to stuff more in," he said.

The manufacturers want dealers to order as many cars as they did last year, but AutoNation is forecasting a 24% sales decrease.

Grocers complain that prices aren't dropping

Business Week reports that grocers are warning they will fight food manufacturers who raised prices last year in the face of commodity price increases, but have not lowered them as the commodity prices have declined recently.

Manufacturers respond that their price increases were not excessive in light of the cost increases they had previously absorbed. This graph offers some support, showing that producer prices increased more than consumer prices for the seven quarters preceding Q4 '08.

Nonetheless, retailers are threatening increases in private label and possibly dumping uncooperative suppliers. SuperValu's CEO noted that "In almost every category, you have other vendors to look to."

It appears that suppliers may be trying to compensate for the increases by bumping up their trade spend:

But analysts say they're already seeing an increase in so-called promotional dollars, or money that vendors give to retailers to subsidize temporary discounts like two-for-one offers.

The Cincinnati Enquirer carried a similar article, noting that Walmart is talking tough:

"We worked with them when raw-material costs rose," said John Simley, a Wal-Mart spokesman. "Now that they've dropped, we want to see prices come back down. Our suppliers know we are the advocate of the consumer."

NRF predicts return to growth in Q4

The National Retail Federation predicts that sales will be down 2.5% in the first half of 2009, down 1.1% in the third quarter, but will rise 3.6% in Q4 (compared, of course, to weak sales in Q4 '08).

They also think that retailers have now reduced inventory enough that price-cutting will abate a bit:

"Because of what's happened, retailers are being more conservative with inventory, and so the need to have that panicked price-cutting is lessened," says Wells. And in addition to better inventory management, adds an NRF spokesperson, stores are "trying to be efficient as possible, to do more with less in their advertising, and sometimes changing their merchandising mix."

Latest media casualty: Mad

Not that it has anything to do with trade promo, but Mad magazine is switching to quarterly publication after 56 years as a monthly.

The venerable humor magazine today announced that starting with issue #500 in April, it will move to a quarterly publication schedule from its current monthly. The magazine’s version for younger readers, MAD Kids will cease publication with the issue on sale February 17th, while the final issue of MAD Classics will go on sale March 17th. Both of the spinoff magazines launched in 2005. Circulation numbers for the magazines were not readily available.

Handling the news with style typical of MAD, Editor John Ficarra said, “The feedback we've gotten from readers is that only every third issue of MAD is funny, so we've decided to just publish those."

Just about every item I've seen on this has some variation on "What, me worry?" in the header or text. It is worrying (to work it in here, as well) that the economy has damaged even such an institution. Though, in reality, it is probable that (as with many/most recent victims in media and retail) the economy has merely sped up Mad's partial demise. When I was a kid, I read Mad religiously (if that's the right term), but how many kids are doing so today? Times change, and media changes with it.

Nielsen drops PRISM

Nielsen has announced that it is "suspending" their PRISM initiative, stating that the prices for the information created would be too high in the current environment.

"While the industry as a whole is very supportive of the syndicated service, many clients, in the face of the current economic environment, are not in a position to fully fund a syndicated service at this time."

Nielsen said it will keep providing custom work measuring and analyzing shopper marketing "until a syndicated service is financially viable for many of our clients."

I hope the initiative is revived. Although I was initially skeptical about it, I eventually came around to the view that it would provide valuable data, and now I'm disappointed not to see that data, and (more importantly) not to see how it is used to improve targeting of in-store promotions.

We will continue to have the most basic (and most important) measure of trade promotion -- POS (though often lacking, for in-store promotions, vital performance data to give full meaning to it). But PRISM was intended to be about Shopper Marketing, as distinct from trade promotion. Shopper Marketing, as I understand it (it's not always clearly defined), is intended to be more than trade promo alone -- it is intended to perform both the usual functions of trade promo (immediate sales lift) and of national advertising (brand building) . Without PRISM we will not have any measure of the second function.

It also seems that the costs are not excessive, though any cost may reasonably be viewed that way in the current economy.

... the cost of PRISM data, which an executive for a consortium member said ranges from the low to mid-six figures annually (and up to seven figures for bigger marketers), is particularly daunting in the current economy.

A million-dollar (to choose the higher end of the range) expenditure to measure and improve the effectiveness of a billion-dollar expenditure seems quite reasonable to me. But again we are playing by different rules today.

GameStop makes money on used games

GameStop, according to Wall Street Journal, is making a large part of its profit from sales of used games.

About 42% of GameStop's overall gross profits come from its secondhand business, compared with half that level for new games. "When you consider that most retailers operate on single-digit margins, it's astronomical," said Evan Wilson, an industry analyst with Pacific Crest.

The big contribution to the bottom line is due to the margins on used products -- typically the used games are sold for double what the store gives the former owner (and that payment is in credit toward future purchases). Thus GameStop averages 48% on used product, compared to 20% on new games and a miserable 7% on new consoles.

A guaranteed argument-starter

If you want to get a heated argument (or at least a spirited discussion) going, just put together a list and title it "Best of ______". Whether it's the Top 100 Movies of All Time or the Best Books Ever Written or the 10 Best Quarterbacks, you're certain to leave a name off the list that many people believe should be near the top.

Interbrand has been putting out lists of the top brand name for a long time now, but this year for the first time they have compiled a list of the Most Valuable U.S. Retail Brands.

Numero Uno isn't going to surprise anybody, with Walmart's $129.8bil brand value being rated roughly six times that of runners-up Best Buy's $22.0bil and Home Depot's $20.8bil. Target and CVS follow.

But two of the top ten "retail" brand names are brands I would think of first as products -- #6 Dell and #10 Coach. Besides Dell, two other on-line retailers are in the top fifteen -- #11 Ebay and #14 Amazon. (Is Ebay a retailer at all? They sell nothing, others sell through them. They are really more like a mall, aren't they?)

See how quickly we can get an argument started?

There were a number of other interesting points. I was surprised to see Sherwin-Williams, with their mostly small outlets located in strip malls, ranked at #23. I was equally surprised to see American Girl, with only three or four outlets, on the list. But on reflection, both companies, however different, have done a good job of establishing thyemselves as brands, and maintaining their brand identity.

Where's Macy's?

The most interesting thing about such lists, though, is not who's on them, but who isn't. The #1 department store chain in the country, Macy's, is conspicuous by its absence, as is the former #1 retailer in the world, Sears.

Three department stores made the list -- Nordstrom (13), Kohl's (22), and JCPenney (24). Interbrand states, though, that department stores as a group have become "commodity chains without real difference." But they add a hopeful note:

... Macy's, Saks Fifth Avenue, Dillards and Sears have considerable brand strength, though they didn't make the list. All have the opportunity to capitalize on their brand to improve their financials.

But the most glaring omission was ...

No Supermarkets?!?!

Not a single traditional supermarket made the list. The only food retailer was Whole Foods at #47. Kroger? SuperValu? Didn't make the cut.

Traditional grocery earned the weakest customer loyalty scores. Over-reliance on discounts, rewards and promotions undermines any move toward a meaningful proposition and results in low brand strength.

If customer loyalty is a key measure of brand strength (and most would agree it is) then it's hard to argue that supermarkets have strong brands. Interbrand notes that further undermining the brand names of the leading chains is their multiple banners (Kroger includes Ralph's, Fry's, etc). And they also mention how excessive reliance on promotional funding can undercut branding:

The grocery sector also often misses out on opportunities for product differentiation, since small entrepreneurial manufacturers can’t afford to supply supermarkets due to the cost of supporting their promotions and the payment of slotting fees. In the U.S., there are a trillion dollars moving from the manufacturer to the grocer every year. As long as their vendors continue to pay for play, supermarkets may see no need to understand and serve the shoppers in their stores.

That last sentence sounds a bit harsh (and that's the first time I've heard that trade promo equals a trillion (!) a year in the supermarket channel alone), but I do agree that supermarkets harm themselves by locking out smaller suppliers, who could help them create a brand difference. Unfortunately, they're now hooked on trade promo, which is the difference between profit and loss, and kicking the habit (or even cutting back substantially) might be too tough a challenge.

I don't agree with all the rankings, but I found the exercise interesting and thought-provoking. Give it a read, and enjoy arguing with Interbrand (or with me).

Are the agencies starting to get it?

There has been a notable increase recently in the interest shown in shopper marketing by Madison Avenue types. They are apparently becoming aware that all that grubby in-store stuff actually produces sales, and also that it represents far more money than the more glamorous TV advertising they've long been addicted to.

Adweek has an article this week about shopper marketing that points out that American Idol reached 35 million people for its season finale last year, while 150 million shop at Walmart each week. After acknowledging that the stores are today's true mass medium, the article focuses mostly on the number of ad agencies that are creating shopper marketing divisions and on the creation of in-store advertising networks.

I'm still not convinced that the agency world really understands trade promo and in-store (and they probably won't get fully on-board until we start holding our annual meetings in Cannes), but they are slowly groping their way toward understanding.

Magazines take a big hit

I sometimes am criticized for writing too much about the decline of the newspaper industry. It is perhaps a fair criticism, though I do so because newspapers are, outside the store, the largest medium for trade promotion spending. Newspapers are not alone, however -- all the media (again, excepting the store) are hurting.

According to the Magazine Publshers of America, advertising revenue in their medium was down 7.8% last year, with the fourth quarter down a mind-boggling 13.8%. These numbers are worse than most of those I've seen for newspapers. Some of the major magazines have even worse numbers: Time was down 14.1% for the year, Newsweek -27.1%, the New York -20.7%. Those are some scary numbers.

Circuit City, R.I.P.

Not that folks who read TPMtoday don't already know, but just for the record: Circuit City is closing down. The first thing to do is to offer best wishes to the 30,000 people who will be losing their jobs.

Beyond that, it is time to reflect again on the narrowing of distribution channels. A few years ago, the toy channel consolidated down to only Toys R Us (and Walmart), and now consumer electronics (which lost CompUSA and Tweeter in 2008) consists of Best Buy (and Walmart).

Here's a post from early 2007:

I've often advanced this theory (as have others), which says that we are moving toward a retail landscape in which there will be only two significant outlets in each channel. I've used as examples:

• Best Buy/Circuit City
• Home Depot/Lowe's
• Barnes & Noble/Borders
• Target/Wal-Mart
• Kroger/Super-Valu
• etc.

There are a corollary and a variant to this theory. The Manufacturers’ Corollary holds that there will be only two suppliers in each product category. The logic behind this is that suppliers will have to be large enough to deal with the retail giants, and is supported by the tendency of the retailers to want to improve efficiency by winnowing their supplier base. Supporters of this corollary point to P&G’s acquisition of Gillette. They argue that P&G was already bigger than its competitors, so the acquisition was not intended primarily to strengthen their hand vis-à-vis Unilever, but rather its purpose was to allow them to sit at the table with Wal-Mart as equals.

Which brings up the Wal-Mart Variant to the Two-Per-Channel Theory. It holds that the final two in each channel will be:

• Best Buy/Wal-Mart
• Home Depot/Wal-Mart
• Barnes & Noble/Wal-Mart
• Target/Wal-Mart
• Kroger/Wal-Mart
• etc.

It's certainly beginning to look like the betting should be on the Walmart Variant.

The end of the "second paper"

This week it was announced that the Tucson Citizen has been put up for sale by its owner, Gannett, and will be closed if there is no buyer within sixty days. The chances of anyone buying it are pretty slim -- who wants a mid-market paper with 17,000 circulation?

Similar announcements have been made in recent weeks about the Seattle Post-Intelligencer and Denver's Rocky Mountain News. What all three papers have in common is that each is the #2 paper in its market, and the demand for newspapers is no longer sufficient to support two papers per city, other than in New York and maybe a few other places.

Some have predicted that there may soon be major cities with no papers. I'm not convinced that's going to happen, and I hope it doesn't, but it's hard to rule it out at this point.

While the recession will no doubt take the blame from some, what is happening now is just the effect recessions have of speeding up the demise of already-weak businesses. Newspapers have needed a new business model for some time, but have yet to find it. Here's an interesting article from Wharton School of Business suggesting some fixes, including turning themselves into non-profits, becoming niche businesses rather than mass-market, and trying to make people pay for on-line content (it works for the Wall Street Journal, but New York Times failed at it). I don't know which, if any, of those solutions will work, bt I wish the people of the newspaper business good luck in finding the solution.

Leibowitz for FTC?

Washington rumors are that FTC Commissioner Jon Leibowitz will be promoted to head up the commission after Barack Obama takes over on Tuesday.

Leibowitz, a Democratic commissioner with broad Capitol Hill experience, is expected to be named to head the FTC, at first in an acting capacity, the sources said. Commissioner William Kovacic, a Republican, now holds that job.

The five-person FTC also has an open seat.

The rumors go on to say that Einer Elhauge, a Harvard law professor who has advised the new president, will be appointed to head the Justice Department's antitrust division.

Wharton questions in-store marketing assumptions

The Wharton School of Business has published a study by one of their faculty, together with a couple European academics, that calls into question the long-held idea that most purchase decisions are made in the store. If this is the case, then perhaps the huge shift of marketing funds from traditional media to in-store promotion is less justified than thought.

Among the findings, which were based on a study of purchasing in the Netherlands:

• Young, unmarried adult households with higher incomes do 45% more unplanned buying.
• Households led by an older person and those that have larger families do 31% to 65% less spontaneous purchasing.
• There is 25% less unplanned buying among shoppers who mainly use newspaper ads for price information.
• People who consider themselves very "fast and efficient" shoppers are far less likely to make impulse buys -- 82% less than the average.
• If the purpose of a shopping trip is "immediate needs or forgotten items," the rate of buying in unplanned categories falls by 53%.
• Unplanned purchasing goes up by 23% if the shopping trip itself is unplanned, but it goes down by 13% if it's a major or weekly trip.
• If a shopping trip includes stops at multiple stores, there is 9% less unplanned buying at the second or third store.
• Unplanned purchasing goes up by 44% if the shopper goes to the store by car instead of on foot.

Some of these items are intuitive, especially the first and the last. It's hardly a surprise that people with greater disposable income are more likely to buy on impulse. Nor is it surprising that people who have to lug shopping bags home are more likely to limit their purchases.

The last item particularly calls into question the study's applicability to the US market, where shopping is done almost universally by car, except in highly urbanized areas. A difference of 44% in buying patterns is pretty substantial.

Nonetheless, it's valuable to have basic assumptions questioned, and it would be good to see if further studies would show similar results. Perhaps this is just one of those ways in which US and European buying habits differ; perhaps this has valuable lessons, but only as applied to a limited (but important) area of the US market; or perhaps it calls into question some of the most important trends in recent consumer marketing.

It's important to note, though, that in-store marketing has grown not only because of in-store purchase decisions, but because the store is an effective medium, especially in light on the fragmentation and accelerating decline of traditional media.

It's also important to note that, regardless of the outcome of studies, suppliers and retailers should rely, in making promotion decisions, on analysis of their own results -- when you promote in-store do you get lift, and is that lift profitable? If so, keep doing it. If not, change things.

Borders brings in former Nash Finch CEO

Borders has hired Ron Marshall, a former CEO from Pathmark stores and food distributor Nash Finch, to be its new boss, hoping to stop continuing losses.

Borders Group announced Monday that it has shaken up its top management, as well as a double-digit drop in holiday sales from a year ago and a potential delisting from the New York Stock Exchange.

Ron Marshall, who is a founder and principal of Wildridge Capital Management and a longtime retail executive, will replace George Jones as Borders’s chief executive. Mr. Marshall, 54, will also serve as a director. Borders also named a new chief financial officer, chief administrative officer and a new top executive for merchandising and marketing.

Some are pointing to Marshall's experience as a turnaround specialist in his previous roles. No doubt that's the big reason for his appointment, but I can't help noting that he will probably bring a CPG/food mindset to the book biz, helping to further the convergence of retail practices.

A service provider takes a fall

Satyam, a major Indian supplier of IT and business process outsource services, has shocked their customers by admitting that they have been cooking their books for several years (more than a billion dollars is missing). It seems quite possible they will go out of business, though efforts are being made to salvage the company.

Losing an important supplier is a major concern to all companies who outsource and is often cited as a reason for keeping work inside, but the infrequency with which this sort of thing happens, and the tremendous benefits of outsourcing non-core functions, proves to me that it is a risk worth taking.

There will also be those who point to it being a "foreign" firm and use that as an excuse, but this sort of thing is not exactly unknown in the US and Europe (Enron, Ahold, etc). Well-run Indian (and Chinese, and other) firms will emerge stronger as a result of tighter scrutiny.

Abercrombie stays on the high road

I posted an item last month on the horrible results Abercrombie & Fitch was posting, and the punishment they were taking on Wall Street as a result. The numbers (-24%) continued to be awful in December (although that was slightly better than November's horrific -28%).

A&F continues to refuse to cut prices. I visited one of their stores just before Christmas and there were no markdowns in the store. There were also practically no shoppers. As I said last month -- I admire their stand on the principle of maintaining their brand image, but it's going to be interesting to see if they can continue to do so if the recession lasts much longer.

Are we there yet?

TNS has published some data suggesting that we may have reached the bottom of the recession. I'm optimistic enough to think they may be right, although their evidence is just a few data points (December was -1.5% in retail sales, a slight improvement over November's -2.5, and consumer shopping intentions improved very slightly).

I'm contrarian enough that my willingness to accept the data may just be my reaction to what sounds to me like wildly overstated cries of doom, but it does seem likely to me that if we are not at the bottom we are likely very near it.

It's not just the big daily newspapers that are suffering

Most attention is being focused on the problems of the big-name newspapers, but smaller publications are in trouble, too. This weekend saw the last issue of AsianWeek, a 60,000-circ publication that has been serving the fastest-growing ethnic group in the US.

"There is a huge potential in the Asian-American market," Fang said. "But we're facing the difficulties and the reality of the newspaper environment and the economic environment."

Somebody will serve the needs of this big and growing market, but it probably will not be in the same format.

Resale price maintenance in a recession

I came across this study from Japan, Demand Uncertainty and Resale Price Maintenance, which argues that RPM in conditions of uncertain demand will be "profitable for the manufacturer and not damaging to the retailers."

I am embarrassed to admit that I had not before now given any thought to how RPM might have different effects under current conditions than it did a year or so ago at the time of the Leegin decision that changed the law on RPM. The position taken by the paper may well be true in Japan where, the author tells us, retailers have the right of full return on unsold merchandise. That is not generally the case in the US (other than for books and perhaps a few other categories).

Which raises some questions (and I'm not going to pretend I have answers). If I were a retailer, I think I'd be reluctant, in the current retail environment, to buy merchandise covered by RPM policies unless I were given return guarantees, for fear of being stuck with unmoveable inventory as other retailers cut price on competitive products. Are manufacturers giving return guarantees in such cases? If not, are they offering other solutions (perhaps sale periods when price-cutting is allowed, or inventory financing allowances)?

This is a good time for a reminder that the FTC will be offering workshops on RPM -- more info on that here.

A late report on a good study

My New Years resolution should probably be to deal with things on a more timely basis. I attended a webinar a couple months ago, presented by AMR and DemandTec, and decided, as I was listening to it, to write a blog entry about it. You know how it is, though – things came up and … well, I’m finally writing it.

The title was Who Is Driving Trade Promo?, and it dealt with a study by AMR of trade promotion practices related to promotion analysis and optimization, and comparing the practices and results of food/beverage and non-food CPG companies. The webinar is available here and the white paper here, and if you missed them, they are worth your time. There’s a lot of good stuff, but I’ll just deal with a couple of items here.

The first finding, somewhat surprising as the white paper admits, was that the food companies are more advanced in their practices and have better results -- the researchers expected to find that the non-food companies (the biggest of which are bigger and have better margins) were the leaders.

One very interesting result is that the food/beverage companies most often cited by both Wall Street analysts and retailers as best of breed in trade promo practices did significantly better in stock performance than the best of the non-food CPGs. In the six-month period studied, the results were:

Food/beverage firms +0.52%
Non-food CPGs –5.02%
Dow Jones Industrial Average –4.72%

Another important point was that the food/beverage companies were more likely to use ROI measures to determine proper spending levels (48% to 35%), while the non-food companies were more likely to set their spending in comparison to competitors (26% to 14%).

The biggest difference, though, was in how well the food/beverage companies use their predictive/optimization software. Quoting from the whitepaper:

Use of predictive simulation and optimization tools is also linked to faster evaluation of promotion performance among food & beverage firms … For food & beverage companies in particular, this is associated with significantly faster promotion analysis times – a mean of 25 days, versus 35 days for consumer products firms who use the same tools. Notably, food & beverage manufacturers that use predictive simulation tools are able to drive post-event performance analysis time down from a mean of 44 days for non-users – a time savings of nearly 43%.

I find it interesting that use of the tools makes no difference to the non-food companies in terms of speed of analysis, while it makes a huge difference to the food companies. It was outside the area of this study, but it would be good as a follow-up to determine what the differences are in how the companies use the tools. There are several important summary points, and again I’ll suggest that you access the full webinar and/or white paper, but this one sentence says it all, I think: “The study findings suggest that the use of predictive technologies paired with the proper focus and discipline can help make the use of trade dollars far more effective.”

Remember when Bill Blass was a big deal?

It wasn't that long ago, really, that Blass was a big name in fashion, but now ...

NexCen wanted to unload Bill Blass from its books months ago but only just now made the sale. And like every pair of Manolos in this town, they had to mark it waaaaay down to get it out the door. Though NexCen sought $25 million for the designer business in September, they sold it for a mere $10 million. The lucky buyer is Peacock International Holdings LLC, a men's dress shirt and neckwear company.

When Blass retired and sold the company less than a decade ago, it was doing $700 million annually. The article doesn't say what sales are now, but given that the ready-to-wear line has been shut down, it would seem likely that sales are a fraction of that.

Maybe the company can be re-built; the brand name is still worth something ($10mil, perhaps).

Happy New Year!

May 2009 bring you everything you are hoping and wishing for.