More on the food-price battle

In the comments to my previous post on pricing tensions between suppliers and food retailers, Mark Ahrens pointed us to the Unilever-Delhaize dispute in Europe, where Delhaize tossed hundreds of Unilever products out of their stores.

Unilever spokeswoman Aurelie Gerth said Delhaize, which had already removed 70 other Unilever goods before October, refused to buy all the brands the company offered and wouldn’t guarantee new products would get shelf space. Though talks continue, there’ll “probably not be a solution this week,” she said.

“We didn’t agree to their terms, so they refused to grant us discounts,” said Delhaize spokeswoman Liesbeth Rogiers. “That would really boost our purchasing prices and we can’t and won’t pass those on to our customers.”

Throwing out one of the world's leading CPG companies seems like a pretty bold step, and one suspects Unilever won't be out for long. But I was struck by this step that Delhaize has taken:

Delhaize plans to sell the remaining Unilever products it has in stock, and has put up signs in its stores directing shoppers to alternative brands and private labels, Rogiers said.

In regard to food prices in general, a bit of perspective might be in order. This item from WomensDay has, among other things, comparative prices (adjusted for inflation) for food products -- in the 1950s, a dozen eggs cost the equivalent of $5.29, and in the '70s a pound of round steak was $9.33. The next time I gripe about prices, I'll try to keep those in mind.

I love the Wii

And not just because it's a lot of fun. I also love the Wii because it's a great marketing story. Nintendo, if I recall the numbers correctly, was trailing Sony and Microsoft fairly significantly pre-Wii. Hardcore video gamers (such as my son) turned up their noses at Nintendo's products.

So Nintendo simply redefined the market, creating a family-friendly game system that facilitates rather than impedes social interaction, and that appeals more to adults and little kids than teen boys. It was marketing genius -- if you're losing in the existing market, create a new one.

And it has paid off big-time. The video game business is one of the bright spots in the economy, with January sales up 13% over last year, and within that growing market, Wii's console sales are double those of Playstation and Xbox, while the top three games are all for the Wii.

And besides that, Mario Kart is a blast.

P&G no longer tagging displays for Walmart

I'm not sure what to make of this item:

The Procter & Gamble Co. (P&G), a pioneer in the use of Electronic Product Code (EPC) technologies in the supply chain, has ceased placing EPC tags on promotional displays bound for Wal-Mart's RFID-enabled stores.

Although I haven't followed the subject closely, from the early days of RFID I have thought that its most significant application, from a trade promo standpoint, was in tracking displays for purposes of compliance monitoring. The article seems to support this view, quoting a P&G exec: "... the work we conducted with Wal-Mart has shown that this use of the EPC can deliver improved promotional effectiveness, better sales and, most importantly, higher shopper satisfaction."

So why stop doing it? It appears that Walmart was was not cooperating with the project. The article cites a P&G supplier as saying that "the company is frustrated that Wal-Mart's sales associates have not acted on the data in order to improve compliance with promotional programs."

P&G's managers, the contract manufacturer explains, "were asked to put the tag on and absorb the cost of that, and I think they felt Wal-Mart should be doing more to live up to their end of the bargain. Why put the tag on if Wal-Mart's not going to act on the data?"

P&G of course is not going to say anything like that. But they seem to hint at it:

"We've been working on these applications for close to 10 years. We have learned that to secure sustainable benefits, the use of EPC requires deep levels of collaboration between the manufacturer and the retailer, and a commitment to use the actionable visibility provided by the EPC to change business processes. "

Hmmm ... Walmart not collaborative?

Local TV in decline

There was a time when being granted a license to operate a TV station was equivalent to having a license to print money -- with margins as high as 50%. Local TV stations, especially network affiliates made tons of money regardless of how they were managed or marketed. There was no way they could fail.

Of course, pretty much the same was once true of newspapers. But not anymore:

LAS VEGAS -- Lisa Howfield, general manager of KVBC, the NBC affiliate here, watched last year as the broadcast-television business began to shrink. She started cutting. She combined departments. She made do with old equipment, and did away with luxuries like yearly sales getaways.

In December and January, she laid off 15 employees, or 6% of her staff. After the weatherman left last month, one of the morning news anchors took on both jobs. "It's like a bad roller-coaster ride," says Ms. Howfield. Her station's full-day viewership is down 7.7% this TV season from the same period last year, according to Nielsen Co., and Ms. Howfield expects her ad revenue in 2009 will be down 30% from 2008.

To the combination of media fragmentation exacerbated by the economic and advertising downturn, you can now add the threat (beginning to be openly discussed by network honchos) that the networks may decide they don't really need local affiliates, given the levels of cable/satellite penetration. Why, the networks are asking themselves, should we split the (shrinking) ad revenues with the affiliates, when most of their viewers are watching us on cable? Why not just switch our programming to cable and keep all that lovely money for ourselves?

This probably won't happen in the next couple years (as the article makes clear), but it will happen reasonably soon. When it does, another important medium for local advertising will decline, pushing still more trade funding into the store.

A bit of speculation on food pricing

A week or so ago, I posted an item about the increasing tension between supermarket chains and their CPG/food & beverage suppliers who raised prices in 2008, but have not lowered them since. As usual in such cases, there are two sides to the story.

I also quoted from a news item that commented on a sidelight of the story:

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.

I have ever since been musing on that sidelight, and wondering whether it might in fact be a key component of the story. This is, I hasten to say, pure speculation, and I have no way of knowing whether it has any foundation in fact.

Let's start the speculation with a bit of history. The great increases in CPG/food trade promo spending -- when spending as a percent of sales doubled and tripled to near today's range of about 15%-20% -- occurred in the 1970s. They resulted, those who were involved tell us, out of the massive inflation of that decade and out of the government policies that attempted to deal with the inflation.

In 1971, the government instituted wage and price controls to fight inflation. As almost always happens with such policies, they failed, and were withdrawn in 1973. Inflation continued throughout the 70s and into the early 80s. Many manufacturers raised their prices more than necessary after the controls were lifted and kept them high throughout the decade, offsetting the excess increase with allowances to their retailers. They looked at this as insurance against reimposition of controls -- they had higher prices on the books to protect themselves from government auditors -- and meanwhile the allowances effectively cut their prices down to reality.

So much for the history, here comes the speculation: I'm wondering if part of the suppliers' reluctance to cut their prices now has a similar foundation. In the face of economic uncertainty, and with the likelihood of huge government deficits that could trigger inflation, are suppliers hedging their position by keeping relatively high prices on their books, while effectively decreasing the real price through allowances? If so, history tells us that once the new levels of trade spend are established, it may be tough to lower them.

As noted, this is just speculation, but I'd be curious to hear from anybody who has information to support or debunk it.

Chaos in the luxury market

Wall Street Journal reports on the fallout from Saks's deep discounts on top fashion lines.

When Saks Fifth Avenue slashed prices by 70% on designer clothes before the holiday season even began, shoppers stampeded. "It was like the running of the bulls," says Kathryn Finney, who says she was knocked to the floor in New York's flagship store by someone lunging for a pair of $535 Manolo Blahnik shoes going for $160.

Saks' deep, mid-November markdowns were the first tug on a thread that's now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.

Other high-end retailers followed suit, as did many of the designers who have their own retail outlets. But will consumers who grow accustomed to designer shoes at $160 be willing to pay $535 again when the recovery comes?

Besides creating a suspicion of high prices among consumers, Saks's actions broke the unwritten law under which designers and retailers operated: "Leave the goods at full price at least two months, and don't do markdowns until the very end of the season."

Some designers now are looking for ways to protect themselves in the future. Among the options being considered: Giving department stores only a limited assortment of goods, retaining the top items for their own outlets; or, operating leased departments with department stores.

... New York design house Derek Lam, which is known for cocktail dresses that sell from $1,200 to $3,500, is opening its own New York store next month. To protect itself against other retailers' discounts, it's thinking about creating "special editions" of its lines that wouldn't be sold in Saks and other retailers.

In hindsight, Saks admits that it may have over-reacted.

"We didn't need to do what we did in accessories," Mr. Frasch says. High-end shoes and handbags would probably have sold out, even at higher prices, because shoppers see them as more practical wardrobe updates than another new outfit.

The retailer is still not out of the woods. Saks shares were recently trading at $2.72, down from $22 in December 2007. In mid-January, it laid off 1,100 people, or 9% of its work force, and could close some stores.

This year, Saks is spending about 20% less on merchandise to keep inventories lower, but Mr. Frasch acknowledges the number is only a guess. The luxury-goods business is "absolutely flying blind," he says.

His boss, Mr. Sadove, agrees. "One of the big questions that people are asking," he says, is: "Will people ever buy at full price again?"

I'll be interested to see if the Saks approach or the Abercrombie & Fitch approach (refusing to cut price) is more successful.

P&G expanding car washes

Procter & Gamble has bought an Atlanta car wash chain and will use it as a foundation for expansion of their Mr. Clean experiment.

The move follows an August announcement by P&G that it was seeking franchisees to expand the car wash centers throughout Ohio and Kentucky, including with locations in the Dayton area. At the time it operated two local operations – in Deerfield Township and Evendale – and offered services at Fountain Square garage in downtown Cincinnati.

Now, Mr. Clean Car Wash operates 16 locations, including the two corporate-owned sites. Three other franchised locations are in the works.

On the one hand, using the Mr. Clean name on car washes certainly sounds like a natural brand extension. On the other, going into the car wash business seems rather distant from P&G's core competencies. On the third hand, who am I to question P&G?

Update on automotive channel-stuffing

There are continuing reports of car dealers being pressured by manufacturers to take on excessive inventory:

[Chrysler] has urged its dealers to take on more inventory in February and March as it looks to boost revenue ahead of a first quarter deadline to secure additional government aid and prove that it is viable.

Automakers book revenue when vehicles are shipped to dealers, not when they are sold to customers.

The problem for the dealers is that they already have an average of five months inventory on their lots.

Fewer stores, fewer brands, fewer choices

As consumers, we will need to adjust to fewer choices during the downturn -- fewer choices of where to shop, as stores close, but also fewer choices in the stores that remain open. Suppliers cutting costs will take fewer chances with new products, and retailers cutting inventory will trim their assortments.

Toy maker Mattel, Inc., which posted a 49 percent drop in fourth-quarter profit, said its focus this year will be "cost and spending reductions." It added that it's cutting back on underperforming products. Whether that means fewer choices with Barbie or Hot Wheels isn't clear yet. [...]

The caution can already be seen in the lean assortment of spring items in stores like Banana Republic and AnnTaylor, which have empty space in areas once teeming with tables of merchandise.

Another way we will see fewer choices is likely to be retailers cutting not just assortments (carrying a dress in three colors instead of five), but also cutting suppliers and brands:

"How many different brands of men's black shoes do we need?" is one example of the questions Macy's is asking itself, Chief Executive Terry J. Lundgren told the The Associated Press this week after the chain announced it was cutting 7,000 jobs. "We have to do a better job in turning our inventory," he added.

Touching increases value

An interesting piece of research says that touching an item may increase its value to consumers.

Researchers from Ohio State University and Illinois State University tested how touching an item before buying affects how much they are willing to pay for an item. A simple experiment with an inexpensive coffee mug revealed that in many cases, simply touching the coffee mug for a few seconds created an attachment that led people to pay more for the item.

The results, which were published recently in the journal Judgment and Decision Making, found that people become personally attached to the mug within the first 30 seconds of contact.

Handling the mug increased the value of the mug by significant percentages, based on what participants were willing to pay in an auction setting.

Not definitive, of course, because it's just one study. But it seems intuitively reasonable, and has implications for online and bricks & mortar marketers.

Macy's changes course (or do they?)

Macy's is announcing that they will be doing more localization, both in merchandise and marketing.

The retailer will eliminate its current structure -- a relic of its May Co. acquisition that had stand-alone divisions such as Macy's Central and Macy's Florida -- and streamline functions into two corporate offices. Marketing, merchandise planning, buying and stores' senior management will be located in New York, while finance, human resources, legal and real estate will be housed in Cincinnati.

That's cool. But this is just an extension of a change they announced a year ago, and that I commented on last April. They don't exactly turn on a dime, do they?

The real concern is the one I expressed last April (though I was no doubt too harsh -- I must have been feeling really crabby that day): The raison d'etre of the merger that created Macy's was nationalization (national advertising, national merchandising, economies of scale). Now they are abandoning that, and going back to having 69 regional marketing/merchandising plans. Macy's is the bellwether of the department store channel and they are demonstrating that they really have no vision or direction for the channel.

A first in Second Life

TPMA held its first event in a virtual world yesterday, hosting a series of panel discussions via Second Life. I moderated the three panels, which featured lively discussion on collaboration, customer-centricity, and positioning trade promo programs for recovery.

The panelists -- Peter Eschenberg (Hitachi), Harris Fogel (O4), Blake Watts (Plan4Demand), Jim Nadler (afterBOT), Tom Strubel (Oracle), Phil Conner (IAB), Lauren Robinette (Cisco), Armen Najarian (DemandTec), Chris Wiesen (SAP) -- did a great job, and there was lots of interaction from the attendees.

It was different and it was fun. This was a case where the medium was at least a big part of the message. The content was important, of course, but it was also an opportunity for all of us to try out a new medium and see whether it can be an effective way to communicate.

I think the medium passed the test. There were few technical glitches and none of any significance. We deliberately kept things simple, but now we know that we can add other elements (slides, maybe video). And most importantly, we learned that this is a format for delivering information that engages the audience more than traditional webinars. I'm not saying this will replace webinars -- there are limitations as well as strengths -- but its another option to consider.

PS: Armen posted about the event on his blog -- get his view here.

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.

Poll says internet has passed newspapers as news source

The latest poll from Pew Research Center says that more people cite the internet as their prime source of news than newspapers.

As the graph shows, the net had a big jump this year, possibly explained by the poll being taken shortly after the election, during which political junkies (myself included) checked websites regularly for the latest news, rumors, and polls. It's possible, then, that the numbers are inflated, but the long-term pattern is nonetheless clear -- papers are down fifteen points from their high and TV down twelve points, while the net is up 27 points.

This is not necessarily all bad news for the papers -- many of the most popular news websites are run by the newspapers themselves, but for it to be good news the publishers are going to have to figure out a way to turn those online readers into advertising dollars, something they've had trouble doing thus far.

Who pays for all the markdowns?

The practice of guaranteed margins, common in the department store channel, is being questioned by suppliers who are staggering under the weight of all those huge markdowns we're seeing.

Clothing makers, balking at the deep holiday discounts offered by retailers such as Macy’s Inc., may force department stores to eat more of the markdowns.

Liz Claiborne Inc., HMS Productions Inc. and a raft of apparel companies plan to push back at the retailers who have slashed some prices by 70 percent amid what’s shaping up as the worst holiday shopping season in four decades.

Some analysts are saying that stores used to guarantees of 40% may have to settle for 35%, and that mid-range stores like Penney may see their guarantees cut from 35% to 30%. The cuts could save suppliers a billion or more. There may be some interesting conversations at the NRF meeting next month.

Independent grocers ask for R-P enforcement

The National Grocers Association sent President-elect Obama a wish list that includes a request that he push the Federal Trade Commission and Justice Department to enforce antitrust laws against their bigger rivals:

Consistent and balanced enforcement of our nation’s antitrust laws, including the Robinson-Patman Act, is especially important to ensure a level competitive playing field for entrepreneurial businesses. N.G.A. encourages you to appoint a Chairman of the Federal Trade Commission and Assistant Attorney General for Antitrust that will enforce the law in a consistent and balanced manner. A level playing field provides the appropriate marketplace environment where diversity thrives and consumers are well served with an abundance of choices.

I have mixed feelings on R-P enforcement: I agree with the NGA that there are serious abuses in trade promo and other channel practices, but I have doubts about R-P itself, which surely ranks among the most poorly-written major pieces of legislation ever (in the famous Fred Meyer decision, the Supreme Court wrote, "Conceding that the Robinson-Patman amendments by no means represent an exemplar of legislative clarity ..."). It's tough to comply with a law that no one quite understands.

An overhaul of R-P would be the ideal solution, but I have a hard time foreseeing that happening.

TNS predicts 2% retail growth in 2009

The forecast is not what any of us would ordinarily hope for, but right now anything with a plus sign in front of it is looking pretty good.

For 2009, sales growth for the year (excluding automobiles and gasoline) is forecast to approach 2% growth compared with the 2.3% average growth for 2008 through November, based on data reported by the U.S. Department of Commerce.

TNS Retail Forward anticipates a rebound to occur in 2010 and gain momentum through 2013, when annual increases in sales will again approach the 5% average growth rate of the past 10 years.

I wonder if it's realistic to expect to regain 5% annual growth in retail sales -- GDP growth and income growth were both below 5% over the recent past, so is such a figure sustainable for retail sales over the long haul? I'm not an economist, but it seems like perhaps we should recalibrate our expectations -- both as consumers and as marketers.

The end of the VHS era

There's no real trade promotion message here, but I was fascinated by this story on the last distributor of VHS tapes -- the guy responsible for filling those bargain bins at the dollar stores -- announcing that he's giving up.

"It's dead, this is it, this is the last Christmas, without a doubt," said Kugler, 34, a Burbank businessman. "I was the last one buying VHS and the last one selling it, and I'm done. Anything left in warehouse we'll just give away or throw away."

The real interest in the article is simply reading about somebody who sees opportunity where the rest of us see a product that is far enough past the end of its lifecycle that it has started smelling a bit. He unabashedly describes himself as a bottom-feeder, but his bottom-feeding has done quite well for him: "I'm not sure a lot of people are going to miss VHS," he said, "but it's been good to us." And he's looking forward to reprising his success as DVDs are replaced by Blu-Ray.

Walmart leaves PRISM waiting at the altar

Walmart has announced that it will not be a part of PRISM when Nielsen's experimental in-store marketing measurement tool goes live next year. Walmart was one of the original backers of the initiative, so their departure is a blow, but it is not really all that surprising, nor does it fatally wound PRISM.

Combined with Walmart's absence from syndicated data, this may seem to indicate a chronic inability to commit, but a more likely explanation is simply that Walmart feels that their competitors may gain more from having Walmart data in the mix than Walmart gains from being in the consortium -- the same reason they withhold their POS from the syndicators. Having been part of the pilot, Walmart now knows enough about how the new tool works to do the same thing on their own and make it part of RetailLink.

It makes perfect sense, though it is no doubt a disappointment to Nielsen, and will further complicate the lives of marketers who were looking forward to the new tool.

I was initially dismissive of PRISM, because I felt sales data was a better measure of the effectiveness of in-store marketing, but I came around as I appreciated better that PRISM's purpose is different (to measure brand-building) and should be seen as supplemental and complementary to sales measures, rather than as an attempt to supplant those measures.

While Walmart's defection means that PRISM measurements will be less comprehensive, that does not mean they will be without value. We will continue to look forward to PRISM's rollout and hope that it fulfills marketers' hopes.

Merry Christmas

And there were in the same country shepherds abiding in the field, keeping watch over their flock by night. And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid.

And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people.

Walmart and Carrefour expanding in South America

Walmart announced plans to buy one of Chile's largest grocery chains:

Wal-Mart spokesman Kevin Gardner said from the company's headquarters at Bentonville, Ark., that D&S operates 185 stores in Chile and is a "significant" player in the country's grocery-retail sector.

Walmart is currently operating in Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Puerto Rico.

Carrefour, meanwhile, is planning to expand in Brazil, with expectations that Brazil will become their second-biggest market (it's currently third, behind France and Spain).

Carrefour SA, Europe’s biggest retailer, plans to open a many as four new stores in Brazil in the first quarter even as growth slows in Latin America’s biggest economy.

Carrefour sees growth opportunities in the southern part of Brazil and is interested in buying other companies, said Pedro Daniel Magalhaes, chief financial officer of Grupo Carrefour Brasil, in an interview with Bloomberg Television in Sao Paulo.

Borders drops "sale or return" ...

... for one vendor, at least.

Standard practice in the book trade is to allow 100% return on unsold books:

Industry practice dating from the 1930s allowed retailers to return unsold titles to publishers for full credit and without incurring shipping costs, the newspaper said.

These titles, about 30 percent to 40 percent of all titles according to industry figures, eventually get sent back to the stores for heavily discounted sale, the paper added.

The deal with HarperStudio calls for increased discounts upfront to replace the return privileges. One wonders, if this practice spreads, if we will soon be seeing the introduction of markdown allowances and TPRs.

In any case, the practice of returning books and then having them shipped back for sale at reduced price seems inefficient, a point acknowledged by HarperStudio:

The paper quoted HarperStudio's president and publisher Robert Miller saying that the economic downturn has made publishers and booksellers more open to experimenting with models that might decrease waste and increase profit.

Staples expanding in-store marketing

Staples has signed a deal with News America Marketing to put a greater focus on in-store marketing:

Through the partnership, announced this month, News America will design coupon machines, shelf messaging, floor ads and sampling programs in more than 1,500 Staples stores nationwide. The in-store media will launch next month.

The deal is an expansion into a new market for News America, which has been concentrated almost entirely on the food and drug channels. News America notes, though, that they have working relationships with many of Staples' suppliers.

This is another example of the growing intrusion of CPG marketing practices into other channels. In early 2007, I posted an item titled HP goes CPG that involved, by coincidence, Staples:

Hewlett-Packard is employing tactics from the world of consumer packaged goods, demonstrating once again something I (and others) have been noting for a while – the growing convergence of the two wings of trade promotion in consumer products, CPG and consumer durables.

BusinessWeek reported recently that HP is making payments to retailers to get them to stop selling private label cartridges for HP printers:

Those executives say the company has approached chain stores that sell store-brand cartridges compatible with its printers and offered them incentives if they end the practice.

Staples is offered as an example. The article goes on to raise questions about the legality of the practice, which is of interest, of course. But I was more struck by how HP, an iconic company in the high-tech arena, is using a marketing tactic more identified with the selling of canned peas.

This is not necessarily because CPG has the better set of tactics (a strong case could be made for the contrary), but because the nature of trade promo has always been driven by the nature of the channel, and the durables channels today are becoming more similar to the mass, grocery and drug channels. As retail concentration increases, therefore, we will likely see more coupon dispensers and floor ads in unexpected places.

On a somewhat related note, Brandweek had an article entitled "OgilvyAction's Roth Explains Shopper Marketing", which I read eagerly in the hopes of having Shopper Marketing explained to me (heck, I'd settle for having it clearly defined). I was, alas, disappointed, although some good examples were cited. Interesting, though, how much interest ad agencies are showing now in in-store marketing. Do you think it might be related to declining revenues from traditional media?

Newspapers trying just about everything

In Detroit, the two newspapers are eliminating home delivery most of the week (delivery on Thursday, Friday, and Sunday only). The other four days, the papers will be sold only on the street and will be cut to 32-page single-section editions. Good luck, but it's hard to see how both papers survive.

The Seattle Times is asking its employees to take a week off -- unpaid. This comes after three rounds of layoffs this year that reduced staff by 22%. Again, it seems that the day of the two-newspaper town (with the exception of New York and maybe Chicago) may be over.

But the award for most-innovative approach goes to the New Britain Herald and Bristol Post in Connecticut, where they are trying to arrange for a taxpayer-funded bailout for the papers.

Update, Tuesday: A reader says that the Connecticut papers are not asking for a bailout, and provides this link to information on the subject. It's good to have multiple views on a subject, and I'm grateful for the information. The question might be what constitutes a "bailout" -- legislators are asking the state Department of Economic and Community Development for assistance for the papers, including low-interest loans or other incentives.

Newsweek wants to be The Economist when it grows up

Once again, a recession bites most fiercely on companies and categories that were struggling in good times (e.g., department stores and newspapers). Another example: weekly news magazines. Newsweek's ad pages are down 17% this year, and Time is down 19%. US News has dropped out, announcing first that it would become a bi-weekly, then amending that to monthly.

But the category has been struggling with irrelevance for a long time:

Just how challenged the newsweeklies have become can be seen by comparing current ad page counts to those of eight years ago.

January through September 2000, Newsweek reported 1,613 ad pages, with revenues of $294,259,907, based on ratecard before discounts. Time reported 2,032 ad pages and revenues of $449,397,814. For the first nine months of this year, Newsweek reported 1,035 ad pages and revenues of $237,578,612. Time reported 1,179.46 pages at $313,886,163.

In the past couple decades, the newsweeklies have mostly appeared to respond to the changing market by dumbing themselves down to the point that they're pretty much indistinguishable from People. (I admit I'm basing this on limited observation -- it's been decades since I read any of those mags anywhere other than doctor's offices). This left a niche that has been filled by The Economist. And now it seems that Newsweek wants to crowd into the same niche:

According to these reports, Newsweek plans to shed news coverage in favor of analysis and opinion journalism as practiced by The Economist and other so-called thought-leader titles, relying on big-name journalists rather than the teams of reporters and editors who now put out the magazine each week. Shedding a good share of that staff would mean huge cost savings. Already this year, Newsweek has shed more than 100 positions.

Good luck to them, of course, but Newsweek trying to reposition itself as intelligent reading seems to me kind of like Lindsay Lohan trying to rebrand herself as Grace Kelly -- it's a worthy effort, but unlikely to succeed.

P&G wants to renegotiate media contracts

Their sales are flat or down, so Procter & Gamble is looking for a cost savings by renegotiating some of its media contracts.

The media is in no position to fight back, as P&G well knows:

"This media environment is a big 'O' opportunity for us, because we're the biggest advertiser in a lot of these countries, and we just go in and tear up the contract," Mr. Lafley said. "Whole industries have walked away [from media advertising]. So everything is getting renegotiated, and we want to be ahead of the curve."

The article notes that P&G's media spending has decreased by double-digit numbers the past two quarters, but I wonder if much of that decline is offset by in-store spending.

Ad agencies expecting big cuts soon

Madison Avenue is getting ready for some major staff cuts in the new year, with the prediction that total ad spending in 2009 will be down 5.7%.

After trimming jobs throughout the year, Madison Avenue is bracing for even bigger layoffs in 2009.

Ad executives and recruiters expect agencies, which have been cutting in dribs and drabs, to hand out a flurry of pink slips early next year as the ad downturn worsens.

The talk in industry circles is that the major agency holding companies - Interpublic, Omnicom and WPP - are planning deeper cuts to ring in the New Year.

"Close to 50 percent of agencies are owned by holding companies," said Joanne Davis, a longtime ad-industry consultant. "The public markets are putting pressure on these companies to perform."

Some of the ad agencies have recently created divisions to deal with shopper marketing and other in-store promotion. Perhaps they will finally be motivated to become seriously involved in the segment where most of the marketing budget is spent.

Woolworths closing down

Efforts to find a buyer for what was once Britain's largest retailer have been unsuccessful, so the going out of business sales are expected to begin as soon as tomorrow.

In what looks like the beginning of the end for the retailer, its administrator Deloitte has said that some shops could close for good by the end of the year.

Deloitte is also due to consult with Woolworths' 30,000 staff over the possibility of redundancies.

Talks over the sale of the leaseholds of individual stores are continuing. It is thought that Sainsbury's, Asda, Tesco, the Co-op and discount chain Poundland are still interested in picking up some of the retailer's prime sites.

Retailers cutting marketing (or maybe not)

Lesson #1000 (or so) on why you shouldn't believe media headlines. Ad Age has an article with this header:

Retailers Shrink Ad Spending During Holiday Sales Period

But the actual story indicates that a survey says that 32% of retailers are cutting their marketing budgets, which would seem to indicate that more than 2/3 are not cutting.

BDO Seidman said that of the 100 chief marketing officers surveyed, 32% report having a smaller holiday advertising budget than last year. Forty-three percent of retailers said their budgets are flat, while only 25% said their budget would increase for the holiday season.

Hmmm ... that reads a little differently from the headline, doesn't it?

How to spin a story as negatively as possible is also demonstrated in this paragraph:

But CMOs are not only pessimistic about the holidays, they are uncertain about the economy's ability to recover. The vast majority, or 65%, of CMOs surveyed said they do not expect to see a meaningful turnaround in the economy until the third quarter of 2009 or later. Twenty-nine percent expect a recovery in the third quarter, while 17% are looking to the fourth quarter of next year for a recovery. Nearly a fifth of CMOs say they don't expect a turnaround until 2010.

Let's do some math: Apparently 35% of CMOs think the economy will recover earlier than Q3 '08, and 29% think the recovery will come in the third quarter, which means instead of reading:

The vast majority, or 65%, of CMOs surveyed said they do not expect to see a meaningful turnaround in the economy until the third quarter ...

It could just as truthfully read:

The vast majority, or 64%, of CMOs surveyed said they expect to see a turnaround by the third quarter ...

But that would be unchicly positive, wouldn't it?

Okay, I'll stop the bashing long enough to point out a rare positive piece of news for the newspaper biz -- 57% of respondents plan to spend a majority of their budgets in print.

Abercrombie takes the high (margin) road

While practically every other retailer is cutting prices, Abercrombie & Fitch expresses fears that price-cutting would damage its brand image. I'm a big believer in maintaining the brand, but I must admit that I'd probably be willing to compromise my principles in the face of sales figures like these:

While just about everybody was down in November, I don't think anyone else was -28%. The positive, though is that A&F has maintained not just their brand image, but also their margins:

Gross margins at American Eagle slid 6.4 percentage points to 41% of sales in the third quarter, while at Pacific Sunwear they fell 4.9 percentage points to 28.7% of sales. Abercrombie, meanwhile, closed the quarter with relatively high gross margins of 66% of sales, with a much smaller decline of 0.2 percentage point.

So maybe A&F's bottom line isn't suffering much more than it would with price-cutting, in which case protecting the brand makes sense. A question remaining to be answered, though, is what happens when the inventory backs up. The WSJ article says A&F is maintaining normal inventory levels, but if sales are down so sharply, then there's going to be a lot of stuff gathering dust on the shelves in January, meaning either huge sales or stale merchandise.

It will be interesting to see how this works out.

MEI names Petrelli as VP-Sales

Andrea Petrelli has been appointed as the new VP-Sales and Business Development at MEI, a supplier of TPM software. From the press release:

In this function, Ms. Petrelli is responsible for developing value-added partnerships, and for overseeing MEI's global operations and sales management efforts. She replaces Fred Schroeder, who previously held the position of Executive Vice President of Sales.

Andrea Petrelli comes to MEI with a successful track record in managing operations and growing sales for global consumer package goods manufacturers. Most recently, she served as Vice President of Finance and Operations for Pinnacle Foods Canada where she was responsible for finance, trade and inventory management, production planning, and sales operations for the manufacturer, a marketer and distributor of branded food products. After being promoted from Pinnacle's Director of Finance, she was instrumental in driving the strategy to maintain sales in a time of extreme market turbulence among retailers in Canada, while continuing double digit growth of the bottom line. Ms. Petrelli began her sales career with Compaq Canada and went on to assume several sales and finance positions with Nabisco Canada LLC - one of Kraft's billion-dollar brands.

Anybody who can cross over between Sales and Finance is a real Renaissance person. Best wishes to Andrea in her new role.

The MAP enforcers

Apparently there is a new service industry springing up to help manufacturers enforce minimum advertised price (MAP) policies.

Tiny companies like NetEnforcers -- with only 56 staffers jammed into a dim, spare cubicle farm in Arizona -- wield economic power far beyond their size. These companies scour hundreds of thousands of Web sites daily, looking for retailers offering bargains below the "minimum advertised price," or MAP, set by manufacturers on an array of consumer goods.

When NetEnforcers finds items like cameras, handbags or ovens for sale at too-low prices, as it claims to do 5,000 to 10,000 times a day, it alerts its clients, including Sony Corp., Black & Decker Corp., Cisco Systems, JVC Kenwood Holdings and Samsung.

MAP is slightly different from reseller price maintenance (RPM) in that MAP deals with policies involving advertised price, whereas RPM deals with efforts by a manufacturer to set a selling price, whether advertised or not. Both types of policies are getting a lot of attention these days, and my guess is that the level of attention is likely to escalate considerably in 2009.

The FTC is investigating musical-instrument and audio-gear makers for possible MAP-related antitrust violations. And online retailers such as BabyAge.com and HomeCenter.com have sued manufacturers with MAP or similar price-maintenance policies, alleging antitrust violations.

Consolidation isn't just for retailers

I write often about the effects of retail concentration, but something that I sometimes don't mention often enough is that the same is happening among the retailers' suppliers. In fact, it can be argued that vendor consolidation is perhaps an inevitable corollary -- vendors must consolidate to be able to deal with their huge customers.

As we watch retail bankruptcies in the recession speed up the trend to channel consolidation that has been going on for decades, we can expect to see vendors following the same path:

Slowing purchases of clothing and accessories may spur consolidation in the fashion industry, Liz Claiborne Inc's chief executive officer (CEO) said on Friday [...]

He said there could be more consolidation among department store vendors than among the stores themselve

Hard times in Nascar Nation

After being the hot sport, at least in terms of sponsorship, for a number of years, Nascar has slipped badly recently.

• 12 of the 42 drivers have no sponsor for the 2009 season
• TV ads were down in 2008 to $539mil, a drop from $567mil in 2007
• Both TV ratings and track attendance have dropped three years in a row

Nonetheless, Nascar still remains the #1 sport in trerms of sponsorship, and trails only NFL in most other measures. Still, the numbers above seem particularly troubling when you consider than the full effects of the automakers' problems haven't been factored in yet for Nascar.

Channel-stuffing in a recession

I had meant to write a post speculating that we might see an increase in channel-stuffing as the economy dropped off and some desperate manufacturers looked for ways to make their numbers. Channel-stuffing is always a stupid idea, but even smart people can get really stupid when they panic.

I was basing my thinking on a couple things I had read in which some small to mid-sized retailers indicated that they were being pressured by their vendors to take on more fourth-quarter inventory than they felt they could sell.

Here's an opposing view, based on something I hadn't considered -- the credit crunch might make the channel impossible to stuff, even if the retailers were willing:

Will there be an increase in the level of channel stuffing that occurs if vendors are under pressure to compensate for softer markets ... ?

I don't think so because stuffing happens when there is credit available. If there is less credit it will be cleaner. Banks and insurance companies will have reduced the credit and so I think you'll start to see the real players emerge that are committed to the business and have their own capital investment.

The people who used to make money in between as the second or third intermediaries will be wiped out by the credit crunch, which will improve the profitability of real customers.

Tribune declares bankruptcy

Adding to the general woes of the newspaper industry, today Tribune Company went into Chapter 11.

Media conglomerate Tribune Co. filed for bankruptcy protection Monday, as the owner of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs and other properties tries to deal with $13 billion in debt.

Severe reductions in advertising this year because of the recession have put pressure on the Chicago-based company. Most of its debt comes from the complex transaction in which the company was taken private by real estate mogul Sam Zell last year.

Private label increases retailer leverage

Wall Street Journal reported on current increases in sales of private label products, and made a case for those increases improving the bargaining position of retailers vis-a-vis their brand name suppliers, with particular emphasis on the increases in trade promotion funding that may result.

Private-label gains come as some name brands lose market share, a shift that industry experts say could benefit grocers on several fronts in their dealing with suppliers. To help further promote their brands, branded consumer goods companies may have to kick in more to a retailer's marketing fund to pay for discounts, two-for-one offers or prime placement in supermarket circulars. Retailers may also get juicier rebate offers from their suppliers, as incentive to help push sales of branded products.

Since PL still only amounts to 16% of volume and with many brands still having a powerful allure to consumers, retailers need to find strategies that balance their marketing of PL and brand names. Trade promotion and pricing will be an important piece of that balancing act..

Part of that strategy may come to include more so-called trade funds that grocers receive from national brands to promote their products in various ways, Karabus's Mr. Weintraub said. This money is usually hashed out in annual contracts, which, with the changing landscape and end of year coming up, are producing some interesting discussions right now.

Additional talks will likely center on price increases that national brands pushed through to retailers throughout the past year as costs for ingredients and fuel rose.

The increasing role of private label and the effect it will have on trade promotion funding and pricing points out (yet again) how vital it is that brand marketers have effective tools for analyzing and optimizing their promotional efforts.

Mattel gets court order against Bratz

How nice would it be to get a court order forbidding a principal competitor to sell their products? Mattel just pulled that off, being granted an order forbidding MGA to sell its Bratz dolls..

U.S. District Judge Stephen Larson in Riverside, California, yesterday granted Mattel’s request to stop MGA from making most of its multiethnic fashion dolls that have contributed to a drop in Barbie sales since being first sold in 2001. A jury earlier found that a Mattel designer came up with the Bratz name and characters and secretly took the idea to MGA.

“Mattel has established its exclusive rights to the Bratz drawings, and the court has found that hundreds of the MGA parties’ products, including all the currently available core female fashion dolls Mattel was able to locate in the marketplace, infringe those rights,” Larson said in his ruling.

Mattel had earlier won an award of $100 million in damages. MGA is appealing both that decision and now the injunction.

Borders isn't for sale anymore

Borders has been reported to be up for sale since spring, but now they are saying the "For Sale" has been taken down.

Ann Arbor, Mich.-based Borders Group Inc. recently reported a widening loss for the third quarter, but said it is no longer for sale.

The cynical side of me wants to sneer that the only reason they aren't for sale is that they figured out there are no buyers, but there's another side to the story (and sometimes we can overdo the cynicism):

The bookseller has been in the midst of a turnaround for more than a year, during which it weighed the possible sale of its core business. However, company executives said Tuesday that the progress made during that time will allow the company to stand on its own, even in the middle of an economic downturn. During the restructuring, Borders cut staff, sold select business units, revamped some stores and dramatically lowered its inventory and debt.

Good for them -- let's hope that the restructuring has enabled them to weather the storm.

For sale: thirty papers

Thirty newspapers around the country are up for sale, with apparently few if any buyers. Denver's Rocky Mountain News is the latest to go on the block.

The newspaper industry has been caught in a tailspin for three years, a trend variously blamed on plummeting ad revenues, declining readership, growing competition from the Internet and a deepening national recession.

On Thursday, Colorado's oldest newspaper joined the growing list of dailies on the market. E.W. Scripps Co., owner of the 149-year-old Rocky Mountain News, offered to sell it after reporting an $11 million loss through the first nine months of this year.

"It's a terrible time to put the Rocky Mountain News up for sale, clearly," said John Morton, a veteran newspaper-industry analyst in Maryland. "Whatever price they might attract probably will be quite low. I think it's going to be very difficult to find a buyer."

The RMN is the #2 paper in Denver, and there are few markets that can support two papers anymore. Here in Chicago, the Sun-Times has been reported to be up for sale for a while. Worse, now there's a report by an industry analyst saying that some markets may end up with no papers at all:

Newspaper and newspaper groups are likely to default on their debt and go out of business next year -- leaving "several cities" with no daily newspaper at all, Fitch Ratings says in a report on media released Wednesday.

"Fitch believes more newspapers and newspaper groups will default, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by 2010," the Chicago-based credit ratings firm said in a report on the outlook for U.S. media and entertainment.

I wonder if we will end up with a few national and/or regional papers, supplemented by hyper-local sections; e.g., the Dallas Morning News and Houston Tribune being pretty much the only newspapers in Texas, but being distributed in Austin, San Antonio and Corpus Christi with local sections (much as metro papers today have neighborhood sections).

Update, Sunday 12/7: It appears we can add the Miami Herald to the list. McClatchy took on a lot of debt when they bought Knight-Ridder two years ago, which is weighing them down now, and the Herald is one of their more valuable assets.

Marketing blamed for Black Friday tragedy

A lawsuit filed by relatives of the Walmart worker killed by stampeding shoppers on the day after Thanksgiving says that marketing hype is partly to blame:

A complaint filed today in New York State Supreme Court in the Bronx on behalf of survivors of the fallen worker, Jdimytai Damour, claims that besides failing to provide adequate security, Wal-Mart "engaged in specific marketing and advertising techniques to specifically attract a large crowd and create an environment of frenzy and mayhem," according to published reports.

The local police chief similarly blamed Walmart and their marketing:

"When you advertise products, and you market it heavily, and it garners public interest, and it's great bargains with limited quantities of merchandise, and you have a crowd that can grow beyond the quantity available, it is a recipe for disaster," Mr. Mulvey said.

He also said Wal-Mart didn't appear to have enough security to handle the crowds and that police had told retailers in the county two weeks earlier that security and crowd control were their responsibility.

I'm seldom inclined to say that anyone is responsible for anyone else's actions. The members of the crowd who couldn't control their lust for bargains are the ones responsible, and if they can be identified they should be prosecuted. But Walmart (and many other retailers) have unquestionably gone overboard with Black Friday hype, and maybe this tragedy will restore some sense of proportion, among both retailers and shoppers.