Another retail milestone in Chicago

My hometown seems to be getting a lot of attention in the retail sphere lately, with the disappearance of Marshall Fields and the anti-big box law.

And this weekend it was announced that Carson Pirie Scott will be closing its downtown location. The closure of the 600,000 square foot store is part of the long decline of State Street, once one of the world's premier shopping districts:

State was once studded with department stores. Among the names gone forever are Montgomery Ward & Co., Rothschild & Co., Schlesinger & Mayer, the Fair, Mandel Bros., Goldblatt Bros. Inc. and others.

Sears left, then came back. Marshall Field's remains, though it is about to become Macy's. Others are long gone.

CMOs don't last

If you report to the chief marketing officer and you don't like him/her, don't sweat it -- the bum will be gone soon. If you are the CMO, keep your resume polished.

According to a recent study, the life-span of the CMO is short and getting shorter.

The tenure for chief marketing officers at the 100 top consumer branded companies has continued to decline, according to a new study. Over the past three years CMOs at these companies have seen their time on the job drop from 23.6 months to 23.2 months, said Greg Welch, who heads the marketing officer practice for the executive search firm Spencer Stuart, Chicago.

This is the second such study undertaken by the firm.

“The surprising thing is that this trend is continuing,” said Welch. “When we did our first survey three years ago we really didn’t expect this to happen.”

By comparison, CEOs last 44 months, CFOs 39, and CIOs 36.

Free Pepsi in Rhode Island

Rhode Island's new law on rebates (which we reported on last month) has resulted in stores being forced to give away merchandise for free.

People flooded Shaw's supermarkets around the state when consumers spotted print ads that offered four, 12-packs of Pepsi products for free with a mail-in rebate. Shoppers also ran to Stop & Shop stores where ads offered 10 free 2-liter bottles of Pepsi with a mail-in rebate.

Sharp-eyed Walgreen's customers scooped up free toothpaste because of a similar ad snafu.

The law requires retailers to apply all rebates at the cash register and submit the paperwork themselves, rather than having the customers submit the rebates.

More on Rite Aid

Rite Aid's strategy was praised by the New York Times: "Analysts said that Rite Aid is poised to thrive, citing stronger sales and a boom in generic prescription drugs."

But some negative opinions were raised as well. Toronto's National Post questioned the deal:

A deal by Jean Coutu Group Inc. to sell its 1,858 U.S. drugstores in exchange for cash and a 32% holding in Rite Aid Corp. has left both stock investors and bondholders nervous, with some credit watchers predicting a revolt by holders of US$850-million worth of high-yield Jean Coutu debt that is part of the transaction.

Meanwhile, Moody's indicated they might downgrade Rite Aid:

Moody’s Investors Service has put Rite Aid Corp.’s credit rating on review following the drug giant’s announced purchase of Eckerd this week, and said a downgrade is possible.

The buyout puts Rite Aid at risk of taking on an additional $2.3 billion in debt, in addition to the burden of the leases that had been paid by Eckerd’s parent company, the Jean Coutu Group.

Rite Aid buying 1800 Eckerd/Brooks stores

I'll update this when there's more news in, but Rite Aid this morning announced that it is buying 1800 stores from the Jean Coutu Group.

This will give Rite Aid about 5000 stores and make it a closer #3 behind Walgreen's and CVS.

Newspapers cutting staff

The newspaper industry is trimming its staff in response to circulation and advertising declines.

Among others, Belo Corp. said on August 10 its flagship Dallas Morning News wants to cut 85 positions through buyouts as it prepares for a restructuring this fall. A day later, The Plain Dealer in Cleveland, owned by privately held Advance Publications Inc., said buyouts were coming.

In July, Tribune Co. said it would cut 120 jobs at the Chicago Tribune, and The New York Times Co. said it would cut about 250 jobs in its printing operations.

While the NY Times cuts are in printing operations, most of the article deals with newsroom cuts. I wonder if this is the equivalent of manufacturing companies cutting R&D when sales slump?

While I believe there is a decline in interest among readers (and therefore advertisers) in newspapers I don't perceive any decline in interest in news. When they cut back in the newsroom, it looks to me like they're cutting the part of the operation that has a future, in order to milk the remaining profits from the dying part of the business.

Program differentiation by product

In a recent conversation with an industry professional, he quoted a top Wal-Mart exec as saying that manufacturers often don’t realize that they have the upper hand when they have innovative products, and the retailers only have control with commodities.

An excellent point, which raises the idea of differentiating trade promotion approaches by product (and more specifically by product life-cycle). It’s not a new concept, by any means – I recall Levi Strauss withdrawing co-op advertising support from their 501 jeans about thirty years ago, trying to encourage retailers to promote other products, and I don’t imagine they were the first.

While I like the idea, a problem I see is the increasingly-rapid pace of commoditization. I was struck recently, while wandering through Best Buy, at how quickly MP3 players have moved from a totally new idea to near-commodity status (though Apple seems to be able to continue to demand a pricing premium, for the moment). And Best Buy is reported to be about to introduce private-label plasma TVs.

But that’s a problem with execution, not with the concept. It simply means that trade program managers will need to remain alert to the rapid changes in their product’s position in the life-cycle and be nimble enough to make rapid changes to the program in response. Differing marketing goals at different stages (e.g., awareness and acceptance in the introductory period, gaining distribution and grabbing market share in the growth stage, etc) will require managers to alter the program on the fly.

Add into this the need to differentiate your program by channel, and to maintain specific programs for key customers, and it demonstrates the growing complexity of trade promotion.

The in-store agency

Wal-Mart has appointed Saatchi & Saatchi X (conveniently headquartered in Springdale, Arkansas) as their first agency of record for in-store marketing.

It may be that other retailers have named agencies of record for in-store but, because they weren’t Wal-Mart, it escaped my notice. In any case, Wal-Mart’s embrace of the concept indicates (again) the growing importance of the store as a medium.

I have been arguing for years that the store is the most-important advertising medium, an idea that has gained further traction with the fragmentation and decline of what used to be “mass” media – especially TV and newspaper.

While Saatchi has long been working with Wal-Mart on store design projects and promos, it will be interesting to see what being agency of record truly means. In-store communications in most retailers (and my experience with Wal-Mart indicates that they are no different) consists of a wide variety of vehicles (signage, kiosks, endcaps, in-store broadcast, etc), some produced in-house, the rest from various suppliers, offered up in no coherent manner, and presenting competing and often contradictory messages.

Is Wal-Mart, through Saatchi, going to try to impose some sort of discipline?

It won’t be an easy job (to put it mildly), but it will be interesting to watch. And manufacturers, who are trying to get their messages through the in-store confusion, need to watch carefully and adapt their trade promotion programs accordingly.

"Retailer of the Year" goes bye-bye

Tower Records is in Chapter 11. As we noted a couple weeks ago, they had been cut off by their distributors for nonpayment.

According to their press release, they are seeking a buyer:

"Tower Records has conducted an extensive sale process and this step will allow buyers to complete a sale in time for the holiday season while maximizing the value for stakeholders." In March of 2006, the Company retained Houlihan Lokey Howard & Zukin as its marketing and sales agent. The Company is evaluating Letters of Intent from parties interested in acquiring the Company. Mr. D'Amico stated, "Potential parties seeking to acquire Tower Records recognize the strength of the brand and its unique position within the marketplace, making it a very attractive opportunity."

The amusing part of the press release was this:

Last week, Tower was voted 'Retailer of the Year' (Large Division) at the 48th annual National Association of Recording Merchandisers (NARM) convention for the third consecutive year.

How bad are conditions in an industry when the "Retailer of the Year" is in Chapter 11?

Australian rumors: Coles Myer on the block?

Lots of speculation swirling Down Under. Coles Myer, the country's #2 retail chain, which recently spun off its Myers department stores to concentrate on supermarkets and discount stores, is reportedly being eyed for acquisition. Rumored buyers include Wal-Mart, Tesco, and a consortium of private equity firms.

The Times (UK) has an interesting take on the private equity possibility:

If Coles is bought by a private equity consortium it will be the second big supermarket group taken private this year. CVS and Cerberus Capital bought the US-based Albertsons chain for US$17.4 billion (£9.2 billion) in January.

The dominance of private equity bidders for both Coles and Albertsons demonstrates the difficulty that supermarket groups now face in growing by acquisition.

These retailers have become so big, and their supply chains so complex, that trade mergers and takeovers are becoming unattractive — as Wal-Mart’s recent difficulties in Germany and South Korea, as well as Morrison’s complicated merger with Safeway, demonstrate.

This is likely to mean that supermarket retailers will have to concentrate on organic growth in the future.

Quick Notes - Thursday

Just what we need: More advertising overload. No, media's not fragmented enough yet, consumers aren't already tuning everything out -- we need still more advertising, so what we ought to do is turn the checkout conveyor belt into an ad.

A bad week in Bentonville: "... on the same day that Wal-Mart has reported its first overall profit decline in a decade, second-quarter results for its U.K. business on Tuesday were also not quite the vote of confidence the company was hoping for. In a pre-recorded conference call, Wal-Mart said the cutthroat competition of Britain's grocery market had effectively gnawed into Asda's margins, leading to lower-than-forecast profits."

Newspapers to be $20b short

Editor & Publisher reports on a study that says the newspaper industry will face a $20 billion revenue shortage over the next five years, due principally to declining circulation.

The firm based its projection on the industry's reliance on paid circulation, which has been slipping at an alarming rate over the past several years. "The entrenched habits of using the Web will only deepen the circulation decline," wrote lead analyst Ken Doctor in the report. "Couple that change with less-meaty print products, more free daily and weekly competition, and newsprint pricing increasing in the 5% to 8% range, and the problems multiply."

On the advertising front, the report said that only the classified category has shown promise (and subsequently is the one category propping up revenue). Newspapers are feeling the consolidation of retail stores and national advertising is unlikely to spring back unless publishers can track results.

As we reported last month, the Federated-May merger alone, with its consequent change in Federated's ad strategy, may cost the newspaper industry $425m annually.

Off-Topic: Our condolences to Arizona

The local Krispy Kreme franchisee has gone Chapter 11 and all the stores in the state were closed. Sugar addicts are in a panic.

... Stefanie Brown had driven her three daughters to Krispy Kreme in Peoria on Friday morning. One of Brown's daughters burst into tears when she told the kids they'd have to go somewhere else to eat.

More seriously, condolences to the employees, who were given no warning.

Wal-Mart feeling the Houk Effect?

I hope this isn't an indicator of how his career is going to go, but on the very day my son was hired by Wal-Mart (in a high-level position responsible for the efficient removal of shopping carts from the parking lot), the company announced its first quarterly profit drop in ten years.

Odds are it had more to do with Germany and Korea, to say nothing of poor same-store sales increases (up 1.5%, compared to Target's 4.6%), but this sort of thing could blight a promising career.

Tesco will be #1 in non-food

The BBC reports that Tesco will soon be the UK's leading non-food retailer.

Tesco is set to become the UK's largest retailer of non-food goods by the end of the year, according to industry analysts Verdict Research.

Tesco will leapfrog ARG, owner of Argos and Homebase, by the end of 2006 as it sells more than £6bn of non-food goods.

It has expanded into most areas of the retail market, selling clothes, books, electrical goods and seasonal items such as barbecues and garden furniture.

The report also says that this will likely lead to chains folding:

Verdict said it expected some retailers to fold in the face of Tesco's growth.

"Compounded by the effect of rising costs and more demanding customers, casualties from almost every corner of the market are inevitable," the firm said in a study of trends in non-food retailing.

Although no names are mentioned in the context of going out of business, a couple major chains are brought up as being particularly hurt:

Boots and HMV are among retailers which have seen their sales eroded by supermarkets in recent years.

Can we cut syllables instead of prices?

According to a study, prices that have fewer syllables are more memorable than those with more:

... two seconds after taking a product from a shelf, the average person has roughly a 50 percent chance of remembering how much it cost. But few researchers have examined why some prices are more memorable than others.

According to a new study, it is a matter of syllables. Each extra syllable in the price reduces the chances of it being recalled by 20 percent, according to the study, which will be published in the September issue of The Journal of Consumer Research. In other words, someone faced with a $77.51 camera (eight syllables) and a $62.30 bookshelf (five syllables) is about 60 percent more likely to forget the camera’s price than the bookshelf’s, after half a minute.

The question I would have is: How important is it that the shopper remember the price?

Wal-Mart looking to Asia for growth

According to India's Economic Times, Wal-Mart is looking to India and China for major growth opportunities, as it licks its wounds from its Korean and German flops.

Wal-Mart is becoming more serious about its India game plans. The retail behemoth, which has decided to pull out of German and South Korea markets to concentrate on core markets, has identified China and India as its future growth drivers.

As the Arkansas headquarters of Wal-Mart gears up to fine-tune its India entry plans, Amy Wyatt, international corporate affairs spokesperson, Wal-Mart Stores, confirmed the development to ET.

In an email interview, Ms Wyatt said: “The divestitures will allow us to focus on our core markets and to search for new opportunities in growing consumer markets such as India. It will enable us to improve the overall financial position of our international business and focus on our continued growth.”

The problem in India is that Indian law still prevents multi-line retailing by foreigners -- leading to speculation that Wal-Mart will be looking for a local partner:

However, Ms Wyatt refused to comment on several rumours in the market about Wal-Mart entering into partnership with an Indian company. “We are still in the research phase in India and monitoring the Indian government’s policy on FDI,” she said.

Recent reports in the Indian media have, however, suggested that Wal-Mart has initiated discussions with companies like DLF, Bharti, Mahindra & Mahindra and Reliance Industries for possible tie-ups. Ms Wyatt, however, did not confirm this.

Ahold advised to exit US

Major shareholders are arguing that leaving the US market would increase Ahold's value:

The Amsterdam-based company would be worth more than 9 euros ($11) a share, 26 percent above the Aug. 11 share price, if it were restructured, Centaurus Capital Ltd. and Paulson & Co. said today. The hedge funds together own 6.4 percent of the retailer.

Among rumors about the company are that Centaurus may be leading a buyout. Other speculation says that parts might be sold to Super Valu.

Distributors cut off Tower Records

The major music distributors have cut off shipments to Tower Records, apparently because the company has stopped paying its bills.

The move comes just days after Tower Records named a new chief executive: crisis management and bankruptcy specialist Joseph D'Amico. Tower executives informed record companies this week that they would not pay outstanding invoices, according to sources familiar with the conversations.

Tower executives, including D'Amico, did not return phone calls. A Tower spokesperson declined to comment.

Industry insiders and analysts said it was unclear whether Tower Records had run out of money or was attempting to pressure the record companies to extend better terms.

If the music companies suspend shipments for long, Tower Records could be forced to shutter its 89 locations, including the famous store on Los Angeles' Sunset Strip, analysts said.

Tower Records confirmed Thursday that it was working with a Los Angeles investment bank to sell the company.

The retailer reportedly received at least five bids this year from private equity firms. When a sale failed to materialize, D'Amico was hired in what is the third management shuffle in four years.

We wrote on the long, sad decline of the music business in general and music retailers in particular a few months back, when Musicland went belly-up. The loss of music retailers is partially the result of conditions peculiar to that category (music downloading and piracy) and partially the result of conditions common to all of retailing -- the increasing concentration of power in the hands of a few retailers.

The problem is one consumers should be concerned about, because the closing of specialty outlets for music narrows choices dramatically -- a condition that will be repeated in other categories.

It should worry manufacturers, because the closing of alternative outlets reduces their marketing options and increases still further the power of the few remaining retailers.

McKinsey says: TV ad effectiveness dropping

Effectivessness is declining rapidly, and by 2010, TV advertising will be one-third as effective as in 1990.

That shocking statistic, delivered to the company's Fortune 100 clients in a report on media proliferation, assumes a 15% decrease in buying power driving by cost-per-thousand rate increases; a 23% decline in ads viewed due to switching off; a 9% loss of attention to ads due to increased multitasking and a 37% decrease in message impact due to saturation.

The Goldilocks Law

You can't set your prices too high or too low -- they have to be just right.

That appears to be the point of these two stories I came across in Convenience Store News. Today, they reported that gas stations in Kentucky were fined for price-gouging:

The five owners of 11 different gas stations owe the state of Kentucky $47,500 in fines for charging too much for gas in the time after Hurricane Katrina, reported the Courier-Journal.

"On average, for these particular stations, the gross profit margin increased anywhere from more than 33 to more than 100 percent," said Attorney General Greg Stumbo at a news conference. Profits for stations increased from 47 cents to $1 per gallon, he added. The investigation reviewed prices from September and October of 2005.

However, just a couple days ago, they had this item about a chain in Wisconsin that was in trouble for setting their prices too low:

Woodman's Food Markets, operators of 11 stores in Wisconsin and Illinois, has altered its gas discount program after it lost a lawsuit filed by Kwik Trip that stated the grocer was violating the state's law on minimum markup for gasoline, The Associated Press reported.

...

The minimum markup law for the state requires pump prices to be 9.18 percent higher than the wholesale price ...

Toyota passes Ford

Toyota posted bigger sales in the US than Ford in July -- the first time ever. Toyota and Honda showed strong increases while the Big Three (that term is getting outdated, isn't it?) all had decreases.

GM, the world's largest automaker, said its sales fell 22.2 percent, with trucks falling 31.2 percent and cars inching down 2.7 percent.

At Ford, sales of Ford, Lincoln and Mercury vehicles fell 35.2 percent. Truck sales tumbled 44.8 percent, while cars slipped 6.7 percent. Sales of F-Series pickup trucks, long the country's best-selling vehicle and the company's most important vehicle, shot down 45.6 percent.

DaimlerChrysler's Chrysler Group said its sales fell 37.4 percent, with truck sales off 40 percent and car sales off 23.5 percent. That change happened even though Chrysler, alone among automakers, has revived the employee price promotion that fueled sales last year.

Those are some scary numbers.

Smithfield buys ConAgra Meats

Smithfield Foods has bought the meats division of ConAgra, including the Butterball, Eckrich, and Armour brands -- they recently bought the European meat operation of Sara Lee.

[Smithfield will] combine the management of the Butterball turkey business, which it valued at $325 million, with Carolina Turkeys, a business it co-owns with Maxwell Farms Inc. Butterball is the No. 2 U.S. turkey producer, with sales of about $600 million annually. Carolina Turkeys is the fourth-largest turkey producer in the United States.

The combination is likely to pressure Hormel Foods Inc. and the turkey products it produces under the Jennie-O Turkey Store brand. Although Jennie-O currently is the largest, the combined sales of Carolina Turkey and Butterball will surpass Jennie-O.

"For Smithfield this is a big deal," said Greggory Warren, a food analyst with Morningstar Inc., a Chicago-based market research company. "This moves them up the value chain. They might actually make [profit] margins of 6 percent or 8 percent, and that's up from 3 percent to 4 percent."

The two deals add $2.9b in sales.

A cracker jack promo

A common putdown is to say that something's so cheap that it's given away as a prize in Cracker Jacks or a cereal box. So I wonder if this promotion conveys the proper image for Ford. They're giving away a car as a prize:

Ford Motor Co., in an effort to keep promoting its Fusion mid-sized car, plans to put 600,000 toy cars into Kellogg Co. cereal boxes starting Sunday.

The boxes, each containing a Fusion Hot Wheels car, will be distributed out of discount retailer Target Corp.'s stores nationwide. Fusion photos will appear on each box, the nation's second-largest automaker said.

The Fusion toys will be inserted in boxes of Froot Loops, Apple Jacks, Frosted Flakes and Cocoa Krispies. Ford said one red model with the Target logo will be among them, and whoever gets that box will win a real Fusion.

Wal-Mart admits defeat in Germany

Wal-Mart is pulling out of Germany, selling their 85 stores to their biggest competitor, Metro. This is another big defeat for Wal-Mart, who just sold their stores in Korea a couple months ago.

They're taking a beating in Japan and UK as well, as we commented a few months ago, although they are upping the ante in Japan, claim to be committed to the UK, and have invested heavily in Latin America, according to this item from the Washington Post:

Wal-Mart denied that it had any plans to bail out of Britain, where it acquired supermarket chain Asda with some 320 stores and 140,000 employees in 1999.

"Asda is right on track. We've made some significant changes in Asda over the past year, and we're seeing some positive changes there and positive results," a spokeswoman said.

Wal-Mart has invested heavily in other regions in the past year, buying a majority stake in Japan's Seiyu, completing its acquisition of Sonae in Brazil, and expanding into new markets including Costa Rica, El Salvador and Nicaragua.

Another use for RFID

This is somewhat off-topic, but I'll post it since people here are interested in RFID.

Bob Lewis Automotive is using RFID-enabled car keys to automatically track test-drives, improve security and simplify key access for salespeople at its Volkswagen showroom in San Jose, Calif.

One of the things that is particularly fascinating about technology is the way it is adapted to uses far different from the original idea.

Chicago passes 'big box' wage bill

Chicago today approved the bill requiring large retailers (Wal-Mart and Target, principally) to pay a "living wage" to workers.

The measure only applies to companies with over $1 billion in annual sales and stores of at least 90,000 square feet, which means it primarily affects Target and Wal-Mart.

It requires them to pay at least $10 an hour in wages plus another $3 in fringe benefits by July 2010. The state's minimum wage is $6.50 an hour.

It's possible the mayor will veto the bill, which he opposed, but it passed by a wide-enough margin to override. It's also possible it might be declared unconstitutional (as was a recent Maryland bill mandating health benefits and aimed at Wal-Mart).

Target has indicated they might leave Chicago rather than comply with the bill, as we reported here last week.

Update Thursday: Chicago Tribune has some response from Wal-Mart and info on their plans in the Chicago area:

Michael J. Lewis, president of Wal-Mart's Midwest division, sees millions of consumers hungry for Wal-Mart's low-priced groceries and envisions operating 40 Supercenters in the Chicago area in the next three years by building new stores and expanding existing stores. Wal-Mart currently has only a handful of Supercenters in the outlying suburbs.

"Our share of the market is relatively low in Chicago," said Lewis. "And that's an opportunity for us. We think there's tremendous opportunity to double or even triple our market share in Chicagoland."

That expansion is a threat to Jewel and Dominick's, the Chicago area's two major supermarket chains, where workers are unionized and where prices are generally 15 to 30 percent higher than those at Wal-Mart.

In an interview at Wal-Mart's Chicago office last week, Lewis said if the city council approved the bill, Wal-Mart would "put more time and effort in the suburbs," in particular focusing on those close to the city in order to draw shoppers across city lines.

"It would stand to reason that we would ring Chicago with Supercenters," Lewis said.

Old Navy/Gap getting desperate

Old Navy's comp store sales are down and Gap's share price is down 24%. Time for desperate measures, according to Forbes.

The problem is that there is a lot of competition for the low-cost fashion niche that Old Navy occupies -- Target, Kohl's, H&M (my daughter's favorite). Apparently, they're going to try upgrading their line. If it doesn't work, it could be the end of the line for some folks:

The stakes couldn't be higher for the company. Or for Paul Pressler, CEO of parent company Gap.

"If this doesn't work, the story is going to end for him," says Richard Jaffe, a retail analyst with Stifel Nicolaus. "That's why we're seeing a big push for fall 06."

The Forbes article also has a link to a slide show on various retailers who have rebuilt their image.

Bye-bye, TeenPeople

Time Warner is killing off their People spin-off for teens:

The decision to cut the magazine comes as the U.S. publishing industry tries to preserve newspapers and magazines as Internet popularity grows among readers and advertisers.

Hachette Filipacchi Media said in April it would close its Elle Girl magazine for teenaged girls but preserve the brand online.

Dose, a free Canadian paper designed for younger readers, said in May that it would cut its printed product in favor of an Internet-only approach. Dose is owned by CanWest Media Works, a unit of Canada's largest media company, CanWest Global Communications Corp.

The constant is that they are all keeping their on-line presence.

When I read the article, it struck me that I'd never seen anybody reading TeenPeople.

UK supermarket investigation going slowly

The UK Competition Commission's investigation of the supermarket industry is off to a slow start, with Tesco announcing that they will miss the deadline for responding to the commission's request for evidence.

Britain’s four largest supermarkets — Tesco, Asda, J Sainsbury and Wm Morrison — are believed to have concerns about the amount of information sought by the commission, which has asked for replies to 131 questions.

“It took one person five days to assemble the data for just one of the questions,” said one supermarket executive.

“Our systems are built for selling things — not mining financial data,” said another.

The questions — many of which include dozens of supplementary inquiries — cover a number of areas including buying, property, pricing and promotions.

There are also concerns that testifying against the big retailers could be unhealthy for witnesses.

Meanwhile, Mark Prisk, shadow minister for business and enterprise, has written to the Competition Commission seeking assurances that the anonymity of those who give evidence to the inquiry is protected.

“Concerns have been expressed to me about the risk of retaliatory or bullying tactics by larger players in the industry against those who may raise points unfavourable to them,” wrote Prisk.

Mid-price retailers will be 60% private label by 2010

NPD Group, according to this Boston Globe article, says that the merchandise mix at mid-price stores is becoming increasingly heavy on private label.

The trend is expected to accelerate. Research firm NPD Group predicts that by 2010, 60 percent of the merchandise mix will be private brands and labels, up from 25 percent in 1975.

It seems like every retailer is looking to private label as the magic bullet. The contrarian side of me says anything that popular is certain to be overdone. Look for somebody to do very well by swimming against the tide, with a strong brand name approach.

1.2 billion impressions

That's what Adidas is said to have gotten in the US from the World Cup final, according to Nielsen Sports. All those impressions were on an audience of 6.2 million, which means 200 impressions per viewer -- feasible, since the Adidas logo was on the ball, on the French jerseys, the ref's clothing, and everywhere else.

And it doesn't hurt that everytime the infamous head-butt was replayed, there was the Adidas logo on Zidane's jersey.

Under a rundown of "how the Adidas apparel sponsorship became a success," Nielsen said: "The much talked about 'head butt' by France's star player Zinedine Zidane was shown repeatedly." That exposure continues with replays on Web sites, such as YouTube.

AMD v. Intel -- this time in Germany

Advanced Micro Devices, which has already sued Intel in the US, and has pushed authorities to act against their rival in Japan, Korea, and the EU, has now sued in Germany.

The latest complaint was filed last week with Germany's Federal Cartel Office .... In it, AMD claims that Intel made deals with German retailers that violate the country's competition laws.

The complaint was prompted by a report in the German edition of the Financial Times claiming that the Media Markt retail electronics chain had agreed to only sell computers that used Intel's processors in return for a payment from the chipmaker.

"AMD had already received similar information, so we decided to file a formal complaint with the Federal Cartel Office," AMD spokeswoman Hollis Krym explained.

Corruption at Carrefour China

Carrefour is trying to root out corruption among its buyers in China, some of whom apparently are taking bribes from suppliers, according to People's Daily.

Rapid expansion in China by the France-based retail giant has generated huge profits but also caused problems such as bribes and corruption in stores. The company's Shanghai headquarters yesterday sent a memo to its South China Office urging it to crack down on corruption in its purchasing process.

Market analysts said corruption has taken root in the retail sector, particularly in supermarkets. There are too many suppliers like food companies trying to sell their products to supermarkets, but only a few of them will be lucky.

I wonder if the bribes are less than slotting fees.

Hispanic mall

Desert Sky Mall, a Westcor operation, has turned itself into what may be the first major mall to market itself to Hispanics.

In trouble a few years ago, with two of its five anchor locations empty and its cineplex closing, the mall went in a new direction -- reopening the cineplex showing movies with Spanish subtitles.

Today, Hispanic shoppers crowd a revitalized Desert Sky - now a mall with a Mexican accent. Moviegoers get salsa with their popcorn, salespeople are as likely to speak Spanish as English, and sneaker store Finish Line abuts Mexican bootmaker La Gran Bota, which was recruited from a swap meet down the road. Sales at the mall are up 15 percent annually since 2004.

While ethnic shops catering to Latinos and Asians have long existed in small strip malls, many larger malls have been slow to wake up to the Latino potential. "The malls got there before the market did, and some malls don't see the opportunity," says Michael Falkenstein, a senior vice president at La Curacao, a Hispanic-focused, Los Angeles-based department-store chain that plans to open a store early next year at Desert Sky, its first outside California.

It seems to be working:

National retailers that not long ago wouldn't touch the place are opening stores at Desert Sky - among them, the Children's Place and music retailer F.Y.E. - and owner Macerich is preparing to spend millions of dollars renovating the mall. But the transition has faced some resistance. When Mr. Valenzuela proposed putting in bilingual signage three years ago and encouraging bilingual hires, some retailers balked. Now almost all are on board but he says he still must walk a fine line in making sure the mall isn't "too Mexican," alienating the white and black longtime shoppers who still make up nearly 30 percent of customers.

Rhode Island outlaws mail-in rebates

Rhode Island now requires that all rebates be credited by the retailer at the cash register, becoming the second state (after Connecticut) to do so.

Under the law, retailers advertising a manufacturer's rebate on any sale item must apply the rebate amount at the time of the sale and complete the rebate redemption process themselves, rather than requiring the consumer to do it.

The law prohibits retailers from advertising a "net," or final, price for an item that includes a payment from a manufacturer -- unless the retailer gives the buyer the amount of the manufacturer's payment at the time of the sale.

Further down in the article, I learned something I hadn't heard about before:

Separately, Massachusetts filed suit against Young America to demand that it submit to an audit of $43 million in uncashed rebate checks. Bay State officials claim the company kept that amount over seven years in return for charging its clients lower fees. The arrangement could be an incentive to deny legitimate rebate requests.

I've heard before stories that some rebate fulfillment services were using uncashed checks as a revenue source (I have no way of knowing if it's true), but I wasn't aware that any states had taken action on it.

A couple notes from the 'death-of-media' front

This blog notes that the merger of Federated and May, combined with a likely change in media buying strategy by Federated for its Macy's brand, could result in a loss by newspapers of $425 million annually.

May and Federated combined were the newspaper industry's largest advertiser last year, spending about $1.2b. A significant drop could be expected just from eliminating redundant advertising in many markets. But also, if Macy's takes a national advertising approach, a Deutsche Bank analyst notes that it could result in only 30%-40% of the ad budget foing into newspaper instead of the current 70%.

On the TV side, however, the news is little better: the first week of July was the networks' lowest-rated week ever. While the week of Independence Day is traditionally poor, never before was it as bad as this.

CBS, ABC, NBC and Fox averaged 20.8 million viewers during the average prime-time minute last week, according to Nielsen Media Research. That sunk below the previous record, set during the last week of July in 2005.

Rebates: Another one bites the dust

Dell has jumped on the bandwagon:

Dell joins several retailers who have cut back or eliminated mail-in rebate programs since last year.

In June, OfficeMax Inc., one of the nation's leading office supply chains, said it would offer immediate discounts on product pricing instead of mail-in rebates. And in April 2005, electronics retailer Best Buy Co. Inc. said it would abandon all mail-in rebates in two years.

If I were in the rebate-processing business, I'd be looking for some ways to branch out.

Target to pull out of Chicago?

Target is issuing thinly-veiled threats to pull out of Chicago if the City Council passes a "living wage" bill as expected on July 26th.

... Target becomes the second retailing giant to threaten to pull out of the lucrative Chicago market in a last-ditch effort to stop an ordinance championed by organized labor that breezed through the City Council’s Finance Committee by a vote of 15-to-6 and has attracted support from 33 aldermen.

Wal-Mart has threatened to cancel plans to build as many as 20 new Chicago stores over the next five years if retailers are required to pay employees at least $10 an hour by July 1, 2010.

I was amused by this comment by one of the aldermen: "If they want to lose the more than $3 billion that is not being captured in my ward, that’s a bad business decision for them.”

Based on the 2002 national Retail Census, and adding 20% or so for growth, Chicago has somewhere around $21b in retail sales annually. It also has fifty wards. What are the odds that $3b of that is in one ward?

Oh well, expecting truth (or common sense) from any politician is pretty hopeless -- how much more so from a Chicago wardheeler?

Macy's continues alienation campaign

Having already made enemies of most of the people in the nation's third-largest market, Federated Department Stores is now trying to see if they can make it unanimous.

Okay, that's probably not their intent, but it sure seems that way.

Macy's dealt a new blow Monday to Marshall Field's loyalists: Field's credit-card holders who cancel their new Macy's cards out of anger will be canceling their Field's accounts, too.

The new wrinkle came in a press release with information that had been unavailable last week, when Field's owner, Federated Department Stores, said Field's card users won't earn rewards points as of the end of the day July 31. Only Macy's cardholders may start accumulating rewards points Aug. 1.

I understand that the next step they're planning is to take any customers who mention the words "Marshall Fields" and subject them to the rack and thumbscrews. That'll make 'em love Macy's!

Spinning the unspinnable

I love it when somebody tries to make a disaster sound good. Album sales are down 4.2% this year, this is the fourth year of the past five that sales have declined, and what's the industry spin?

The decline reflects in part a dearth of big hits compared to the same period in 2005, which saw Mariah Carey and rapper 50 Cent each release multi-platinum sellers.

"Considering that you haven't had a 50 Cent to be the Pied Piper during the first half of the year or a Norah Jones the year before that, being behind 4 percent in album sales is really not that bad," said Geoff Mayfield, director of charts for music tracker Billboard.

Uh, I have news for you. Yes, it's bad.

I have this image of Zinedine Zidane's agent trying to sell an endorsement deal: "Hey, other than the head-butt, he had a really great World Cup."

Off-Topic: Brainstorming

Not totally off-topic, perhaps. We've all sat through brainstorming sessions -- whether on trade promotion or other topics. We've listened to the facilitator (or whatever title is in vogue currently) tell us that "there's no such thing as a bad idea." Which, as this article points out, is patent nonsense: Of course there are bad ideas -- I've certainly had more than my share.

Has anybody ever been part of a brainstorming meeting that actually accomplished anything? I haven't, and it was good to see that others share my skepticism about this particular manifestation of the groupthink culture.

John Clark, a former university dean of engineering, says brainstorming sessions come in handy to distribute blame in the event of failure. But in his experience, most often someone hijacks the topic at hand, tries to prove everyone else wrong, works to impress the superiors who are present, or just plain blathers for his own enjoyment. "I can't remember a single instance where a group produced a really creative idea," he says.

The article comes down hard on teamwork, as well. I have mixed feelings about that -- as far as ideas are concerned, my own experience has been that the best ideas develop through a mix of individual and team inputs. My best ideas have generally been things I come up with on my own, then take to someone else; we hash it out a bit, then usually s/he comes back to me a day or two later and says, "You know, I think it would work better if we ..." Then we might bring in a third opinion, who adds something or points out a flaw, and we go from there.

But as for formal brainstorning -- I've never seen it work.

Korea fines Carrefour

The Korean Fair Trade Commission has fined Carrefour for pushing suppliers around.

The nation's No. 4 discounter was cited by the Fair Trade Commission (FTC) for unilaterally forcing manufacturers to cut prices on products they sell to Carrefour stores, returning products without due cause and intentionally delaying the signing of contracts with suppliers.

Carrefour Korea was recently sold to Eland, a Korean clothing manufacturer. I wonder if Eland was one of the suppliers Carrefour demanded special terms from?

China to regulate big-store expansion

The Chinese government is expected to issue rules limiting the expansion of large retailers. Although the rule will officially be directed at all retailers, clearly it will more strongly affect foreign firms.

Many local retailers have expressed concern over the growing influence of foreign store chains like Wal-Mart and Carrefour, which have made significant inroads into the Chinese market in recent years.

Weekend Quick Notes

Kellogg's is looking for growth in China, and word is that they are planning to buy a local food company (or two or three). They need to adapt their products to the culture, however, since Asians don't go for cold cereal with milk.

Automakers are going back to incentives. Big surprise -- even though they were talking big about cutting back a few months ago, as we reported here. "After sizable incentives last summer, automakers vowed to embrace value pricing, providing the lowest price available without incentives."

Fry's, a division of Kroger in Phoenix, will open a new format aimed both at Hispanics and at Anglos with a taste for Hispanic foods. Called Mercado, "the 66,284-square-foot store is designed to offer Mexican shoppers products they grew up with, and other shoppers new foods ..."

More on the Kraft spin-off

Kraft is getting closer to a spin-off from Altria, after a favorable decision in a tobacco lawsuit. We mentioned a week or so ago that a spin-off was looking likely. Wall Street observers think it will be next year, apparently.

'I don't see them spinning off Kraft until sometime next year,' said Greggory Warren, an analyst with Morningstar Inc. He said Kraft's new chief executive needs at least six months to get a handle on the foodmaker's problems ...

OfficeMax eliminating rebates

OfficeMax says it will eliminate mail-in rebates. I predicted when Best Buy announced last year that they were phasing out rebates that others would feel the pressure to join in.

It's a major customer satisfaction issue -- rebates annoy the consumer.

The decision was the culmination of almost uniformly negative feedback regarding the lengthy and often-frustrating process of mailing in a rebate form and proof of purchase, followed by weeks of waiting for a check, a company spokesman said on Friday.

"Rebates were the No. 1 customer complaint we were getting," said Ryan Vero, OfficeMax's chief merchandising officer.

Shocking news from China

Well, OK, not so shocking: Researchers have found that people in China think TV is boring.

Isn't this dog-bites-man sort of stuff? What would be shocking is if someone, somewhere thought TV was interesting.

Ominously for advertisers, 85% of Chinese stop watching TV during commercial breaks. More than half change the channel, while rest of them do housework, eat, chat or use the bathroom.

Again, not exactly a shock, especially since commercial breaks in China can last twenty minutes.

Mark your calendars: TPMA, September

It's early (three months), but not too early to set the time aside -- the Trade Promotion Management Association will be holding their annual meeting in Chicago, September 25-27. Info on the conference is here, and registration is here.

It looks like an excellent agenda, and you should plan to be there.

J&J bulks up

In contrast to the Kraft item below, Johnson & Johnson is planning to buy Pfizer's consumer health division for $16.6b.

Pfizer has had the division on the block for the past couple months. We reported about three weeks ago that J&J was among the leading bidders, along with Glaxo and Reckitt Benckiser.

Kraft slims down -- preparing for the single life

Kraft is selling off a significant number of its brands -- Milk Bone, Life Savers, Altoids recently -- apparently in preparation for being spun off by parent Altria.

The plan apparently is to shed about 5% of sales ($34b), and to concentrate on coffee, cheese, cookies, and crackers, and also to strengthen European operations.

Kraft's first-quarter revenue rose less than 1 percent, to $8.12 billion, as sales in Europe slid 9.1 percent amid stiffer competition from retailers' own brands.

"We are convinced we can perform better in Europe," Deromedi said. "In any market, but particularly in Europe, you need to be investing in your brands and in innovation."

Off-topic: Southwest to test assigned seats

Business flyers throughout the US are today pumping their fists with joy at the news that Southwest Airlines is testing alternatives to their cattle-call seating policy.

I would love to fly Southwest, which frequently has the lowest fares on routes I need to fly, but I refuse to choose between the two options they give me:

1) Stand in line for an hour, or,
2) Take a middle seat

The test will take place on flights out of San Diego.

In a statement, Southwest said it would consider permanent customer satisfaction enhancements like assigned seating if the move would attract new customers and maintain or improve operational efficiencies.

Lord & Taylor sold

Federated announced the sale of Lord & Taylor to a property development firm for $1.2b.

Federated said that its board has approved the sale to Purchase, N.Y.-based NRDC Equity Partners LLC, which is a partnership between principals of Apollo Real Estate Advisors L.P. and principals of National Realty & Development Corp.

Given the nature of the acquirers, this would appear on the surface to be a real estate play, and L&T occupies some good real estate. NRDC denies it:

NRDC said it plans to run Lord & Taylor as a specialty department store chain and to keep L&T's management team, including CEO Jane Elfers.

Well, they sorta deny it:

Richard Baker, president of NRDC Equity Partners, said in separate release that the acquisition of L&T "furthers "NRDC's strategy of acquiring great companies that have a strong brand and a valuable real estate platform."

"Lord & Taylor has been an iconic national brand for 180 years. We believe there is significant opportunity to continue the revitalization of the brand begun in 2003," Baker said.

So which is it? An "opportunity to continue the revitalization of the brand" or "a valuable real estate platform"?

I'll go with this sentence: "Analysts say the retailer's most valuable asset is its real estate, particularly its 10-story, 600,000-square-foot flagship store on Fifth Avenue." $1.2b looks like a bargain.

Tuesday quick notes

Wal-Mart continues to struggle in many of its overseas markets. Reportedly they have closed a couple German stores and are considering further closures.

Ad Age tells us that the average CMO lasts 23 months in the job.

Nokia is going to open its own store in Chicago (on the Magnificent Mile, of course) this coming weekend. It will be one of four in the US and 18 worldwide. It's part of the trend of manufacturers to open stores, the counter-trend to retailers going private label, though it is of course at least as much an effort to brand as to sell product.

History of diet colas

American Heritage magazine has an interesting story this issue on the history of diet colas. It points up the importance of smaller companies as innovators, since the first such drink did not come from the industry giants; it was a small (and now defunct) Brooklyn bottler called Kirsch Beverages that introduced No-Cal in 1952. It would be a decade before Royal Crown would introduce Diet-Rite, to be followed eventually by Coke and Pepsi.

At its heart the diet-soda industry reflects a larger American story—a wealthy and increasingly populous nation that is willing to pay for an edible product that does not offer even calories as a benefit.

A webinar you shouldn't miss

Wipro Technologies is sponsoring a webinar June 20th on Keys to a Successful TPM Implementation. The webinar will feature Neil Rohrbacker, Coty’s Director of Worldwide Business Intelligence, discussing their recent TPM implementation. Rob Hand, CEO of Hand Promotion Management, will highlight issues, concerns and problems of a major TPM implementation. And Somjit Amrit, Wipro’s CPG industry lead, will discuss Wipro’s new TPM Center of Excellence. With TPM becoming a top I/T initiative, and supply and demand chain integration creating potential problems, this is one webinar that your entire TPM task force will need to attend.

Click here to register.

Weekend quick notes

Rona, the biggest home improvement chain in Canada, is planning to reverse the usual pattern and come south to chalenge Home Depot and Lowes. The report is that they may buy a small US chain, and will concentrate initially on the northeast.

McCormick has bought Epicurean International, a Thai food marketer (Thai Kitchen and Simply Asia are their brands). "David Sakamoto, Epicurean International's chief financial officer, said the purchase by McCormick will allow his company's products to be further developed and distributed more widely."

Buick's cool. No, really.

Buick is a hot brand -- in China.

Buick’s sizzling sales have driven General Motors — even as it closes plants and lays off workers at home — to the top of the pack in China, the world’s fastest-growing automobile market. GM sold 665,000 cars and trucks in China last year. For now, only 1 in 100 Chinese own a car, compared to 9 in 10 in the United States. But the Chinese expect 130 million vehicles to be sold by 2020.

I can attest to the truth of this article. On my first visit to China, my driver picked me up in a Buick minivan, and I was surprised at the number of Buicks on the roads. Later I enjoyed tea at a teahouse looking out over the Huangpu at the storied Bund and the Shanghai skyline -- prominent in which is a huge red neon sign blazing the Buick logo.

Effects of a name change

Federated Department Stores' decision to eliminate the names of local stores, replacing them with Macy's, may turn out to be a good plan in the long run. The idea is to create a national brand name, gaining effeciencies in advertising and merchandising.

In the short-term, however, the fallout has been negative. The Columbus Dispatch reports that eliminating the 150-year-old Lazarus name with Macy's has cut down on customer traffic.

In 2005, customer visits to Macy’s in the Columbus market declined 4.5 percentage points, or by more than 50,000 people, according to the independent marketresearch firm Scarborough Research.

The drop was steeper than Lazarus experienced during the previous five years combined.

Here in the Chicago area there is a strongly negative reaction to the elimination of the Marshall Fields name. How that will translate into traffic and sales will take time to see.

Update (Sunday): USA Today talks about Federated's plans in general, and comments on negative reaction to the name changes. It sounds like Federated's starting to get a bit testy on the subject:

Sosnick, like Lundgren, has grown weary of the naysayers: "Macy is a broad-line retailer that did $15 billion in business last year. People can say all these things, and it's true. You're not writing about nirvana, but it's a change and an improvement."

Got a few billion? Pfizer taking bids.

Pfizer is receiving bids on its consumer products unit, with bidders apparently including Glaxo, J&J, and Reckitt Benckiser.

The brands up for sale include Listerine, Sudafed, Rolaids, and Rogaine, and totalled $3.9b in sales and $670 million in profit last yea. This is about 8% of Pfizer's sales and 4% of profit, and the purpose of the sell-off is to concentrate on prescription drugs.

Mervyns -- turning it around?

Mervyns looked pretty much dead a couple years ago when Target dumped them in part of their effort to get out of the department store business. But the chain is showing signs of life.

The company has been drastically slimmed down, from 257 stores to 170, cutting back to its core west coast and southwest roots. After all the cuts, the chain just announced that it will open four nex stores -- in California, Arizona, and Texas.

The merchandise focus, as seems to be all the rage these days, is on private label

Central to Castagna's comeback strategy is revamping Mervyns' merchandise mix. Though remaining faithful to the store's core demographic group of 25-to-49-year-old women with families and moderate incomes, Castagna said she has culled national brands, keeping only the most popular and broadening the type and volume of apparel, shoes, accessories and home merchandise from those vendors. Today, there is no shortage of familiar brands - Dickies, Chaps, Nike, Van Heusen, Levi's, Haggar, Gloria Vanderbilt, Samsonite, Kitchen-Aid and Royal Velvet - on store shelves.

But Castagna also has expanded Mervyns' private-label offerings across product categories, including High Sierra, Hillard & Hanson, Sprockets and Real Kitchen. She has signed an exclusive agreement with Southern California designer Susie Coelho to carry her home merchandise.

Where are brand name manufacturers going to market their products when all the retailers have finished tossing them out?

Heinz cutting European trade spending

Heinz has announced it will close fifteen factories in Europe and cut trade spending and distribution costs, with part of the savings intended to increase spending on advertising.

The total cuts amount to about $355 million, with about $50 million to be redirected into advertising.

CPG trade spending is significantly higher in Europe than in the US.

P&G wants retailers to earn their money

Procter & Gamble is borrowing a page from Gillette’s playbook – requiring that retailers actually execute a promotion in order to be paid for it.

According to Advertising Age, P&G will tie promotional payments to store performance:

Both P&G and Gillette traditionally dubbed their trade-marketing programs "pay for performance," but Gillette's appears to more closely tie retail payouts to specific in-store execution. Currently, retailers accrue funds from P&G based on the number of cases they buy. But while the funds are earmarked for specific promotion programs, retailers don't need to prove they executed the programs to collect.

"What we're talking about is ... being a little more specific with how we spend that money, how we evaluate the payout for it," said Chris Petersen, VP-investor relations for P&G …

It isn’t clear how P&G will monitor compliance, particularly since the article also notes that they are cutting back on full-time retail merchandising staff.

Since anything P&G does generally ripples through the CPG world, however, this move could have serious effects. When coupled with recent talk we are hearting about CPG manufacturers having a renewed interest in basing more allowances on accruals rather than on discretionary funding, it appears we may be seeing a trend toward bringing the Wild West days of trade promotion to a close, and restoring some long-overdue control.

An amusing sidelight: The AdAge article says that “Household and personal-care marketers typically spend nearly as much on trade promotion as advertising …” Right. Nearly as much. Try several times as much. Later, it estimates that P&G ($70 billion in sales) spends about $2 billion in trade promo. Only off by $10 billion or so.

Penn Traffic releases internal audit report

Penn Traffic, the upstate New York retailer who, as previously mentioned here, was investigating possible misstatements in its trade promotion allowances, has released the report of its audit committee:

The Penn Traffic Company announced today that the Audit Committee of the Board of Directors has completed its internal investigation of the Company's promotional allowance practices. The Audit Committee found that the Company had engaged in certain improper practices principally relating to the premature recognition of promotional allowances ...

The findings may result in restatements of earnings from the periods affected. The SEC is also investigating.

Oracle acquires Demantra

Oracle Corp., which has been on a buying spree lately, has bought analytics firm Demantra.

This is Oracle's twentieth acquisition in the past eighteen months, including Retek, ProfitLogic, and the high-profile purchases of PeopleSoft and Siebel.

From a trade promotion standpoint, the importance will be the integration of Demantra's promotional analysis tools (used by Welch's and other CPG firms) in Oracle's TPM package.

Ten retailers to watch

Another bit of research from IGD is a list of ten global retailers who have "an impact beyond their scale." Number one on the list is Hong Kong's AS Watson:

... the world's largest health and beauty purveyor with sales of $11.4 billion from over 7,000 stores in 36 countries. Of those 36 markets, 17 are emerging geographies like Romania and Russia, whose growing ranks of middle class shoppers are eager to purchase cosmetics and hair care products, Gunz notes. The company hopes to have 10,000 stores by 2008, with a possible entry in the US coming down the road.

The rest:
2. Central Retail Corporation (Thailand)
3. Couche Tarde (Canada)
4. eBay (USA)
5. Pantaloon (India)
6. Perekriostok (Russia)
7. Tchibo (Germany)
8. Wegman's (USA)
9. Whole Foods (USA)
10. Wu Mart (China)

Who will be first into India?

IGD says that Wal-Mart will be the first big foreign retailer to enter the fast-growing Indian market, if/when the government allows entry (which this article says will happen soon.

If this happens, IGD believes that Wal-Mart will be the first to make a move with its hypermarket format. If the government drags its heels, however, Wal-Mart is likely to get a head start on its rivals by establishing a cash & carry operation in the unrestricted wholesale sector. Tesco is unlikely to enter India in the short term, while it concentrates on other key markets like the US and China, and Carrefour is currently focused on optimising the performance of its existing portfolio.

A contrary opinion is expressed by The Economic Times:

It reported that the UK supermarket chain is close to finalising a joint venture agreement with Indian firm Bharti Enterprises. The joint venture will focus on selling fresh foods, groceries and other convenience foods.

According to Indian law, Tesco will be prohibited from owning any stake in the company. However, sources said there would be a profit-sharing agreement and the door would be left open for Tesco to pick up a stake when the foreign direct investment laws change.

Tesco to start in LA/Phoenix?

Tesco is shopping for sites for 15,000 square foot stores in the Phoenix area, according to local real estate people.

… a recent report in Financial Times said Tesco will make its debut in Los Angeles and Phoenix. The report said online job ads posted by a U.S. recruiting firm indicate that the Tesco is "preparing to launch an unprecedented retail food business in the L.A. and Phoenix areas."

AAS acquired by Pitney Bowes

Pitney Bowes has announced the purchase of trade promotion management firm AAS and its sister company, PMH Caramanning.

In the press release, trade promotion management is treated as a sidelight, with the emphasis on promotional mailing and collateral:

AAS offers a variety of web-based tools for the customization of promotional mail and marketing collateral. PMH Caramanning designs and manages customer and channel performance solutions. These operations will become a wholly-owned subsidiary of the company, and operate as part of its Mail Services business led by Michael Monahan, Executive Vice President and President, Global Mailing Solutions and Services.

Sara Lee files plans for apparel spinoff

Sara Lee Corporation has filed information with the SEC on the spinoff of its apparel units. The new company, to be called Hanesbrands, will include Hanes, Playtex, Bali, Champion and Wonderbra, and will total $4.7 billion in sales -- making it one of the largest apparel firms.

The spinoff is planned for completion by September.

Sara Lee is seeking to transform itself into an entirely food, beverage, and household products firm.

Deep Depressing Dive

That's the title Merrill Lynch used for their latest report on the newspaper industry, in which they again lowered estimates.

"We remain concerned regarding the newspaper industry's outlook as the dual impact of changing media consumption habits and the migration of highly lucrative classified ads to the Internet are squeezing margins and hampering growth."

Vietnam opening to retail competition

Vietnam is planning to open its retail sector to foreigners gradually over the next several years, but local retailers are getting ready now.

The country's leading retail chain, Saigon Coop Mart, has only fifteen stores, but is planning to add units in all 64 provinces. Other firms have similar plans.

Their inexperience in managing distribution networks appears to be the largest concern:

G7’s Vu said developing a modern distribution network would be a challenge for Vietnamese retailers while international rivals were experienced in inventory management, marketing, and negotiating with retailers.

Local distributors should team up instead of operating individually if they were to take on international giants, he said.

Out with Masterfoods. In with Mars.

Masterfoods has decided to change its name back to Mars.

The name change is the final nail in the coffin of "the cockamamie bringing together of three disparate businesses that have nothing to do with one another," according to an executive close to Mars.

I don't feel so bad now. I recently came across a reference to Masterfoods and asked myself, "Who dat?" Apparently I was not alone.

But it isn't only consumers that barely noticed the move to Masterfoods.

"I continued to think of them as Mars," said an East Coast grocery executive, one of the many retailers the Masterfoods plan was supposed to benefit. "In meetings, our top executives would always say, 'Who the hell is Masterfoods?' They still call them M&M's."

Apologies and alibis

I've had little time for blogging in the past several days -- the first draft of my next book is due to the editor early next week.

I'll try to get a post or two up over the weekend, and then resume full-scale posting after the draft is done.

Watching a business die

Watches are disappearing. I stopped wearing one years ago, and it seems many other people have as well (using cellphones when they need to know the time).

Last year, the number of people who bought watches not in the Rolex and Patek Philippe stratosphere dropped 12% from 2004, according to a leading market research group. The runaway favorite brand for teens, Fossil Inc. of Texas, acknowledged an 18.6% decline in wholesale U.S. sales of its namesake brand.

Oakley Inc., which is based in Orange County, said watch sales fell 11% last year as it phased out digital watches and styles that weren't selling well.

The article concludes that watches won't disappear (despite my opening sentence and my even more dramatic headline) but will become a fashion statement -- with high-end watches continuing to sell well.

Chinese retail boom to continue

China's retail sector grew 12.9% last year, and the government, which has begun to push for more domestic consumption, is predicting the growth to continue at an 11% annual rate through 2010.

As might be anticipated, the giants are grabbing the lion's share, with the top thirty retailers averaging an amazing 31% growth last year, according to government figures.

Although foreigners are, understandably, trying to grab as much of this growing pie as possible, they are not likely to get it all.

So far, however, Chinese retailers are holding their own. Domestic companies continue to dominate the Commerce Ministry's list of China's top 30 retailers - whose sales, the ministry reports, rose by 31% in 2005 to $61 billion.

Shanghai Brilliance sits at the top of the heap, recording sales of $9 billion last year. The closest foreign competition at this point is the French giant Carrefour, whose 25% rise in sales last year boosted it to ninth place on the ministry's list, with sales of $2.2 billion. Carrefour, the world's second largest retailer, now has 78 stores in China and plans for many more.

Wal-Mart is not doing all that well, which is true in most of the world outside North America. Suppliers in China tell me that Wal-Mart China is not an impressive operation.

Mattel: A tale of two dolls

Or two doll lines, actually. Here are a couple links I came across concerning the fortunes of Mattel's Barbie and American Girl brands.

Barbie has been steadily losing ground to Bratz, so Mattel is trying some new approaches. They've worked a deal with Universal to upgrade production of Barbie's direct-to-DVD (which appear to be a nice little money-maker on their own -- 27 million units at about $14 bucks each).

The two companies also discussed the possibility of a Barbie tie-in with Universal's theme parks and theatrical premieres for upcoming Barbie animated films.

American Girl, meanwhile, has a nice problem, but one that sometimes afflicts fast-growing elite brands -- how do you grow fast and stay elite?

"When something's value is wrapped around its uniqueness, it's hard to exploit that in scale," said toy industry analyst Sean McGowan at Harris Nesbitt Corp. in New York. "The specialness of the product is a big part of its appeal — if it becomes available to everybody, it loses some of that."

The company is currently opening its third store, in LA, after operating only one, in Chicago, for several years, and then adding one in New York. For the present there are no plans to expand widely -- in fact the company president indicates that they may never go beyond five stores. The idea seems to be that there's no reason to mess with something that works so well.

In 2005, while Barbie's sales slumped 13% worldwide, American Girl's revenue rose 15% to $436 million. Oppenheimer & Co. analyst Linda Bolton Weiser pegged American Girl's operating profit at about $100 million, meaning that the division accounted for 8% of Mattel's gross sales and about 15% of the parent company's operating profit.

I hope they don't mess up a good thing. As a parent, I spent a ton of money on those books and dolls (my daughter has Felicity, Samantha, and Kirsten) -- and I don't regret a dime of it.

Saks is going to China

Saks Fifth Avenue will be opening stores in China, franchising its name to a local operator. The first store will open in 2008 in Shanghai.

The operator of the world's biggest luxury department store yesterday granted Roosevelt China Investments Corp the right to open Fifth Avenue stores on the mainland, according to Stanley & Partners which offers real estate investment banking services to the two US-based firms.

Roosevelt China Investments Corp will be responsible for selecting locations and managing the Fifth Avenue stores in mainland and Macau.

The Shanghai location will be on the Bund, the city's legendary waterfront. I was hoping it would be on Nanjing Road where it could compete with what I think is the best-named store ever: Shanghai Department Store #1.

Piling on Estee

I came across a news item the other day, announcing that a law firm was filing a class action against Estee Lauder for channel-stuffing. Since I had posted an item about that two weeks ago, I went back to the old item, but noticed that the law firm was different. So I checked Yahoo, doing a search for "estee lauder channel stuffing" and found that at least six firms have announced such actions.

It seems that suing folks for channel-stuffing is seen as a potential hot area in the legal community.

Greenspan disses Sarbox

Alan Greenspan, former chairman of the Federal Reserve, who supported passage of the Sarbanes-Oxley Act, now says it should be revised.

"The Sarbanes-Oxley Act has created significant problems for foreign investors with its regulatory structure," he said at a question and answer session at the Asian Financial Centres conference in Seoul, organised by the Financial Times. "I am nevertheless acutely aware and disturbed by the fact that initial public offerings have moved away from the US - and to a large extent have moved to London."

Greenspan specifically criticized Section 404:

Although the basis of the law was a definite advance in terms of governance, some parts of it created too many burdens for business, he said, emphasising the provision that forces companies to have their internal controls certified by auditors.

Greenspan said he thought the law would be changed, but FT seemed to question that. Rudy Giuliani, speaking at the same conference said he thought London and Tokyo would likely pass similar rules.

As we've previously reported, there is also a challenge to Sarbox in the courts.

Masterfoods cuts brands & trade spending

Masterfoods says it is killing some of its "dog" brands, such as Aquadrops mints, cookie line Cookies & and bite-size Pop'ables candy. I guess they are dogs, I never heard of any of them.

They are also planning to cut trade spending, which they will switch into national advertising.

Mr. Gamgort said by cutting trade spending and what he called "the dogs in our portfolio" Masterfoods can afford a 20% increase in advertising for its brands as well as fund acquisitions. The first acquisition is expected to be announced in the next two weeks, he said. "If we were public, analysts would be applauding us."

Retailers are predictably unhappy:

Retailers, however, warn a cutback in promotional spending could hasten Masterfoods' rising share losses to rivals Hershey Co. and Nestle.

"Our Masterfoods candy business is down at least 20% from the $1.6 million we did with them last year because of their cutbacks in promotional spending," said one Northeast wholesale buyer, who noted that Hershey and Nestle are reaping the benefits.

Another East Coast retail buyer predicted a big sales tumble due to the cutbacks, which a Masterfoods executive told him were undertaken to drive profits. "You've got to spend money to make money," said the retail executive.

Masterfoods replies that the cuts are selective:

Mr. Gamgort responded that the company isn't cutting off its promotional spending for its more profit-driving customers. "We're being more selective about where we spend our money," he said.

I've long been an advocate of directing trade spending toward your most profitable accounts. My concern is whether Masterfoods will have the courage to stay with the plan when some big, but less-profitable, accounts begin cutting back their share of shelf space.

This might make an interesting case study in two or three years.

Wednesday quick notes

NASCAR is planning to increase its licensed merchandise directed toward women, recognizing that women are now 40% of its fan base. NASCAR-branded swimwear, shoes and boots, and leather jackets are among the items planned. "Sales of NASCAR's licensed merchandise have flattened at $2 billion, and the brand thinks it can boost product sales - and image - by courting female fans."

Home Depot is testing an expansion into automotive supplies. The test will consist of about 500 square feet in ten stores in the Jacksonville area.

Ahold's Tops Markets chain in upstate New York is planning to spend up to $60 million renovating stores over the next two years, and says it will "be more aggressive in its marketing, so as to better compete not only with Wal-Mart, but also with Northeast star players such as Wegmans."

SEC investigating Zale

Zale Corp. announced that t he Securities & Exchange Commission is investigating the company in regard to several accounting issues, including "the timing of certain vendor payments."

The company said the probe relates to accounting for extended service agreements, leases and accrued payroll. Zale said subpoenas request materials relating to these accounting matters, executive compensation and severance, earnings guidance, stock trading and the timing of certain vendor payments.

There's no fight like a family fight

It's bad enough when your enemies point out all your failings, but what really hurts is when it comes from inside the family. That's what happened at the 4A (American Association of Adverising Agencies) meeting last week in Tucson.

The outgoing chairman of the association, Ron Berger, CEO of Euro RSCG, said that:

• * He doesn't much like Martin Sorrell, the honcho of rival WPP, because Sorrell is "concerned with pleasing Wall Street at the expense of Madison Avenue."
• * Nor does he care for Jack Klues, the boss of Starcom MediaVest, "whom he chided for comments made last month at the AAAAs media conference. In a discussion on the topic of whether media planning and creative functions--once mostly housed at the same agency but now frequently separate--should be reunited or 're-bundled,' Klues said that would amount to 'going back to the 80s.'" Apparently Berger disagrees.
• * In addition, the TV networks, Berger says, are "arrogant" and want to "simply take billions of dollars from us" without being partners.
• * Then Berger take his axe to Bob Liodice, the CEO of the Association of National Advertisers (the trade association for people who hire ad agencies), "for comments he made in favor of advertisers employing more than one agency, rather than consolidating their business."
• * And, finally, Berger attacked the trade press, suggesting that the "industry would be better if some of the people who write about our industry had a deeper understanding of it."

When we have a moment we'll try to have a few comments on the ad industry from its enemies. But that won't be anywhere near as much fun, will it?

Wal-Mart says newspapers are no good

Wal-Mart has long avoided using newspapers, but in the face of criticism from the press ran a test in the Christmas season last year. "It placed a full-page color ad for its electronics department in 336 smaller papers in Missouri and Oklahoma between Nov. 30 and Dec. 6."

According to Wal-Mart, the slight bump in sales from the ads was insufficient to pay for their cost.

"Our test showed that it did increase product sales but our margins are so thin that we didn't even come close to offsetting the cost of the ads ..."

While the newsies are, justifiably, saying that you can't prove much from a single insertion, they might more justifiably be asking themselves what it says about their medium that Wal-Mart has prospered so mightily while ignoring them.

Thursday quick notes

Rumors are abounding that two east coast supermarket chains, A&P and Pathmark, are planning to merge.

Radio isn't doing much better than newspaper these days. "For the industry to see stronger growth, it must better attract younger listeners by offering new formats and utilizing multiple distribution platforms. Also at the same time, radio needs to demonstrate its effectiveness as an advertising medium by utilizing improved research methods."