Rite Aid Pleased with Save-A-Lot Combo Stores

Rite Aid and Save-A-Lot have been involved in a pilot project in several South Carolina locations, in which Save-A-Lot has sold groceries in the front end of underperforming Rite Aid pharmacies. Apparently it has worked well:

"The stores have done extremely well since opening and as a group are comping up over 100% on the front end with pharmacy running consistent with the trends before the conversion,” John Standley, Rite Aid’s chief executive officer, said in a conference call discussing the retailer’s quarterly financial results Thursday.

Reportedly there are negotiations between the firms to expand the project. It's an interesting approach, and at this point any good news has to be welcome for Rite Aid.

Sticking with the Trade-Down

It looks like a lot of the people who traded down to the dollar store channel are sticking with it, even if things are improving. Dollar General, for example had same-store sales that were up 7.4% in the most recent quarter.

Rick Dreiling, chairman and CEO of Dollar General Corp., told an investor conference last week that upper-income shopper are still turning up at the stores, and promise to stick around.
"For the second year in a row," he said, "95% of our trade-down customers are saying that, regardless of what happens to the economy, they're going to continue to shop with us."

Growth for the past several years has been impressive:

But can it continue? The companies seem to think so, and are adding lots of stores.

The long-term outlook for dollar stores could dim as the economy recovers but the chains are pressing ahead with plans to add hundreds of stores to the thousands that they already have.

To hold on to higher-income customers, many of the stores have stepped up their game in terms of what's on the shelf and how it's displayed. There's a new focus on nationally known brands and frequently purchased items like snack foods and cleaning supplies. 

I wonder, though, if they can continue to offer huge savings if they are selling national brands. And if they don't, will they alienate their core customers (and give someone else the opportunity to steal those customers away)?

Gillette Axes Tiger

Gillette is cutting ties with Tiger Woods, although it appears to be part of a broader cutback in athletic endorsers.

The company will not renew its relationship with Woods as part of a plan to phase out its Gillette Champions marketing program in the first quarter of 2011, Norton said in an interview earlier today with USA Today.

Gillette also will cut ties with soccer players Thierry Henry, Kaka, Rafael Marquez and Lionel Messi and other athlete endorsers around the world, Norton told the newspaper. Gillette will retain endorsement ties with athletes including tennis’ Roger Federer and Derek Jeter of the New York Yankees.

I guess the people in Cincinnati have completely taken over. Can you imagine a Boston-based company cutting most of its athletic ties, but keeping the Yankee?

I'm skeptical about endorsements in general -- whatever benefit there may be (and part of my skepticism is that I can't see many people buying something because of the endorser) seems small compared to the risk of a Tiger-like situation. Butthis is way out of my area, and the people who should know keep doing it, so I guess it works.

Note: Yes, I know Axe is a Unilever product.

Yes -- The Other Lane Really Is Faster

According to this scientist, you're not imagining things. The other checkout lane really is faster than yours.

Poll Result: 2011 Economy

Our year-end poll asked readers to look into their crystal balls and forecast the economy: “At this time next year, will we be in the midst of a strong recovery?” The consensus was that there was no consensus:

• 35% Yes
• 48% No
• 17% Too many unknowns

Our readers tend a bit to the bearish side, as summarized by one of our comments: “I want to believe it’s turning around. I really do. But we’ve had this ‘green shoots’ talk a bunch of times already. There are some things that are looking good – we had a very good holiday season. But there are also a lot of ugly obstacles in front of us. Europe makes me very nervous.”

Will 2011 Be a Year of Supplier-Retailer Pricing Conflicts?

If, as some economists argue, large government deficits will result in inflation, then suppliers will have no choice but to increase prices. If consumers, having become used to heavy discounting, resist the increases, then fights between suppliers and retailers will become commonplace.

Here we see reports of ConAgra and General Mills seeking price increases. General Mills is seeking to cut $1b from its costs to offset commodity price increases, but will nonetheless have to pass some increases on:

The company posted earnings and sales on Thursday that missed Wall street estimates, hurt by higher commodity costs and spending on promotions.

The story was similar at ConAgra:

ConAgra Foods Inc is looking to price increases to help boost results in coming months after reporting quarterly profit that fell due to rising commodity costs and weak response to promotions.

And the issue is not limited to the US, of course. In China, the leading supplier of noodles, Ting Hsin, stopped shipping to Carrefour after Carrefour rejected a price increase of 0.2 yuan (about three cents) per unit.

Ting Hsin International told the Hong Kong Stock Exchange in October that it was raising the retail price of each package of instant noodles from 2 yuan (30 cents) to 2.2 yuan due to an increase in raw material prices.

Two months after the announcement, the Taiwan-based food and beverage maker halted shipments of instant noodles to Carrefour stores in the mainland. A company official told First Financial Daily that the reason for the halt is that Carrefour wants to cut 0.1 yuan from the suggested 0.2 yuan price hike.

Whether these attempts to raise prices succeed will depend in large part, of course, on the strength of the supplier. ConAgra and General Mills have some very strong brands, and Ting Hsin’s Master Kong brand has over 40% of the noodle market. Other suppliers recognize that they may not be able to do the same:

"Only large suppliers such as Ting Hsin can negotiate with the retailers. For small suppliers like us, it is always take it or leave it," said Yang Lei, general manager of a food and beverage distributor in Beijing. […]

"We have little bargaining power over the purchasing price of the big retail chains. Because they have extensive sales channels with high sales volume, suppliers can't afford to lose this business relationship," said Yang, whose company supplies to Carrefour and Wal-Mart.

Also in China, Kraft recently stopped shipping Oreos to local chain Lianhua in a pricing dispute.

Exit Question: Are you expecting to see an increase in supplier-retailer pricing fights this year?

Is Groupon Too Good to Be True?

The amazing growth of Groupon is certainly one of the biggest business stories, and biggest social marketing stories of the year. But is being featured on Groupon necessarily good for a business? The answer seems to be, as it so often is, “It depends.”

But the inevitable backlash began this fall, with a blog post from the owner of Posie's Café in Portland detailing how its Groupon offering was a financial disaster for the company. In particular, the post took issue with Groupon for not capping how many coupons can be sold and taking too large a cut of sales. "There came a time when we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign," the owner wrote. 

Groupon responded that 97% of participating businesses want to be on Groupon again. But a study by Rice University finds that the truth may be somewhere in between.

Of the 150 businesses it surveyed in 19 cities, 66 percent said Groupon promotions were profitable, while 32 percent said they weren't. More than 40 percent of the companies wouldn't run a Groupon offer again.

Rice’s suggestions for retailers doing Groupon promotions seem sensible: “Use deals for building relationships rather than just creating one-time buys; don't offer discounts on a total bill but for specified products or services; and use Groupon to sell slower-moving items.” I would add that, given the discounts Groupon consumers expect, that the coupon better involve an extraordinarily high-margin item or service.

At Last! Competition for TicketMaster

A bit of a personal rant: Of all the companies that I patronize regularly, TicketMaster is certainly the one I most despise and most want to see brought down.

Unfortunately, there is often no alternative to paying TM's absurdly inflated 'convenience fees' when buying tickets for many types of events -- if you want to buy a ticket to see 'Wicked' here in Chicago this week, a $92.50 ticket will cost you $106.71, an upcharge of more than 15%.

They are an unregulated monopoly, but it looks like perhaps they are about to get some competition.

ScoreBig Inc., which has raised $8.5 million from investors including private-equity firm Bain Capital and media executive Shari Redstone, has been quietly testing a system that aspires to do for concert and sports tickets what Priceline.com does for airline seats and hotel rooms: Allow customers to buy them at cut-rate prices, while avoiding the whiff of desperation that typically accompanies discounts.

Unsold seats are a major problem for the music and sports industries alike. "We have 35% to 50% of total industry capacity that goes unsold each year," said ScoreBig Chief Executive Adam Kanner, "and fans that can't afford" the events. 

Granted, it's only the left-over seats, but it's a step in the right direction. Anything that puts pressure on pricing, even in one area, should (I hope) have the effect of bringing down prices overall.

A Year-End Visit to the Corporate Graveyard

A listing of companies that went bankrupt and brands that disappeared in 2010 includes a number of retailers -- Blockbuster and A&P most notable, but also Urban Brands and Jennifer Convertibles. A lot of car brands on the list, as carmakers downsized -- Mercury, Pontiac, Hummer ...

I was also struck by not just the number, but the variety of media listed. There was Affiliated Media, which publishes a bunch of major newspapers (San Jose, Denver, etc), but also Penton Media, a trade press group (Nation's Restaurant News and Farm Press among them), and trashy tabloid publisher American Media (National Enquirer, Star). And then there was mainstream magazine Newsweek, which didn't exactly go bankrupt, but when you're sold for $1, it's pretty much the same thing.

Most of course are just companies that over-expanded or got over-leveraged in buyouts when things were good. That's usually the story in a recession. But the broadness of the media category of failures is a reminder that there's a systemic element to this. We all are conscious of the effect of the internet on local newspapers and broadcast (though there were no big broadcasters on the list), but trade press is equally damaged by the changing dynamics of news delivery. And as for gossip -- who needs to read it in the checkout aisle anymore?

Michael Vick as Product Pitchman

Has Michael Vick's on-field performance been so good that the public has forgotten his dog-fighting past? He hasn't gotten any serious endorsement deals, but a Philly area Nissan dealer hired him for this spot:

This is a dreadful ad, in my opinion, although I don't know if it's much worse than most local car-dealer spots. But I guess Vick had to start somewhere on the endorsement comeback trail. I just can't see a spot like this making Nike sit up and take notice.

Best Buy Takes on Dick's and Sports Authority

When a category killer has finished killing off its category, what's the next step in growth? Moving into somebody else's category, it seems.

Best Buy is introducing health and fitness equipment, stuff that would seem more appropriate at Sports Authority.

A 30-foot-long in-store health and fitness presentation area enables consumers to sample many of these devices before they buy. On display are state-of-the-art heart rate monitoring watches, pedometers, special MP3 players, ear buds, headphones, yoga mats, scales, blood-pressure monitors and other products from leading manufacturers such as Gaiam, GoFit, H2O Audio, MIO, Polar, Sportline and Yurbuds.  

They are concentrating on techie sports equipment, which lends some logic to their actions, but it does beg the question of what the next move might be.

A&P Declares Bankruptcy

Not exactly a shock, this has been expected for a long time -- helped along by the most recent quarterly report, which showed losses of over $150 million.

This article says that Ahold may bid for A&P's Pathmark stores, but I'm sure there will be lots of such speculation over the next few months.

Video Game Sells $650mil in Five Days

I continue to be stunned by the extent to which video games have displaced movies as the most important entertainment medium for a substantial portion of the public, and more generally by video games as a money-maker.

The latest release of Call of Duty, Black Ops, generated $650 million in sales in its first five days of release. By comparison, the biggest movie of all time, The Dark Knight, had a box office of less than a third of that, $200 million, in its first five days.

I wonder what the star game designers are making compared to movie personnel?

Mail-In Rebates Continue Decline

According to this article in USAToday, mail-in rebates on Black Friday promotions have declined dramatically the past few years:

The number of Black Friday promotions from major retailers with mail-in rebates has dropped from about a third a few years ago to just 10% so far this year, says Brad Wilson, founder of BradsDeals.com.

I'm not sure what the statistical basis is for his numbers, but I think it's unquestionable that many suppliers and retailers are avoiding mail-in rebates. The decline began several years ago when the public clamor about practices that were often deceitful and sometimes flat-out fraudulent reached a point where the Federal Trade Commission began investigating. Fines and public shaming followed, and some retailers (Best Buy most prominent among them) began eliminating the practice.

I see a lot of ads indicating 'instant rebates' -- prices reduced at the cash register. Is there any research indicating that this is more effective than a TPR? -- which is what it is.

US Ad Biz to Recover Slowly

Projections of the advertising market over the next few years are that the recovery is going to be slow. According to ZenithOptimedia:

... ad spending in the U.S. will grow just 2.5 percent next year to $155 billion, and a total of just under 9 percent between 2010 and 2013 to $164.8 billion, an increase that the agency termed “disappointing.” The Olympic-Election year of 2012 will see growth of just 3 percent to $159.6 billion. 

Global growth will be a bit better, with Brazil, China and India expected to lead, and China surpassing Japan to become the second-biggest ad market.

The hold-up in the US?: "... corporate concerns about debt, unemployment and government spending."

Zombie Brands

I've been interested for years in examples of old brand names being revived -- I recall being intrigued in the late 1980's when the Packard Bell computer was introduced. As a kid, our family's first TV in the early 50s was a Packard Bell, and I briefly thought it was from the same company. Which was, of course, the idea -- the computer company had bought up a respected brand name that was in disuse and thus gained a measure of credibility.

There was an auction of such brand names in New York recently:

It featured names in categories like beverages (Meister Brau beer, Snow Crop frozen orange juice) financial services (the Kuhn Loeb and Shearson brokerage firms), packaged foods (Allsweet margarine, Lucky Whip dessert topping), personal care (Mum and Stopette deodorants), publishing (Collier’s, Saturday Review) and retail (Computer City, Phar-Mor).

The Victrola brand name was sold for $1000 -- I wonder what it might be used for?

Are Sales Associates Passe?

A survey by Accenture finds that most smartphone users would rather consult their device to get basic shopping information than ask for help from a store employee:

73% of shoppers with smartphones favor using their smartphone to handle simple tasks in stores compared with 15% who favor interaction with an employee, the survey says. Similarly, 71% favor using their smartphone to identify a store with a desired item in stock, while 17% would prefer to get that information by speaking to an employee.

My first reaction was that the issue isn't asking a store employee a question -- it's finding a store employee to ask.

Which gets to the core of the issue: employees are expensive, so stores have cut back. They can cut back more if they improve their digital service offerings. Which means it will get even tougher to find a store employee when we need one, I guess.

But opportunities are there, as always. One obviously is offering a suite of services via mobile devices that make it quick and easy to find help that way; another is to differentiate oneself by offering good in-store service from human beings; a third might be offering the best possible combination of both forms of customer service.

Is Borders Going to Buy Barnes & Noble?

More than two years ago there were rumors that Barnes & Noble might buy Borders (we mentioned it here), and those rumors have persisted. Now the hot rumor is that the tables might be turned:

A hedge fund managed by Borders investor William Ackman is now offering to finance a bid of $960 million in cash, or $16 per share, for Borders to buy the much bigger Barnes & Noble, which put itself up for sale in August. Mr. Ackman, whose Pershing Square Capital Management LP holds 37.3% of Borders shares, made his offer in a regulatory filing that became public Monday.

A marriage of the two book behemoths could lead to some significant cost savings through economies of scale. Barnes & Noble also has proven to be a more adept operator, with skills that it could be applied throughout a single, combined chain. But a combination of the No. 1 and No. 2 bookstore chains in the U.S. would face headwinds, including antitrust scrutiny and Borders' own shaky finances.

Very shaky -- Borders' market capitalization is less than one-eighth of B&N's.

Whichever way the merger goes (if there is any merger) I would wonder about its chances of success -- it seldom works out that combining two weak companies creates one strong one (e.g., Sears and Kmart). And a merger wouldn't solve the real problem, digital books, which was just exacerbated by Google's entry into the market. As a hardcore bibliophile, I fear that book stores are following record stores into oblivion.

Barnes & Noble recently cited studies that suggest consumer spending on new physical books will fall to $19 billion in 2014 from $20.5 billion in 2009.

Are iPad apps killing newspapers?

As if the newspaper biz needed more bad news (here's yet another report on declining ad revenues), a survey says that heavy iPad users are more likely to cancel their newspaper subscriptions: "The survey showed that 58 percent of respondents who use the Apple tablet at least an hour a day for news are very likely to cancel their subscription in the next six months."

Actually, I wasn't all that impressed with this result after I pondered it. iPad users -- early adopters of new technology -- are probably younger than the populace as a whole, and therefore more likely to discontinue newspaper subscriptions (and less likely to subscribe in the first place). In addition, it seems hardly surprising that anyone who reads an hour of news per day online (via any technology) would be contemplating unsubscribing.

A few thoughts on channel-stuffing

I've seen several articles recently alleging that General Motors has engaging in channel-stuffing -- shipping out more cars to dealers than the dealers could sell -- in the months preceding their IPO. I have no idea if it is true, though the graph accompanying this blog post would seem to provide some evidence to support the idea -- though it may also merely be proof of poor forecasting (another point of some interest, of course).

Regardless of the merits of the charge against GM, something that I notice is that such charges are being made with more frequency, to the point that the term 'channel-stuffing', once used only among channel marketers, has become fairly common.

Channel-stuffing has always been a stupid tactic, in my opinion, at least for the company involved, though not necessarily for individual employees involved. (The employees may benefit from incentives based on short-term sales goals, and figure on having moved on to another position before the consequences hit). But the growing knowledge of the practice among the general public (read, 'customers') and the frequency with which the charge is (fairly or not) being leveled, means that companies can suffer a PR hit -- whether the real problem is channel-stuffing or bad forecasting. A good reason to avoid both, it seems.

What do you think? Is channel-stuffing just commented about more these days, or has it actually becoming more common?

UK supermarkets cheaper than discounters

There's been an interesting development in the UK supermarket arena -- the major grocery chains are now priced at or below the level of discounters -- at least in Edinburgh. In test-shopping a range of products at the "big 4" chains and the Lidl and Aldi discount stores, a Scottish newspaper found:

Asda was the cheapest for the overall shop, at £42.90, narrowly beating Lidl by just 17p – the cost of a tube of value brand toothpaste. Only Sainsbury's (£48.16) was more expensive than Aldi, at £46.39.

The interesting turnabout was:

The no-frills stores have – perhaps turning popular preconceptions on their head – defended their prices, saying it is about value for money and shoppers have to take quality into account.

The juggernaut rumbles on

When you're wrong it's best to admit it and move on. A couple years ago, it appeared that Walmart was struggling, especially overseas (closing operations in Germany and Korea, and posting poor performances in Japan and UK).

But things have changed. Actually, I admitted this last year, when I posted this, but now things are looking even better:

• International operations Q1 underlying sales up 9.1 pct
• International Q1 underlying operating profit up 7.8 pct
• Says outperforming in almost every foreign country
• "Stand out" quarter from Asda in Britain

Some of their growth of course must be attributed to the recession, but the improvement seems to have predated the worst of the downturn. It looks like Walmart's growth continues unchecked.

The continuing decline of the magazine biz

I most often post about newspapers, and to a lesser extent about broadcast, when discussing media fragmentation, because those are the media most often used in advertising supported by trade promotion funding. Media fragmentation is creating problems for other media as well, of course, and the readers of this site are mostly marketers with interests beyond just trade promo.

Or at least that's the rationale I use when I get off-topic. In reality, I sometimes just use this blog to post about things that I find interesting that may have only a very tangential relationship to trade promo.

In any case, the magazine sector is continuing to have problems. Conde Nast killed off Portfolio recently, joining a number of titles that have disappeared. The survivors are dropping their circulation guarantees, as Newsweek and Time have done and as New York is now doing:

New York's circulation will fall to 400,000 from 425,000, while the magazine's introductory subscription price is jumping to $24.97 from $19.97.

While raising subscription prices may seem counterintuitive in the face of declining circulation, the idea (don't know if it works or not) is to make the remaining circulation more attractive to advertisers. And, of course, to cut costs.

Newsweek's efforts to survive are more drastic. They have loudly proclaimed their move away from straight reporting to "interpretation" of the news (I mentioned it last year in this post -- Newsweek wants to be The Economist when it grows up).

The makeover has recently hit the newstands, and I enjoyed reading this devastating review by Michael Kinsley:

The next page of content is headlined "Scope," with the explanatory subhead "news, scoops and the globe at a glance," which is pretty much what Meacham had said Newsweek was not going to cover anymore. But never mind the headline. Most of the page is a picture of Miss California in a white bikini. I know she's Miss California because of a quote from Donald Trump just over her right shoulder, with the added information that he had "allowed [her] to keep her crown." Her breasts are covered by a table of contents of the Scope section. These contents include "InternationaList" (short dispatches from foreign parts; no list that I can see); a source-greaser (flattering profile of a figure who may prove useful) about CIA director Leon Panetta; something called the "Indignity Index," described as "an unscientific appraisal of dubious public behavior" (comedian Wanda Sykes gets a 12 for a rude joke about Rush Limbaugh, Keifer Sutherland gets a 68 for some kind of unpleasant encounter at a party); a short, serious essay by Melinda Gates about building institutions in underdeveloped countries to help poor people save money; and so on.

I say "and so on" as if there is some pattern or similarity here. But the only thing these various features have in common is nothing more about Miss California. It's been said that the test of a newsmagazine is whether you would grab it if you'd been trapped in a coal mine for a week and had one hour to catch up. And after a week trapped in a coal mine, perhaps an hour with a picture of Miss California in a bikini will be more useful than any explanation of why she's in the news. But the new Newsweek maintains the same irritating practice as the old one of half-explaining, which is no use either to those who already know the story or to those who don't.

The newsweeklies, as I noted last year, have dumbed themselves down to the level of People. It doesn't appear that this makeover has changed much. My comment back then stands: "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."

(As an aside: It's probably fair to note that Kinsley was writing in The New Republic, which is a left-of-center opinion magazine -- which is what Newsweek apparently is trying to be. So maybe there's some bias involved in his review.)

EU fines Intel billion-plus

I've posted several times previously (most recently here) about the legal battles between Intel and AMD, and the related battles between Intel and various regulators (Korea, Japan, EU). Last June, Korea fined Intel $25 million for offering improper rebates to customers:

Intel offered about $37 million in rebates over 2 1/2 years to Samsung and Trigem on the condition that they wouldn't buy from Advanced Micro, according to commission's statement.

The EU has just handed down a fine that makes Korea's look like chump change:

The European Union fined Intel Corp. a record euro1.06 billion ($1.44 billion) on Wednesday, ordering the world's biggest computer chip maker to stop illegal sales tactics that shut out its Silicon Valley rival AMD.

The findings are detailed in the article linked, and are too lengthy to quote here, but they are similar to the Korean case:

Wrapping up an eight-year probe, the EU says Intel gave rebates to manufacturers Acer, Dell, HP, Lenovo and NEC for buying all or almost all their x86 computer processing units, or CPUs, from Intel and paid them to stop or delay the launch of personal computers based on AMD chips.

Intel has denied the validity of the findings and says they will appeal within the next sixty days.

I have no knowledge of who is right or wrong in this case, but obviously a fine of this size indicates the importance of reviewing your trade promotion policies carefully. For American readers who will try to draw solace from the fact that the fines have been overseas, I draw your attention to this part of the article:

[EU Competition Commissioner] Kroes said she hoped the administration of President Barack Obama would join Europe in subjecting corporations to closer anti-trust scrutiny.

This week, one of America's top antitrust officials, Christine Varney, signaled a return to tougher enforcement as the Obama administration dropped a strict interpretation of antitrust rules that saw regulators shun major action against monopolies over the last eight years.

Kroes said Varney's words gave her hope that current "close cooperation" and information exchanges with the Federal Trade Commission "could go in a very positive way" in the future.

"The more competition authorities are joining us in our philosophy, the better it is for it is a global world," she said. "The more who are doing the job ... and with the same approach then the better it is."

Walmart won't report monthly

Walmart says that the purpose is to allow the chain to focus longer-term, rather than concentrating on justifying very short-term changes in sales.

I'm a bit of a crank on the subject of short-term thinking -- I blame it for a lot of the ills in American business (probably even more that it deserves). So I approve of Walmart's thinking -- having to justify sales blips to Wall Street every month probably motivates a lot of poor decisions.

A number of other retailers have moved in this direction recently (Eddie Lambert of Sears took heat for doing this a few months back, as I recall).

Over the past year, about a half dozen retailers have done so, but they mainly are specialty retailers such as AnnTaylor Stores Corp., Guess Inc., Bebe Stores Inc., Cache Inc. and Pacific Sunwear of California Inc. Analysts say many of the stores acted because their comparable-store-sales were deteriorating and it is more of a cost drain compared to better-capitalized large retailers.

Macy's Inc., among the biggest retailers in the nation, stopped dispensing same-store-sales figures in February 2008 but started again last October.

But what will all us nerds do if we can’t obsess over monthly sales figures?

International retail: Russia, Japan

I've been ignoring developments outside the US a bit lately. There's been enough action here recently to keep us all focused.

But for retailers, the opportunities for growth may look better overseas. Carrefour is apparently in negotiations to buy one of Russia's leading grocery chains:

French retail giant Carrefour is negotiating to buy Russian supermarket chain Sedmoi Kontinent for 1.25 billion dollars (938 million euros), the daily Kommersant reported.

The paper, quoting an unnamed senior Western investment banker close to the talks, said Carrefour would formally submit its bid on May 15 under the terms of a preliminary agreement signed in April.

The paper said the French retailer would pay 1.25 billion dollars to acquire 75 percent of Sedmoi Kontinent and 100 percent of Mkapital, the firm managing the real estate holdings of the Russian supermarket chain.

Russia could be an interesting market to watch, since my first thought when I saw this article was, "Hey, didn't I see something a few weeks ago about Walmart planning to enter Russia?" As a matter of fact, I had:

Reports of out Russia suggest Wal-Mart Stores Inc. may be in negotiations to buy a controlling stake in one of the country's leading “hypermarket” big box retailers. An article in the Kommersant newspaper said the ownership stake in Lenta could approach 51%. This follows similar reports in July 2008.

As the quote indicates, Walmart has been looking at Russia for a while. Presumably they'll take the leap soon, especially now that Carrefour has gone first.

Meanwhile, in Japan, where Walmart, Tesco, and Metro are established, the Wall Street Journal thinks the action is going to be defensive consolidation by local chains, especially by the biggest of the locals:

Still, any efforts to push their presence out into the regions by Wal-Mart, Tesco or Metro may put them into competition with domestic heavyweight and serial acquirer Aeon.

"Aeon's strategy has been one of looking at M&A as a platform for sales volume expansion," says Larke. "It's seen what the large overseas competition have done and come to the conclusion that sales volume is the way to go."

In the past three years it - or its affiliates - have on average conducted a merger, private placement or capital tie-up with another retailer every two and a half months, according to data from CapitalIQ.

Carrefour pulled out of Japan a few years ago, and Walmart has struggled there.

Maryland outlaws RPM

A bill passed by the Maryland legislature is intended to nullify the effects of the Supreme Court's Leegin decision in that state.

Under the new state law, retailers doing business in Maryland -- as well as state officials -- can sue manufacturers that impose minimum-pricing agreements. The law also covers transactions in which consumers in Maryland buy goods on the Internet, even when the retailer is based out of state. That could potentially affect manufacturers throughout the country.

The article says that several other states are considering such legislation, but I doubt there will be any need. Senator Herb Kohl's subcommittee begins hearings next month on a bill to overturn Leegin at the federal level, and that will preempt any state actions.

The invention of the supermarket

An interesting story in Forbes on the founding of King Kullen supermarkets in 1930 and its effect on how we live. They describe the way people bought groceries before self-service stores were invented, with a clerk picking out the individual items customers wanted (with few or no brand choices).

The process was erratic, labor intensive and costly. In 1930, Americans spent 21% of their disposable income on groceries. By 1940, that percentage dropped to 16%. Today, that figure is less than 6%--thanks to innovations in food distribution, mass merchandising and price competition that began in the 1930s.

"Supermarkets made it possible to achieve economies of scale at a lower cost to consumers," says Leslie G. Sarasin, chief executive of the Food Marketing Institute. "Americans were able to spend more of their disposable income on cars, education, clothing. They effectively created America's middle class."

A sidelight not mentioned in the story is that supermarkets spread so fast and destroyed the existing small retailers so quickly that only six years later, in 1936, congress felt it necessary to try to save the small retailers by passing the Robinson-Patman Act. Didn't work, did it?

Off-topic rant: Remember paragraphs?

Take a look at the article referenced in the previous post.

There are eleven sentences in the article and ten paragraphs.

I see a lot of articles written like this.

What is it with the current fad in newspaper writing of having only one sentence per paragraph?

Although there are two sentences in one paragraph. But they’re short ones.

It’s very annoying to anyone with a reading comprehension level beyond third grade level.

Is this something they teach at J-School now?

I was taught (in third grade or thereabouts) that several related sentences that form a thought should be combined into a single paragraph.

Is that no longer true?

Kroger not pushing back on pricing

At least, not hard. But they warn their suppliers to watch out for the consumers pushing back.

"While we'll push back a little, what a vendor decides to do with pricing is their decision, but they also own the volume result," Kroger Chief Executive David Dillon said at a Barclays Capital conference.

Nietsen questions Twitter retention

There has been a lot of celebrity-centered hype about Twitter lately, with Oprah sending her first tweet and a big race to be the first to have a million followers (won by Aston Kutcher, who I think is an actor).

Any communications vehicle is potentially a marketing vehicle, and a lot of marketers are giving thought to Twitter's potential. A study from Nielsen indicates that, while Twitter may be spreading like wildfire, the fire may burn out just as quickly:

Currently, more than 60 percent of U.S. Twitter users fail to return the following month, or in other words, Twitter’s audience retention rate, or the percentage of a given month’s users who come back the following month, is currently about 40 percent. For most of the past 12 months, pre-Oprah, Twitter has languished below 30 percent retention.

That doesn't mean that Twitter will not be successful. If thirty to forty percent of users remain active, and if the application continues its spread to the point that just about everybody tries, then it will be huge. If, however, the anti-hype from the Twitter Quitters begins to discourage new trials, then there will be a problem. We'll keep watching (and even tweeting).

Possibly big price discrimination decision

Time will tell how big this is, but a food distributor in Pennsylvania won a Robinson-Patman suit against a supplier for discriminatory pricing and against Sodexho for inducing discriminatory pricing.

Feesers filed its complaint against Michael Foods and Sodexho on March 17, 2004, alleging price discrimination in violation of the Robinson-Patman Act. A three-week bench trial took place in early 2008 before Judge Sylvia Rambo in the federal district court in Harrisburg, which resulted in the April 27, 2009 decision.

At trial, Michael Foods and Sodexho argued that Feesers and Sodexho were not in "actual competition" for purposes of the Robinson-Patman Act because Sodexho provides food management services to its customers, whereas Feesers is a food distributor. The court found, however, that both Feesers and Sodexho procure and distribute food for the same institutional customers and, thus, are in actual competition for the same food dollar.

Although the injunctions issued by the district court are binding only as to Michael Foods and Sodexho, it is now clear that price discrimination by food suppliers against distributors such as Feesers and in favor of large-volume food management companies and GPOs such as Sodexho will not be tolerated by the courts.

This law blog quotes attorneys for the two sides, who disagree (no surprise) as to the importance of the decision:

Kessler [Feeser's attorney] told us Wednesday that the decision could have a major impact on the food distribution industry. In recent years, he explained, food management companies like Sodexo--which provide procurement and management services for cafeterias at schools, hospitals, and prisons--have used their large client base as leverage to extract better pricing deals from suppliers. That's hurt distributors like Feesers. "Sodexho [said to its clients], 'We don't compete with distributors so you can give huge discounts,' " Kessler told us.

Peggy Zwisler of Latham & Watkins, who represented Michael Foods at trial, disputed Kessler's view of Judge Rambo's opinon. She told us it's "very fact specific" and does not have broad implications. She also said that Michael Foods has "strong grounds for appeal" and it intends to do so.

The decision is here.

I am not an attorney, so take my opinions with several grains of salt, but it seems to me that the most significant point in the decision is that no proof of competitive harm is required, that harm can be assumed from the size of the price differential. My understanding is that this interpretation, if upheld, would make such suits easier to win in the future.

“Competitive injury” is established prima facie by proof of “a substantial price discrimination between competing purchasers over time.” In order to establish a prima facie violation of section 2(a), Feesers does not need to prove that Michael Foods’ price discrimination actually harmed competition, i.e., that the discriminatory pricing caused Feesers to lose customers to Sodexho. Rather, Feesers need only prove that (a) it competed with Sodexho to sell food and (b) there was price discrimination over time by Michael Foods. This evidence gives rise to a rebuttable inference of “competitive injury” under § 2(a). The inference, if it is found to exist, would then have to be rebutted by defendants’ proof that the price differential was not the reason that Feesers lost sales or profits.

Radio Shack brings us some good news

Radio Shack is not exactly the coolest name in retail, and a couple years ago I couldn't resist posting this bit of satire from The Onion, purporting to quote the chain's CEO:

"I'd like to capitalize on the store's strong points, but I honestly don't know what they are," Day said. "Every location is full of bizarre adapters, random chargers, and old boom boxes, and some sales guy is constantly hovering over you. It's like walking into your grandpa's basement. You always expect to see something cool, but it never delivers."

Added Day: "I may never know the answer. No matter how many times I punch the sales figures into this crappy Tandy desk calculator, it just doesn't add up."

But Day may be having the last laugh:

Net income rose to $43.1 million, or 34 cents a share, from $38.8 million, or 30 cents a share, a year earlier. Revenue grew 5.6% to $1 billion.

Analysts had, on average, been expecting Ft. Worth-based RadioShack to earn 20 cents a share on revenue of $944.8 million, according to consensus estimates derived in a FactSet Research survey.

The numbers may be inflated by sales of digital converters, but anybody who's showing good increases right now is doing something right.

Pontiac: R.I.P.

Old brands can be like old friends, I guess. When they die, we're saddened, we feel a void in out lives.

That's a bit of hyperbole, of course, but I will miss Pontiac, as I miss other brands that are gone, and as I will miss some others that appear to have one foot in the grave. I never owned a Pontiac, but it's a brand that I grew up with. It has always been there, and now it won't be.

Newspaper circulation falls -- even more

Just when you think things couldn't possibly get worse for the newspaper industry ... things get worse.

The latest circulation figures just came in, and they are ugly. Of the top twenty-five daily papers, only the Wall Street Journal had an increase (less than 1%). Many of the others had double digit decreases -- the New York Post was down more than 20%, and New York Daily News, Houston Chronicle, SF Chronicle, Boston Globe, Philadelphia Inquirer, Cleveland Plain Dealer, Newark Star-Ledger, St. Petrsburg Times, Portland Oregonian, and Atlanta Journal-Constitution were each down between ten and twenty percent. Overall:

... for 395 newspapers reporting this spring, daily circulation fell 7% to 34,439,713 copies, compared with the same March period in 2008. On Sunday, for 557 newspapers, circulation was down 5.3% to 42,082,707.

Well, at least things can't get any worse than this. Right?

FTC's RPM workshops scheduled for May

The Federal Trade Commission will hold workshops on resale price maintenance May 20-21:

The first panel will be moderated by Pauline Ippolito, Acting Director of the FTC’s Bureau of Economics, and will examine empirical evidence on the effects of RPM. Specifically, it will review existing empirical studies of RPM, or studies of other vertical restraints that might inform the thinking on RPM. The panel also will explore potential future research in light of possible testable hypotheses underlying the competitive effects of RPM.

The second panel, to be moderated by Laurel Price, Attorney Advisor to FTC Commissioner Pamela Jones Harbour, will examine the legal and business history of the use of RPM in the United States. It will explore how RPM has been treated in this country historically, as well as the legal and business management doctrines related to RPM.

The third panel, also to be moderated by Price, will examine “rule of reason analyses” after the Supreme Court’s landmark Leegin decision, and will assess guidance provided by the Leegin Court regarding the analysis of RPM.

The sessions will be of value to manufacturers who wish to establish minimum pricing rules for their resellers, although it's quite possible the rules might change again very soon.

Recessions get a bad rap

Advertising Age had an article last week about the big increases being seen in private label, “Don't Blame Private-Label Gains on the Recession”.

Not only have private label brands been gaining share for the past decade, experts say these gains are the single-biggest problem facing branded packaged goods players. House brands, once a staple of lower-income households, now enjoy roughly equal penetration among demographic segments. Improvements in quality and packaging have helped removed the stigma attached to buying a no-name product.

The recession has accelerated the growth of private label, but it is a long term trend that was happening before the recession and will (presumably) continue, though at perhaps a reduced rate, when the recession is over. The increasing concentration of retail, and the increasing power of the surviving retailers, virtually ensures it.

That’s an interesting thing about recessions – they speed up trends that already exist, especially speeding up the effects of secular decline. Besides private label, we see similar effects from the recession in media and retail. (I did a similar post on this point almost exactly a year ago).

Some of the biggest (or at least most publicized) hits in this recession have been felt by the big media, especially newspapers. But media watchers have been warning about the effects of media fragmentation for the past few years (I did a presentation on its effects on trade promo at a TPMA meeting three or four years ago – and I wasn’t first), and newspapers have been in decline even longer. The recession has merely exacerbated existing problems.

In retail, department stores are hurting, and several chains (including Linens ‘n Things and Circuit City) have liquidated. But the consolidation of channels has been killing off the also-rans in each channel for years now, and department stores’ market share has been dropping for decades. Again, the recession has just sped up processes that were already in action.

It’s convenient to blame recessions for business problems. But often the recession merely exposed the problem, it didn’t create it.

Some brand marketers may want to believe that the recovery will solve their problems with private label, and media people and retailers may have similar dreams, but the recovery will solve nothing if the underlying problems are not addressed.

Google interview, part two

A few weeks ago, I was interviewed by Brett Goffin of Google. The video from that interview is now available on the Google Retail Blog, in two parts. The first part, dealing with general trade promo issues and background matter, is here. Part two, dealing more specifically with trade promotion online, is here.

I’ll wait a few moments, while you click the links and watch the interviews … Okay, now that you’re back, I’ll expand a bit on what I said there.

I’m astonished, frankly, that online promotion has not yet attained a much higher percentage of trade spending. Our survey several weeks back indicated that it is under 5% for most programs. While our surveys are not scientific, the results comport with my observations. Given that online promotion offers both immediate sales opportunities at e-commerce sites (equivalent to in-store promotion), as well as brand-building opportunities (equivalent to print or broadcast advertising), and also customer education opportunities (equivalent to collateral material) – often serving these functions simultaneously – it seems retailers and their suppliers should be doing far more online promotion this many years into the internet age.

So why hasn’t it happened? There probably are multiple explanations, but it seems that the most likely reason is the usual one – money. Retailers make money off circulars and they make money off endcaps. They’re not going to get excited about online promotions until they can make equivalent amounts of money there.

When the internet first emerged, most of us looked upon it, in terms of trade promotion, as being analogous to broadcast or print, and therefore we tended to think of payment for it as being cost-based, as payment for those media (other than circulars) was traditionally arranged. But if we change the analogy to in-store promotion, then it is easier to think of payment as value-based.

The internet, of course, is both advertising medium and store (and more), and therefore both analogies are apt. But more to the point, there is no reason why retailers cannot charge what they see fit for online trade promotions, just as they do for an endcap in their store.

(A caveat: There are Robinson-Patman considerations concerning any trade promo payment that is not strictly cost-based – but value-based payments for internet promotions should be no more nor less questionable legally than value-based payments for in-store promotions. A second caveat: I am not a lawyer).

So what is needed for online trade promotion to advance beyond the level it is at today? Retailers need to see the opportunity to use it as a profit center, and then to present the value proposition to their suppliers; and/or, suppliers need to approach their channel partners with proposals to use online trade promotion that offer incentives comparable to in-store promotion; and/or, online media need to broker the deal.

The means exist to create online promotions that tie together search, banners, and “virtual endcaps”; promotions that build the brand, that sell, and that provide information to facilitate in-store sales. Retailers and their suppliers need to cut their ties to old models and move forward.

American Greetings gets out of retail, into distribution

American Greetings has pulled off what amounts to a trade with a privately-held card company, Schurman Fine Papers. AG sold their retail outlets to Schurman, which operates card stores under the names Papyrus and Carlton Cards, and simultaneously bought Schurman's distribution business, and a 15% share in Schurman.

American Greetings is selling its retail store operations to Schurman, which operates Papyrus card and gift retail stores. Schurman will operate stores under the American Greetings, Carlton Cards and Papyrus brands. Schurman paid American Greetings approximately $6 million for its retail business.

The card companies also announced that American Greetings purchased the wholesale division of Schurman, which supplies Papyrus brand greeting cards to specialty, grocery and other retailers. Following the close of the deal, American Greetings will become responsible for service to those accounts where Papyrus brand products are sold.

American Greetings paid approximately $18 million dollars as consideration for the wholesale division of Schurman.

American Greeting is a pretty well-known name -- I'm surprised to see that their retail business is worth only $6mil. But then, I also don't remember having seen any of their stores recently (if ever) -- which may be a clue as to why they are exiting the business. This would seem to be one of those "concentrate on your core business" moves.

Update 4/22: The Cleveland Plain Dealer reports that American Greetings closed sixty of its stores in February, leaving about 355. And this quote from AG's boss indicates that they looked at getting distribution rights to Papyrus as the focal point of the deal (and maybe the reason for the relatively low price for the stores):

“The addition of the Papyrus brand to the American Greetings family provides the opportunity to serve a consumer with distinct tastes—a consumer who appreciates the Papyrus approach to design and quality,” says American Greetings CEO Zev Weiss.

S&P downgrades Macy's and JCP to junk

Standard & Poor's has lowered the ratings on pretty much the whole retail sector, it appears, with Macy's and J.C. Penney taking the biggest hits.

"The rating actions reflect Standard & Poor's deepening concern about the impact of the U.S. recession on the increasingly troubled department store sector," Standard & Poor's credit analyst Diane Shand writes in her reports, "which has felt the full brunt of the declining U.S. economy and weakening consumer confidence in 2008. We believe lower consumer spending and declining mall traffic will affect the sales and profits of the department store operators this year," Shand writes, "and that recovery will be slow."

I'm not a market analyst (as a glance at my portfolio would quickly prove), but I certainly agree that "recovery will be slow" for the department store sector, since their problems pre-date the recession and will continue after the recession is over.

When retailers suffer, so do mall owners

General Growth Properties (ironic name), the second-biggest owner of shopping malls, declared bankruptcy this week, a victim of the ripple effects from the battering of their retail tenants. The company had $25 billion in debt, much of it coming due next year, and had bought out Rouse Company for $12.6 billion in 2004.

As more stores have closed, mall vacancies are at their highest point in almost a decade, according to Reis, a research company, which said the vacancy rate at the end of 2008 was 7.1 percent, compared with 5.8 percent at the end of 2007.

That has left many of the roughly 1,500 malls in the United States groping for a solution — any solution — to their woes. Some have converted retail space into office space. Others have drastically lowered rents for prized tenants, agreeing to cut deals to keep revenue flowing. Some have simply gone dark.

Shares in General Growth, which closed on Wednesday at $1.05, have fallen 97 percent over the past 12 months.

Down 97% -- sounds like some of my investments.

Mexican retailer enters US market

A Mexican 'cheap chic' retailer with 64 stores in its home country, has opened its first store in the US. Shasa says the Houston store is just the first of 100 planned by 2012. Some might consider this an inopportune moment to be opening new stores:

Trendy vendor and possible competitor Wet Seal reported that its net revenue fell to $593 million last year from $611 million in 2007. Clothing retailers like Ann Taylor, Eddie Bauer and Gap have shuttered stores across the nation of late. And retailers like Meryvn’s and Steve & Barry’s declared bankruptcy last year.

But the store owners are undetered:

“It’s the best time to enter. From here, it’s all up,” Armando Dollero said as he toured the 6,300-square-foot store on opening day.

The recession is also forcing customers to exchange expensive name brands for cheaper retailers, Carlo Dollero said.

“We’re getting a market we didn’t have before,” he said, adding that sales in Mexico shot up 42 percent last year compared to 2007.

Good luck to them. I love that attitude.

Designers want to control their brands

We've posted before about the havoc wrought by department stores, especially Saks, in taking panicky markdowns last fall, which many designers feel caused serious damage to their brand names.

Now some of the designers, according to this Wall Street Journal article, are seeking to regain control over their brands, and specifically over the pricing of their products. One tactics is to demand to be left out of "storewide" sales:

These days, many fashion brands are effecting their own pushback, demanding to be left out of department stores' sales. "All our brands are taking great care to ensure that what happened in November will not happen again," says Paola Milani, a spokeswoman for Gucci Group, which owns Bottega Veneta, Yves Saint Laurent, Gucci and other brands. "The idea is to maintain pricing coherence in the regions in which our products are sold regardless of channel of distribution." [ ... ]

Saks, which was a leader in last fall's discounting, declined to comment. But this week, notices for Saks's 25% off "Friends and Family" sale exclude, in the teensy fine print, more than 40 top luxury brands, including Gucci, Cartier, Chanel, Loro Piana, Oscar de la Renta, Zegna and Christian Louboutin.

One wonders if that will be legal if the Leegin decision is repealed, as Senator Kohl is demanding.

Other tactics include opening new stores, in order to reduce dependence on the department store channel:

Her company depends on department stores for 70% of its revenue, which was $273 million in 2008. But she would like to whittle that share down to 50%.

To that end, Eileen Fisher will open six new stores of its own this year in the U.S. -- slightly accelerated from an average of five new stores per year -- and is launching a costly new technology platform for Internet sales that will offer greater flexibility, allowing online customers to pick up items in stores, for instance.

Probably not a bad idea anyway, considering the current state of department stores. Another variation is opening leased departments within the d-stores.

And now ... private label cars?

Saturn car dealers, faced with imminent closure, are looking for an opportunity to buy the Saturn brand name from General Motors. They plan to buy cars from foreign carmakers, tweaking the design, and sell them as Saturns -- effectively creating the world's first private-label automobiles.

Telesto Ventures said it would not build vehicles and would only keep a skeletal design crew on hand to adapt models from other automakers to a Saturn look. It also said it would focus future models on fuel-efficient and electric vehicles from other automakers.

While such a business model doesn't exist today, Telesto's backers say the global overcapacity among automakers and the growing number of start-up firms in China and elsewhere would give the reformulated Saturn several possible sources of new vehicles.

Finding automakers to work with "is not a tremendous concern," said John Pappanastos, a group spokesman. "It would allow manufacturers not in the United States to launch without incurring the largest expense they would otherwise face, setting up a distribution network."

I wish them well, and I find it fascinating to watch the concept of private label spread into areas where one could never have imagined.

Google interview

Brett Goffin of Google interviewed me recently concerning trade promo, both in general and in regard to its utilization on-line. Part 1 of the interview is up now, with the second part to be posted next week. It's posted here. In this first part, we're discussing general principles, and we get more into on-line in Part 2.

I appreciate Google making this available, and I think it was a good interview (they edited out much of my mumbling and rambling).

Y&R allies with Mars

Ad agency Young & Rubicam has created an alliance with in-store specialist Mars Advertising.

Young & Rubicam, looking to snag more revenue in one of the few ad sectors still growing despite the recession, is forming an alliance with Mars Advertising, a specialist in pitching products to consumers while they're busy shopping.

Traditional ad agencies, finding their business shrinking as a result of the decline of traditional media, are following the money into in-store marketing. Y&R is just the latest of several firms to enter the field.

Y&R faces stiff competition in the in-store sector, where some of its rivals were faster to bulk up. Publicis Groupe's Saatchi & Saatchi, for example, purchased in-store marketing firm Thompson Murray in 2004. Now named Saatchi X, the firm has 15 offices around the world and works for marketers such as Procter & Gamble, Wal-Mart Stores and PepsiCo's Frito-Lay.

It's good to see the ad agencies catch on (if belatedly) to what we've all known for a decade or more. It remains to be seen if they understand the dynamics of trade promo. It's a little different from competing for Golden Lions at Cannes.

Record companies try adding value

Record companies are looking for ways to make more than 99 cents per song. One new effort is to bundle a group of added attractions around a new release. Epic, a Sony label, is offering a $17 “season pass” for fans of their group, The Fray.

"The pass delivers songs, video footage and photos, but spaces out the offering over several weeks in the hope of holding consumers' attention and justifying the premium price."

The music industry is flailing about, looking for new revenue streams. It may be that producing value-added bundles of this sort might be one way out of their dilemma. Interestingly, their problem has been caused by the collapse of bundled deals -- albums -- that they have been offering for generations. Downloads have de-bundled albums, and consumers are choosing to buy the one or two songs per album that they care about and ignore the useless filler songs that the record companies had been forcing their customers to pay for.

These new bundles will work only if enough consumers see the extra material as being of real value.

How to fight Walmart

Dartmouth's Tuck School of Business studied Walmart openings in new markets -- how local retailers reacted and Walmart's effect on their sales.

The effect was huge -- a 40% drop in sales for neighboring mass merchants and a 17% drop for grocers.

How did most retailers react to Walmart?:

• Cut prices
• Reduced number of brands carried
• Cut back on promotions

All three are bad moves, according to the study. Kusum Ailawadi, who led the study said that retailers who cut price were merely giving up income, since they could never hope to match Walmart's pricing. And instead of cutting brands, they would have been better off to diversify their offerings, especially on higher-end brands where they would not be competing with Walmart.

In regard to promotions, they should increase, not decrease their promotions. "If a store is offering weekly specials, it's harder to make exact price comparisons," she says.

Where are they now?: Polaroid

Ever lose track of an old friend and wonder what they're doing now? Polaroid was a client a number of years ago when I was with CoAMS, and it's kind of sad to see how far they've fallen.

Polaroid Corp., the twice-bankrupt pioneer of instant photography whose brand name may be its most valuable asset, must try again to auction off its assets after failing to win a judge’s approval for a $56.3 million sale.

Fifty-six million. Wow.

Of course, even ten or fifteen years ago, it was obvious the company was in trouble -- their product had been rendered obsolete by digital photography. They were milking film sales desperately. A company that had been a technology leader had not come up with anything new in a long time. They should be a good case study on how not to react to disruptive new technologies.

Acer gains ground by cutting costs and prices

Acer may be poised to become king of the PC hill:

... Acer could pass second-place Dell in number of computers shipped this year—and close in on HP. Acer "has a strong chance of overtaking HP," wrote analyst Gokul Hariharan of JPMorgan Chase in a report earlier this month.

This is based on unit volume, not sales, and many of the units are low-priced netbooks. But it's impressive nonetheless. They have moved up by cutting costs to be the bone (their overhead costs are barely half of Dell's and HP's), and doing the same with their prices.

Acer's new ultrathin laptop will have a starting price of $650, compared with $1,800 for a similar HP Voodoo Envy and $2,000 for a Dell Adamo. "They're changing customers' perception of what you should pay for a computer," says Richard Shim, an analyst with the research firm IDC.

So Acer is taking the low end of the market, but also attacking their rivals on the high end.

VF turning more to own stores

There is much to be said for zigging when everybody else zags, and that appears to be what VF Corp. is doing.

Many U.S. apparel makers are ditching acquisitions and store expansion plans to conserve cash amid the consumer-spending downturn. But VF Corp. is taking a reverse tack to survive the turmoil.

The largest apparel maker in the world by revenue, VF is continuing to add new retail stores and plans to snap up new brands, said Chief Executive Eric Wiseman.

The Greensboro, N.C., company plans to open at least 70 new boutiques world-wide this year, Mr. Wiseman said in an interview. It is committed to a five-year plan that began in 2007 to reduce its reliance on flagging department stores.

Last year, it opened 89 new stores and drew 16% of revenue from its own outlets. It aims to boost direct sales to 22% of revenue by 2012, Mr. Wiseman said. The stores also showcase its brands, which include Nautica, The North Face, Lee Jeans and Vans.

In a recession, it's possible to grab market share as competitors retrench. Companies that do so often come out the recession stronger than ever.

Its expansion plans are a contrast to those of rivals such as J. Crew Group Inc., which has said it is revisiting all store openings. Jones Apparel Group Inc., which owns brands such as Anne Klein, Nine West and Jones New York, said it was "substantially" paring back its store expansion plans. And Liz Claiborne Inc. is postponing store openings until the economy improves.

Of course, expanding in a tight credit market requires having manageable debts, and the article notes that "VF has no long-term debt coming due until the fall of 2010."

The company also appears to be looking toward the recovery in terms of its brand acquisitions, which include luxury products:

Although the luxury sector has been one of the hardest hit in all of retail, Mr. Wiseman said that he is looking to buy more contemporary apparel brands. Earlier this month, VF spent $208 million to acquire the shares it didn't already own and debt of Mo Industries Holdings Inc., which owns Ella Moss and Splendid, makers of $100 t-shirts sold at Barneys New York.

"We know the challenges of the upscale department stores," said Mr. Wiseman. Nevertheless, he defends his strategy, arguing that, for now, VF can capture consumers at lower- and mid-tier retailers, but "when they shift back up to luxury we can catch them there as well."

These may or may not be good moves. Time will tell. But what I like is that VF seems to be a company that is looking beyond the recession and adopting a strategy to maximize the recovery.

Saving the newspapers

A US Senator has drafted a bill to provide tax breaks to newspapers that become non-profit corporations.

Cardin's Newspaper Revitalization Act would allow newspapers to operate as nonprofits for educational purposes under the U.S. tax code, giving them a similar status to public broadcasting companies.

Under this arrangement, newspapers would still be free to report on all issues, including political campaigns. But they would be prohibited from making political endorsements.

Advertising and subscription revenue would be tax exempt, and contributions to support news coverage or operations could be tax deductible.

Senator Cardin says that the "bill was aimed at preserving local and community newspapers, not conglomerates which may also own radio and TV stations." According to other things I've read, though, it is not the smaller local independents that are hurting the worst, because they are not facing as much competition as the big metro dailies, and they are not over-extended financially as the chains are.

A few positive indicators

In my never-ending quest to counter what seems to be the never-ending pessimism that I hear around me, I want to point out some of the good things I came across this week.

First, we have this item, confirming previous similar surveys of economists I've read:

A group of financial wizards looked into their crystal ball Tuesday and saw some good news.

The recession will ease by the end of this year and companies will begin adding workers, signaling the end of the worst economic downturn since the Great Depression.

We'd all rather that the recession ends tomorrow, of course, but year-end doesn't seem all that far away.

And then there's this, indicating that consumer confidence, while low, is trending upward.

For the past two weeks, the percentage of respondents in The Gallup Poll who say the economy is getting better has been steadily ticking up. Monday through Wednesday, 29% took the optimistic view — the highest number since July 2007.

And finally, more specific to our business, we see Wall Street rallying on good news from consumer products companies and retailers:

Better-than-expected earnings from big consumer brands Best Buy, ConAgra Foods and Dr Pepper Snapple Group sent the Dow Jones industrial average up more than 174 points Thursday to its highest level in six weeks. It has surged 21 percent since hitting a nearly 12-year low on March 9.

Put it all together and we get ... nothing definite, but perhaps some reason for cautious optimism.

Repealing Leegin is Kohl's job #1

Senator Herb Kohl has been speaking out strongly against the Leegin decision, which legalized resale price maintenance under certain circumstances, ever since the Supremes handed it down almost two years ago. This matters because Kohl is chairman of the Senate Antitrust Subcommittee. The subcommittee announced its agenda this week, and guess what's the first item on the list?:

Discount Pricing of Consumer Goods: The Subcommittee will continue its examination of the elimination of the nearly century-old ban against manufacturers setting a minimum retail price as a result of the 2007 Supreme Court decision in the Leegin case. Allowing retail price maintenance has the potential to seriously harm discount pricing and retail competition. Senator Kohl intends to seek passage of the Discount Pricing Consumer Protection Act (S. 148), his bill to restore the ban on vertical price fixing.

There are few guarantees in life, but I'll be shocked if this doesn't pass.

NSI buys CoAMS

NSI Marketing Services has purchased CoAMS, a firm based in Chicago primarily involved in trade promo outsourcing services.

NSI Marketing Services (NSI), the St. Louis based channel marketing services firm, that provides technology-enabled marketing administration, communication and research solutions, has acquired privately-held CoAMS, Inc. In announcing the acquisition, Mark Mantovani, President and Chief Executive Officer of NSI, called the event “pivotal” as it “brings together two established firms with long track records in providing first-class channel marketing services to world-class clients.”

NSI was formerly known as The National System. They have a variety of channel marketing services, to which CoAMS' administrative offerings would seem a good complement.

Recessions have mixed effects on trade promo outsourcing companies. Some companies that do administration internally will consider going outside in order to reduce headcount and overhead costs. Offsetting that, however, some existing clients will put on pressure to reduce fees, or even move to a competitor offering a lower price. Joining CoAMS' services to the wider offerings of someone like NSI might ameliorate some of the price-shopping clients do -- the wider the range of services you provide to a client, the harder it is for them to move.

I worked for CoAMS for a number of years, and I hope this change works out well for my friends there.

Update Sunday: Relative to the point about the effect of recessions on outsourcing companies, Mark Mantovani, CEO of NSI, told me in some emails we exchanged that both CoAMS and NSI had increased revenues in 2008, with NSI up 32%.