Microsoft adds to the blur

I posted an item several months ago about the blurring between channels, between manufacturers and retailers, and between both of them and media. Microsoft has apparently decided to jump on the blurwagon by hiring a long-time Walmart exec to head up a retail division:

The move is a sign of the deeper role consumer-technology companies are playing in the retail business, despite the many risks of straying from their traditional businesses of making hardware and software. Apple, of Cupertino, Calif., encountered widespread skepticism when it first began opening its own retail stores in 2001. [...]

At the same time, some large electronics retailers have fallen on hard times amidst the weakening economy. CompUSA Inc. last year closed most of its retail stores, while Circuit City Stores Inc. is in the process of shutting down all of its stores and laying off more than 30,000 employees.

As retailers become their own suppliers through private labeling, and as the number of potential channel partners shrinks through consolidation, it seems inevitable that we will see more suppliers playing retailer.

Liz is becoming a retailer

This is a link to an article about some management changes at Liz Claiborne. The COO is gone (and not being replaced), and the CFO got a new title and some additional duties.

But the interesting thing, I think, is this paragraph:

The company is overhauling its business to become more of a retailer than a wholesaler, in order to reduce its dependence on other retailers.

It's another case of the blurring about which I've posted often (most recently here) -- retailers are manufacturers (private label), manufacturers are retailers (outlet stores, Niketown, Apple, etc), and the stores are the manufacturers' prime medium.

Everything’s getting blurry, Doc!

You know how, when you go to the optometrist and get those drops put in your eyes and everything becomes a blur? That’s the way I’m starting to feel about … well, everything.

Channel-blurring is an old subject, of course. The first time I had experience with it professionally was when I was doing a consulting gig with Circle K in the early eighties – one of the first things I learned was that a third of their volume was gasoline (a third of the remainder was beer, which I thought was an interesting combo). The blurring of the lines between gas stations and c-stores reached the point where 7-Eleven became the number one gas retailer, gas stations converted their service bays into stores, the oil companies opened c-store divisions, and, eventually, two channels merged into one.

Then there’s the blurring between manufacturing and retailing. One of the more prominent features of Chicago’s Magnificent Mile is Niketown; close by is the American Girl store (owned by Mattel); Apple has become a trend-setting retailer; outlet malls long ago ceased to be what their names imply – outlets for seconds, overstocks, and discontinued lines – and became instead a significant channel of company-owned or franchised stores. Meanwhile, retailers turn increasingly to marketing their own brands, and even marketing those brands through other retailers, as Loblaws has done with Presidents Choice and Sears is considering doing with its powerful private labels.

Let’s add in the increasing usage of retail as media and the movement of retail into media. The store’s development as a medium has been a steady process over the past decade or more, recently recognized by being given a name – Shopper Marketing. But I’ve been struck by a couple of developments within the past week or so that indicate that this particular picture is growing blurrier still, both involving – no surprise – Wal-Mart.

The first is that Wal-Mart has begun offering free classified ads through its website. Only time will tell, of course, what if any effect this will have on Craigslist, Cars.com, and Trader. What interrests me is that a retailer is turning itself into an advertising medium in a manner more explicit than selling display space at the end of its aisles. And then, a couple days later, I saw an item saying that Yahoo had signed an agreement with Wal-Mart to sell display and video ads on Wal-Mart.com. When a manufacturer buys such an ad, will it be booked in the national advertising or trade promo budget? That depends, I suppose, on whether they see it as purchasing advertising from a retailer or from a medium.

And then, to complete the confusion, there are a couple developments from Sony. First, we see them selling advertising on Play Station games:

Owners of PlayStation 3 consoles will soon see adverts inside video games after Sony struck a deal with IGA Worldwide, a company that specialises in 'in-game' advertising.

The adverts, which can take the form of anything from a bottle of soft drink a virtual character consumes to a large billboard inside a sports stadium, are updated by the PS3's internet connection.

Sony is also planning to do original programming over the Play Station Network, as Microsoft is already doing on Xbox Live – advertisers seeking out young males (increasingly absent from their traditional media hangouts – radio and TV) are already lining up to buy.

The three sides of the trade promo triangle – manufacturer, retailer, media – were once three clearly different things. Today manufacturers are retailers and vice versa, and both are media.

Oh well, it wouldn’t be fun if it were simple, right?

Weekend quick notes

Whirlpool's takeover of Maytag is apparently likely to get the thumbs-down from the Department of Justice on antitrust grounds, according to rumor. "Lawyers in the department's antitrust division 'have made it clear' to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition, said the source, speaking on the condition of anonymity."

L'Oreal is buying the Body Shop retail chain, which will presumably help their distribution, and also help to further blur the line between retail and manufacturer, as we commented on, just a few days ago.

ConAgra seems to be going through some tough times, with sales down 46% (!) since 2001. They're responding by cutting dividends and selling a bunch of brands: "ConAgra ... said last month that it will sell its Butterball turkey and Armour meat brands. The company, which has 70 brands, said Thursday that it will sell its Singleton seafood unit, which had $290 million in sales last year, and the Swissrose cheese unit, which had $200 million in sales." On the plus side, the company is planning to bump up advertising by 21%, concentrating on stronger brands.

Retail/manufacturer lines are blurring

VF Corp plans to open 400 new stores in the next five years, and increase the share of its sales represented by retail from 13% to 18% -- which would make it a $1.4b retailer.

"What's been happening with retailers developing their own private-label lines and going for direct sourcing, as well as apparel manufacturers also expanding their own retail lines, is that there has been a blurring of distinctions between what is an apparel retailer and what is an apparel manufacturer," said Peter Kilduff, associate professor of strategic management and marketing in the Textile Design & Marketing Department at UNC-Greensboro.

Carter's, the kidswear manufacturer makes 14% margins when it sells through retailers, but 22% selling through its own stores.

The potential for channel conflict is obvious, if a manufacturer reaches some point of critical mass as a retailer. By the same token, manufacturers and retailers are also competitors when retailers reach critical mass as private labelers -- Wal-Mart's Old Roy dog food is, I have read, the #1 dog food brand on a volume basis.

Thursday's quick notes

Lianhua, Wal-Mart, and Carrefour are all reportedly bidding to buy Trust-Mart, a Chinese chain of 100 stores in 20 cities. Lianhua is China's largest supermarket chain and is "indirectly controlled" by the Shanghai city government.

Carrefour's net income dropped 16% last year, but they are planning to spend aggressively (see the China note above). "The company said it plans to open 100 new "hypermarkets," huge stores that combine elements of grocery and department stores, in 2006, or more than twice the average number of openings between 2000 and 2004."

Network TV spending was down slightly in 2005. "The tallies are in line with last May’s upfront, when advertiser commitments fell to $9.1 billion from $9.3 billion the prior year. That drop-off is logical, because the comparison is to 2004, an Olympics and election year. Still, the final tally is surprising to industry-watchers. Veronis Suhler Stevenson and PriceWaterhouseCoopers projected a 2% increase in ad revenue for network TV for 2005 even after factoring in the loss of the Olympics."

Britain's supermarkets now sell as much non-food items department stores, according to the BBC. "According to Verdict Research, supermarkets generated non-food sales of £13.5bn in 2004 - just £1bn behind that of department stores. That fact marks the relentless rise of the supermarket, so much so that almost half of the people reading this will have bought an item of clothing from a supermarket this year."

Best Buy entering home improvement category?

According to Chain Store Age, Best Buy has bought Pacific Sales Kitchen & Bath Centers, a 14-store chain in Southern California.

"Pacific Sales extends Best Buy's reach with high-end home improvement products," said Brian Dunn, Best Buy's president and COO. "This acquisition enhances our ability to grow with an attractive customer base and premium brands.”

I don't get it. Is Best Buy planning to compete with Home Depot?