Is the SEC about to give TPM outsourcing a helping hand?

Could be. At the recent TPMA meeting in St. Petersburg (it was not fun going home to eight inches of snow in Chicago), I made a presentation on benefits to be gained from Sarbanes-Oxley (it was an extended version of this post).

One of my points was that creating Sarbox-compliant trade promotion processes should make it much easier to outsource management of trade promotion – thus eliminating a messy, paperwork-intensive task that is not part of a marketer’s core business. A good argument, I thought.

At the very next session I attended, however, I got a jolt – a much better argument is coming. Ron Lunde was presenting on changes to be made in Sarbox, and said that among proposals being made by the PCAOB is one that one allow outside auditors to rely on data from responsible outside sources.

This could mean (if adopted by the Securities & Exchange Commission) that a company’s auditors might not have to perform audits on work performed by an outside supplier.

… the Board also proposed for public comment a new auditing standard on considering and using the work performed by internal auditors, management and others in an integrated audit of financial statements and internal control, or in an audit of financial statements only. This proposed standard is intended to further clarify how and to what extent an independent auditor may use that work to reduce the work the auditor otherwise would have to perform.

The full report is here.

The effect of this, if a conversation on the subject among the attendees at Ron’s presentation works out, is that a company would not need to have their trade promotion program audited by their Big Four audit firm, if the systems, processes, and practices of that program could be attested to by a responsible, reliable party. While that might be someone internal, it is more likely to be credible if it were an outside party with a SAS-70 certification.

The TPM outsourcing companies currently argue that their costs are not much higher than doing the work internally (actually, they often argue that it’s cheaper, but I’ve never really bought that argument), but if a potential client could also significantly reduce the cost of their annual audit by eliminating trade promotion from the items to by audited, the outsource firms would have a powerful new argument.

The period for comment on the proposed changes has just expired, so we can expect an update on this subject in the next few months.

FTC holding "Rebate Debate"

The Federal Trade Commission is holding a workshop on rebates in San Francisco on April 27.

For many years, manufacturers and retailers have used mail-in rebates as a marketing tool. Despite their popularity, however, many consumers have had negative experiences with rebates, and have begun to distrust them. Moreover, some businesses are beginning to question whether the costs associated with rebates exceed their benefits.

At this public forum, manufacturers, retailers, fulfillment houses, consumers, and government officials will discuss how to implement successful rebate programs and how to avoid the pitfalls others have experienced. Speakers will describe various types of rebate programs, share the “best practices” they have developed for fulfilling or implementing rebates, debate the pros and cons of rebate marketing, and discuss the past and future role of government in improving consumers’ experiences with rebates.

Sounds like an interesting event. Details are available here.

Repeal Robinson-Patman?

In 2002, Congress created something called the Antitrust Modernization Commission. The commission was asked to look into antitrust laws and recommend changes.

The final report from the commission is due in April but tentative recommendations have been released, including the following:

ROBINSON-PATMAN ACT
44. Congress should repeal the Robinson-Patman Act in its entirety.
45. [Note: Discussions at the July 26th deliberation meeting proposed this tentative
recommendation.] Until Congress repeals the Robinson-Patman Act, courts
should interpret the Act to require plaintiffs to make a showing of injury to
competition similar to that required under the Sherman Act.

Full text of tentative findings are here.

I doubt very much that the new congress, which is very different from the one that crearted the AMC, will do as the commission asks. I also wonder how much it matters.

My own opinion, since you asked, is that Robinson-Patman, flawed as it is, should not be repealed. It should be revised to reflect the realities of the marketplace, however. The most important of these is that market power exists more with the retailer than with the manufacturer, and that R-P should therefore be directed at stopping retailers from demanding market-distorting allowances, rather than at punishing manufacturers for giving into such demands.

I have often argued that R-P is written backward, and is comparable to a bank robbery law saying that it is illegal for banks to allow themselves to be robbed, and that the bank president will be jailed if it happens.

Wal-Mart pushing hard internationally

Despite their decidely mixed record in international efforts, Wal-Mart is still going all out:

• They are in talks to acquire a leading Russian retailer, Karusel
• As previously reported here, there are in partnership to enter India
• They are buying a 35% share in TrustMart, a top Chinese retailer, in what is seen as a direct challenge to Carrefour -- up to now the leading foreign retailer in China
• They are also reported to be in talks to have their Asda subsidiary (#2 in the UK market) buy Sainsbury, the #3 chain

It's understandale that they see more growth potential overseas, but their record to date outside North America has been poor. They've been successful in Canada and Mexico, but Asda has struggled, to be polite about it ("Bankers have said they expect Wal-Mart and Asda have looked at Sainsbury because it is the latest realistic chance for it to catch up with Tesco, which is now double Asda's size"), Wal-Mart has done poorly in Japan, and Korea and Germany were total disasters.

Nike doing private label with Payless

Nike is introducing a new brand of athletic shoe, Tailwind, as a private label at Payless stores. The shoes will be made by Nike's Exeter group, which markets the Starter and Shaq brands.

Discount shoe retailer Payless ShoeSource Inc. has paired up with a subsidiary of Nike Inc. to market a high-performance $34.99 running sneaker, a move that both companies hope will take advantage of a highly lucrative market.

Under the terms of the multiyear deal, Exeter Brands Group LLC, a wholly owned subsidiary of Nike, will design and produce the shoes under the Tailwind collection, while Payless will serve as the exclusive retailer.

The question is why Nike wants so many brands at the low end. One thought is that they intend to pursue a private label strategy with mass merchants, with Tailwind exclusively at Payless, Starter at (mostly) Wal-Mart, and Shaq at other mass outlets.

Long time, no post

It's been about three (very busy) weeks since I've posted here. Apologies to loyal readers (I hope you haven't given up and become disloyal readers).

I have lots of good material stockpiled, and I plan to have a bunch of new posts soon.

Thanks for sticking around.

Reminder: TPMA meeting coming soon

Still time to sign up. The meeting will be in St. Petersburg, Florida (with near-zero temps expectedfor the next week here in Chicago, I'm looking forward to it, I'll guarantee that!) on Feb 11-13.

I'll be speaking on Tuesday morning on "Turning Sarbanes-Oxley into a Competitive
Advantage" -- basically, I'll be expanding on the Lemonade Law post from a few days ago (it's two or three posts down from here).

The conference brochure is here, and you go here to sign up.

Wal-Mart -- lotsa changes

There have been a steady parade of changes at Wal-Mart lately -- starting it seems with the agency-search debacle a couple months back, but more likely in response to flattening comp-store results, the changes of direction in terms of the chain's positioning, and bad news from overseas (the closures in Korea and Germany, poor results in UK).

In short, things have not been happy in the House that Sam Built.

My own opinion (admittedly an outsider with no specialized knowledge of what's going on) is that Wal-Mart has lost focus -- their foreign ventures and attempts to move upscale seem to have distracted them from their core competencies and left them looking like they're floundering.

I've listed most of the bad news above. The good news would be that they are taking action. Whether the actions are the right ones or whether it's just more floundering only time will tell.

Here's a BusinessWeek article saying that the move of the chief marketing officer, John Fleming, to head up merchandising is an attempt to "ease the deep tensions between the two divisions that have hurt the retailer's turnaround efforts."

Underlying the problems in marketing, though, was a divide with Wal-Mart's powerful merchandising division, the unit responsible for buying and displaying goods within stores, company insiders say. Before Fleming became marketing head, the marketing department played second fiddle to merchandising and was jokingly referred to as the place Wal-Mart employees went to retire. It didn't even have a consumer research arm.

Fleming went to work expanding the department, adding consumer research and marketing strategy staffs, and creating a branding unit to define how Wal-Mart should position itself with consumers. Fleming called the department "a startup in the world's biggest turnaround."

Fleming's aimed to have the ascendant marketing department use its consumer research to help guide the merchant's product choices. But Wal-Mart's merchandising division wasn't accustomed to taking direction from marketing and the two departments didn't work together effectively, people familiar with the situation say. The merchants were slow to follow marketing's lead on product direction. For example, marketing had pushed denim for fall, but the theme wasn't apparent in stores.

And Advertising Age reports on additional moves, including the head of the US stores division to international and his replacement by the head of Sam's Club.

In all, the latest round of recent or pending management moves involves 10 to 15 people, according to one person close to the company.

It will be interesting to see if the recent round of problems is just a bump in the road, fixable by moving some people around, or if Wal-Mart has topped out and will now settle into slow decline.

Do they just have a cold, or have they contracted the dreaded, terminal Sears Disease?

Sarbox – the Lemonade Law

Unlike some folks in business, I’ve never felt particularly strongly against the Sarbanes-Oxley Act – at least in regards to trade promotion management.

As a citizen and taxpayer, I always get nervous when the government creates another layer of bureaucracy (the PCAOB). And I’ve been hearing a lot lately about how much financial business is moving to London and other places, away from New York and the US, to get away from Sarbox.

These are legitimate concerns, I think. But as for trade promo, what does Sarbox require? As I understand the requirements, they could be summarized in simplest form as:

• Full audit trail from plan to settlement
• Have a system that accurately tracks what promotion was planned, what actually happened, and what you paid for it
• All changes and deviations must be documented
• Program rules must be documented and appropriately enforced
• Full auditable proof of cost and performance
• There must be documentation of what you paid for
• All funds must be fully and accurately reconciled

So what’s the problem here? None of this is anything that we shouldn’t have been doing all along. It has been a shock to our systems to actually have some rules after so many years of anything goes, but now that we’ve adjusted, the time has come to look at the ways to take what we’ve learned from Sarbox and, whether we like the law or not, make the most of it.

As the saying goes: If life hands you a lemon, make lemonade. I can think of three varieties of Sarbox lemonade that can probably be made by most companies, and there are no doubt others that are specific to your company, based on the findings of your internal audits and the process re-engineering done to achieve compliance.

Sarbox Lemonade Recipe #1: Deductions and Post-Audits

If you are doing what Sarbox requires in regard to trade promotion, you should have virtually no unidentifiable authorized deductions for trade promotion.

Hard to believe, but true. Let’s look at a (very simple) schematic of a properly-functioning trade promotion process under Sarbox:

If you are actually doing this – if you and your trade partners are agreeing to a plan up-front, and the execution of the promotion matches the plan, and it’s all documented – how could there ever be a trade promotion deduction you don’t recognize?

Okay, I know this is the real world, and stuff happens – there will be exceptions. But they should truly be exceptions, meaning that there should be few. The exceptions themselves can be made into a positive, because they can become your measuring stick – the number of exceptions tells you the degree to which you are noncompliant with Sarbox.

For the same reasons noted above, there should be virtually no post-audits.


Sarbox Lemonade Recipe #2: Outsourcing

What is your company set up to be? A manufacturer/marketer of (fill in the blank) or a paperwork processor? There’s no good reason anymore for keeping the administrative aspects of your trade promotion program in-house.

You’ve outsourced payroll, HR, and a good many other paperwork functions, but you kept trade promotion inside, in large part because it was too unruly and uncontrollable. You wanted it where you could keep an eye on it.

That’s not necessary today – not now that you have Sarbox-compliant processes in place. You still will have the upfront planning done internally, of course, but all the back-end paperwork processing – all the collection and checking of documentation, and the issuance of payments or matching of deductions – can be done outside, by companies set up to do that sort of stuff.

Sarbox Lemonade Recipe #3: Documentation/Analytics

Now that Sarbox has enabled you to get your trade spending under control, and to track what you are spending the money on, you now have the opportunity to measure its effectiveness. The documentation of performance gives you the information you need to fully understand exactly what sort of promotion your retailers are doing for you – matching this up with their sales reports will tell you what sort of promotion works, and will give you the opportunity, in the next planning cycle, to do more of what works and less of what doesn’t.

You may or may not like Sarbanes-Oxley. It may or may not be a good law. But, properly used, it can be turned to your competitive advantage.

Quick notes

The NRF is forecasting slower retail growth for 2007. "... NRF is predicting industry sales gains of 3.8% in the first quarter, 4.6% in the second, 5.2% in the third, and 5.7% in the holiday quarter."

Home Depot investors are suing to stop Nardelli's platinum and diamond-encrusted parachute. And it may bring on government action: "U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, said the severance deal was 'further confirmation of the need to deal with a pattern of CEO pay that appears to be out of control.'"

The Telegraph reports that India's long-anticipated retail opening could be finally here. "The Indian government could lift restrictions on foreign investment in its retail sector as soon as next month, paving the way for British store groups such as Tesco and DSG International to open massive chains in the country."

The world's biggest malls

A slide show from Forbes. Eight of the ten are in Asia.

Ho-hum, sales down (again), profits up (again) at Sears

The question everybody asks is how long they can keep doing it.

Analysts raised their collective eyebrows Wednesday after Sears Holdings reported it is keeping a healthy cash kitty and has sold property, believed to be parking lots and other out lots such as gas stations, at some Kmart stores.

Sears also reported that holiday sales in November and December dropped 5.6 percent at Sears stores and fell 1.2 percent at Kmart stores from a year ago, but its fourth-quarter and full-year profits are expected to top Wall Street's forecasts.

The news sent shares up 3.5 percent.

That "healthy cash kitty" is what keeps speculation going about purchases (Gap and other possibilities).

Meanwhile, the chief marketing officer for Sears stores is out.

The chief marketing officer for Sears Roebuck & Co. unit has left the company, Bloomberg News reported today.

Joan Chow departed Hoffman Estates, Illinois-based Sears last week, spokesman Chris Brathwaite said today in a telephone interview. He declined to comment further. Sears is owned by Sears Holdings Corp., the largest U.S. department-store company and also parent to Kmart Corp.

Brathwaite said Maureen McGuire, the chief marketing officer for both the Sears and Kmart Corp. divisions, will fill the position while the company searches for a permanent replacement ...

India: Tesco + Tata?

Rumors out of India are that Tesco and Tata are in talks to create a joint venture that could compete with the Wal-Mart/Bharti combo:

Tesco has begun talks with Indian giant Tata Group to form a retail joint venture to break into the country’s retail market. Tesco has been desperate to find a local partner in India after losing out to Wal-Mart to tie-up with Bharti Enterprises. Tata had previously said it was not in talks about a move into food retailing.

And speaking of Bharti/Wal-Mart, they will be announcing their plans in February:

Bharti’s Chairman Sunil Mittal said, "Complete details, including financial details, about the retail business will be announced next month jointly by Bharti and Wal-Mart".

Mittal added that the company was planning a cluster of outlets, preferably starting in north India and Bangalore.

Gap: Changes and rumors

Gap hasn't been doing well (to put it mildly), which almost always leads to two results: executive departures and rumors about sell-offs.

Kyle Andrew, vp-marketing, is gone, to pursue other opportunities, as the saying goes.

The day before Andrew left, the president of Gap Adult and one of the top designers for Old Navy also decided that other opportunities were worth pursuing. The same article mentions that:

"Rumors that Gap has hired Goldman Sachs Group to "explore strategic alternatives" fueled an increase in its stock value by as much as 11.4% on Monday.

Meanwhile, the Chicago Sun-Times is reporting that Sears Holding Company may buy Gap (the whole thing or pieces of it). We've been hearing lots of rumors about what Sears might be buying, though, and we're not going to hold our breath on this. Eventually, they'll do something (they have lots of cash), but who knows what?

John Kittle joins MEI

John Kittle, formerly Director of Trade Promotion and Category Development for Meow Mix, has joined MEI as VP-Industry Relations. Kittle had responsibility at Meow Mix for implementing the MEI solution. Prior to Meow Mix, Kittle was Director of Customer Sales Force Development at IRI, and had spent twenty-one years at Nabisco in various sales and marketing positions.

"John was a natural fit for this position given his industry experience and excellent reputation," stated Fred Schroeder, CEO, MEI.

TPMA, February 11 – 13

The next Trade Promotion Management Association conference, The Financial Impact of Trade Promotion Management, will be held in St. Petersburg, Florida, February 11 – 13.

Make your reservations now at the TPMA website.

Mixed messages

It was a good Christmas.

Shoppers' Second Wind Keeps Retail Positive: The last week in December brought positive results for U.S. retailers as consumers redeemed gift cards and took advantage of post-Christmas deals, according to data released by the International Council of Shopping Centers on Wednesday. Weekly U.S. chain store sales increased by 0.3% for the week ending Dec. 30. Year-over-year sales grew 2.8%.

Some believe this momentum could parlay into a rich first quarter.

Christmas stunk.

Ho No No: Christmas Was Kind Of A Downer, After All: After all that fussing about the weather (too warm), the discounts on plasma TVs (too deep) and the shoppers (too few), major retailers made it official yesterday: Christmas 2006 is going into the books as kind of a dud.

We link, you decide.

Margin pressure on food manufacturers

The Wal-Mart effect is being felt by food manufacturers:

Aggressive price cutting by Wal-Mart Stores, the world's biggest retailer, is likely to put pressure on the profit margins of food manufacturers this year.

"Looking ahead to 2007, our work suggests gross margin performance should gradually deteriorate during the year ..."

With commodity prices rising, one would expect that manufacturers would pass their cost increases along -- but not if Wal-Mart won't allow it.

Is trade promo about to go into decline?

I read an interesting column in MediaPost by Joe Mandese a few days ago. It was one of those end-of-the-year-trend-prediction things, and among its points, it argued that trade promotion is in a period of decline:

Marketers bent so far backward in their promotional support that for a while it looked like advertising might take a subordinate role in the marketing mix.

Thankfully, that period ended in the 1990s as brand marketers came to their senses and began reinvesting in what actually drives consumers to their products: brands. The reign of trade promotion officially ended in the late 1990s …

Since this is a media trade publication, and the ad and media industries have long been beside themselves with frustration over the growth of trade promo budgets, I think there’s an element of wishful thinking to this analysis (as demonstrated by the use of the word “thankfully”).

But I don’t entirely dismiss the idea, although I don’t know of any evidence to support the idea that trade promo growth ended in the nineties, which would imply there has been some significant decline since. Based on both numbers from surveys and anecdotal data, the most I could say is that, after the incredible growth rates of that decade, in recent years the increases in trade promo budgets have slowed.

There are a couple reasons for this slowing: One is that the increasing scrutiny of the FASB/Sarbox initiatives has uncovered abuses and made everyone more cautious; the other reason – the main one – is that trade promo budgets have probably gone about as far as they can in some categories and channels, especially food/CPG.

With trade promo budgets already near (in some cases, over) 20% of sales, there simply is no more money to be spent. Already some analysts are downgrading food industry stocks because of concerns about margin erosion.

The question of how big trade promo budgets will be, though, is less important than the larger one of what our overall future will be. The future of trade promotion will be driven, as I see it, in large part by four big trends. The message these trends send today about the role of trade promo, and therefore of its share of the marketing budget, is mixed, but we’ll have to wait and see how they play out before the final answer is known.

Wal-Mart. No discussion of anything involving sales channels can be complete without weighing the effect of Wal-Mart. And today the question everyone is asking is, “What the #$%& is going on in Bentonville?” The very public scandals with Tom Coughlin and their strange ad agency review tell us clearly that this is no longer the company that Sam built. Throw in the embarrassing retreats from Germany and Korea and the continuing beatings they’re taking in UK and Japan; add on the loss of focus evident in the recent “we’re going upscale/no we’re not, we’re going back to basics” fiasco; mix in the whispers you hear from every side in the vendor community that Wal-Mart is simply not as sharp as they once were in every aspect – pricing, logistics, merchandising, execution; and, finally, top it all off with recent sales figures.

Clearly, the wild ride to the top is over. Just as trade promo budgets reached a point where they could go no higher, Wal-Mart has grown so large that further expansion (at least at the previous rates) is probably impossible. The question when growth slows and then stops, is whether decline is inevitable. Perhaps this recent spate of bad news is just a temporary thing, but to those of us who are getting on in years, Wal-Mart looks eerily like Sears in the sixties and seventies, when the former King of Retailing began its abdication with a series of missteps, loss of focus, and changes of direction.

It’s impossible to say what the effect of a floundering Wal-Mart will be on trade promotion; it is only clear that anything that happens at Wal-Mart will have a huge effect on everything involving retail.

Internet. Thus far, trade promotion has played a relatively small role in the growth of Internet retailing, but it would be very surprising if this were to continue. The application of many trade promotion tactics (slotting fees, shelf position, end caps, etc.) used in brick and mortar retailing have clear analogies in the virtual world.

Beyond in-store promotion, though, the analogies are less clear. It seems likely that, while trade promo’s role in Internet retailing will increase from what it is today, it will probably be less important than it is in the “real world”. Therefore, as the market share of Internet retailing grows, the role of trade promotion overall will decline.

Media fragmentation/in-store. One of the biggest drivers in the rise of trade promotion has been the growing awareness of the importance of in-store promotion. It’s your last chance (and your best chance) to get your message across (the moment of truth, as P&G calls it).

This is going to continue growing. Not only because in-store promotion is effective, but also because of the continuing (and accelerating) decline of traditional media.

I’ve written about the fragmentation of media before (see here), and nothing has happened to change my mind on the subject. It’s happening in every category of traditional media – TV, radio, magazines – but the effect on trade promotion is clearest in the precipitous decline of retail’s traditional #1 medium – newspapers. The news about the news biz gets worse with every passing day as the drops in newspaper circulation lead to layoffs in the newsroom and sell-offs of major papers (anybody want to buy the LA Times? If so, Tribune Company would love to hear from you).

The need for local promotion to replace newspaper advertising will create still more demand for in-store vehicles, and we’re seeing a resulting rush to create new vehicles; it seems at times that every square inch of retail space is an ad.

Once again, we will find that there is an upper limit – customers will rebel against the constant assault and will vote with their feet (and their pocketbooks) against retailers who overdo it. There will be a shakeout as the less-effective vehicles are abandoned. But overall, there will be a continuing growth in in-store spending, and therefore an increase in trade promotion budgets.

Analytics. The most important development in trade promotion in coming years will be the increasing use of analytics. Ever since the introduction of the first scanner, we’ve been aware that it is possible to tie sales-out to the promotions that drove them. But it has taken a long time (and increases in computing power and declines in the cost of disk storage) to assemble the massive databases of transactions and to develop lift tables from them.

The heavy lifting has been done now, and the numbers will keep getting more complete and the forecasts resulting from them will keep getting sharper through trial-and-error. The ubiquity of scanners in every channel, not just grocery, will mean the expansion of analytics from CPG/food into every category.

The result on trade promotion budgets? Mixed. There will be less resistance to big trade promotion budgets as the results of the spending are clarified (I can’t tell you how many times I’ve heard a CFO say something like, “I wouldn’t mind spending $150 million on trade promo if I just knew what we were getting for it.”)

The money will move around a lot, though. Some companies will decrease their trade promo spending and perhaps put the money back into national advertising, as Mr. Mandese suggests, as they learn that trade spending doesn’t work for them; others will increase the trade spend. Some channels will see less trade money coming in, others will get more. Some specific retailers who have been wasting (or pocketing) the money will get cut off. Promotional vehicles will change.

There will be very mixed results, by channel, by product category, by manufacturer, by retailer. The only constant will be change.

The net effect of these four big trends?

· One (media fragmentation/in-store) driving trade promo spending up.

· One (the Internet) driving it down.

· One (analytics) with mixed effects.

· One (the decline of Wal-Mart) unknown.

Add them all together, and the total is … unknown. And that should make life interesting.

The Home Depot severance package

Off-topic a bit for a TPM blog, but I can’t resist commenting on the $200+ million severance package Home Depot just gave Bob Nardelli, the CEO who spent the past six years driving down the stock price, for which he was handsomely remunerated.

Nardelli and Home Depot have agreed to terms of a separation agreement that would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract entered into in 2000. Under this agreement, Nardelli will receive consideration currently valued at about $210 million.

The package includes a cash severance payment of $20 million, the acceleration of unvested deferred stock awards currently valued at approximately $77 million and unvested options with an intrinsic value of approximately $7 million. It also includes payments of earned bonuses and long-term incentive awards of approximately $9 million, account balances under the Company's 401(k) plan and other benefit programs currently valued at approximately $2 million, previously earned and vested deferred shares with an approximate value of $44 million, the present value of retirement benefits currently valued at approximately $32 million and $18 million for other entitlements under his contract which will be paid over a four-year period and will be forfeited if he does not honor his contractual obligations.

I’ve never really agreed too much with the critics of “excessive” compensation for top executives (nor excessive compensation for movie stars or athletes). I figure if people achieve their goals in terms of creating income/profits/share price increases, they should be compensated accordingly.

Nardelli’s case (and it’s not unique, except in its size) is reminiscent, though, of a baseball owner (it may have been George Steinbrenner) who was asked if he resented the high price of baseball talent. He replied that it wasn’t the price of talent he objected to, it was the high price of mediocrity.

CEOs who produce should be paid plenty. Those who don’t should be booted out the door. Giving a failure $210 million to go away is wrong.

Tesco's US opening nears

The opening of the new Tesco stores in the US is getting closer, as the company has now applied for fourteen liquor licenses in the Phoenix area:

U.K. grocery powerhouse Tesco PLC has applied for 14 liquor licenses across the Valley so far this month, indicating its imminent arrival in the Phoenix metro area, reported The Business Journal of Phoenix.

As has been widely reported, the secretive retailer plans to expand into the United States early next year, including 50 stores in the Valley.

Several sites have also been chosen in Orange County, California, with the sites reported to be around 14,000 square feet.

As might be expected, competitors are nervous:

Rob Johnson, a spokesman with Chandler-based Bashas’ Supermarkets, described Tesco’s challenge to local competitors in one word: “formidable.”

Johnson described Tesco’s likely challenge to local companies like Safeway, Fry’s and Bashas’ as a knock-down, dragout fight for customers.

“There’s no way around it,” he added. “(It’s) really a crowded market. There’s either going to be a long drawn out staredown (or) something will have to give. And usually at the end of the staredown, somebody does give.”

Big news: Excessive price cuts hurt profitability

These are a couple relatively old items that have been sitting around because I was feeling lazy over the holidays.

It appears that the huge price cuts Best Buy and Circuit City took for Black Friday had a negative impact on their bottom lines. Imagine that!

Circuit City took the worst hit, because they are the weaker of the pair:

Circuit City Stores ... lost money during the three months ended Nov. 30. Investors already knew that the consumer electronics retailer from Richmond, Va. has been battling cut-throat competition, but they had expected at least a little profit.

Consumer electronics retailers are frantically trying to beat each other to customers by slashing their prices on things like flat panel TVs, effectively crimping the entire industry's ability to make money....

But Best Buy was hurt, too:

The company’s gross profit rate for the third quarter was 23.5 percent of revenue, down from 24.4 percent last year, and operating income for its U.S. operations fell 6 percent to $186 million for the three-month period, which included the first three days of the Thanksgiving holiday.

Best Buy justified their moves with the market share defense:

However, CEO Brad Anderson defended the aggressive price moves, stating they helped Best Buy win market share, brand loyalty and new customers as the chain headed into the final and most earnings-rich quarter of its fiscal year.

Which has some validity, of course. Particularly if Best Buy is playing a game of chicken with Circuit City -- having deeper pockets and being overall stronger, they can afford to play the price-cut game harder and longer. But there are two problems with the game, as I see it. One is that there's another company that can play it better (and we all know who it is), and the other is that consumers' expectations are changed by such events. Now that we've seen that laptops can be sold for $250 and hi-def TVs for $600, we're not likely to flock into stores to pay triple those prices.

Channel-stuffing at Snapple?

An attorney for sixty distributors suing Snapple (a division of Cadbury) says that an internal study reveals that the company has engaged in channel-stuffing.

A study ... Snapple Beverage Corp. has presented in court "apparently establishes" that the company used questionable distribution practices to meet a sales quota, a lawyer for 60 distributors suing the company said in a recent letter to the judge.

The letter by Howard B. Cohen to U.S. District Court Magistrate Judge Mark D. Fox says the study seems to show Snapple "engaged in a pattern and practice of channel stuffing. ..." The letter says the study - which is not part of the court file in White Plains - also seems to show that the company sold product at greatly reduced prices to certain distributors - but not to those who brought the lawsuit.

We all know that a great deal of channel-stuffing occurs in every product category, but the increasing frequency of legal action involving the practice is beginning to make it extremely dangerous (in addition to short-sighted and stupid, which it has always been).

Tesco is half of new space in UK

While we in the US are watching Tesco's moves as they prepare to open soon here, in its homeland, they are apparently trying to ignite a price war, according to The Guardian:

Britain's biggest supermarket chain, Tesco, is further turning the screws on its rivals by triggering a price war.

It is permanently cutting prices on 600 key items by a total of £80m. The move will be viewed by critics as another example of how the increasingly dominant retailer is flexing its muscles against smaller competitors.

The other point covered in the article is of equal interest -- that half of all new retail space in the UK in the past year was opened by Tesco. This would indicate the likelihood of substantial growth in their current 21.6% market share. Meanwhile, the Competition Commission's report on concentration in the retail sector is expected soon (it has already been delayed).

Britain's Office of Fair Trading highlighted four areas of potential concern when it decided to refer the sector to the Competition Commission in March this year: planning, price flexing, supermarkets' relationships with suppliers, and their entry into the convenience sector.

More about the latest rumors on Tesco's US operations in a later post.

Last post of the year

I've been taking it easy for the past couple weeks. I'll get busy soon.

In the meantime -- best wishes for the coming year.

DemandTec acquires TradePoint

DemandTec has announced the acquisition of TradePoint Solutions.

TradePoint offered an "online deal management software linking manufacturers, sales agencies and retailers", which will now be jointly marketed with DemandTec's retailer and manufacturer systems. According to the press release:

The combined solution from DemandTec, including the DemandTec TradePoint and DemandTec Promotion modules, is the industry’s first to combine consumer demand management and forecasting, promotion planning and optimization, and online collaborative deal management, all delivered via a software-as-a-service platform for both retailers and manufacturers.

Benefits to manufacturers and sales agencies include improvements in trade spend effectiveness and efficiency, improved demand planning, better forecast accuracy, efficient and accurate deal negotiation, streamlined deduction clearing and improved audit compliance.

Benefits to retailers include consistent deal management and billing across all vendors and brokers, integrated and controlled planning with vendors, improved promotion and category performance, better forecast accuracy and in-store service levels during promotions and improved audit compliance.

Round one to Nintendo

It looks like Nintendo's Wii is leading in the early returns in the big battle of game system intros. November sales figures show:

• 476,000 - Nintendo Wii
• 195,000 - Sony PlayStation 3

While that news is encouraging to the folks at Nintendo, it should be noted that Microsoft's Xbox sold 511,000 units in November, and appears on track for 4 million for the year.

Pass the popcorn, and let's settle in to watch the battle.

Brand extensions -- the best and worst

Brandweek put together a rating of brand extensions. Some of them are great ideas, like the American Red Cross emergency radio (featuring a hand crank, a cell phone charger and a siren). As a panelist said, it links a solid brand name with an appropriate product. "It seems logical and magical," he said. "Unlike bad extensions, it's just one that sounds like 'Why didn't they do that sooner?'"

But the real fun is with some of the really bad ideas. What were these people thinking?:

• Cheetos-flavored lip balm
• Salvadore Dali deodorant
• Diesel Jeans wine
• Chicken Soup for the Soul pet food
• Lamborghini notebook computer

Those were the top (or bottom) five bad ideas, but some of the others really deserve mention:

• Willie Nelson Biodiesel Fuel
• Lance Armstrong's LiveStrong mutual funds

And I don't see why my favorite didn't win a prize: Play-Doh perfume.

How often do you shop the inserts?

According to a recent study by the Newspaper Advertising Association, the frequency with which people shop in newspaper inserts varies considerably by the type of retailer.

Of those respondents to the survey who said they look at inserts (not all adults, therefore), the following are the percentages who looked at specific types on a regular basis:

• 79% Grocery stores
• 72% Dept stores
• 66% Discount stores
• 57% Home Building Centers
  
• 54% Home Electronics stores
  
• 52% Drug stores
  
• 48% Home Furnishing stores
  
• 44% Appliance stores
  
• 43% Sporting Goods stores
  
• 40% Computer stores
  
• 39% Office Supply stores
  
• 19% Cell Phone stores

How many cell phone stores run inserts? I don't recall seeing them.

In any case, the value of insert advertising to a supplier should, based on these results, vary considerably by channel of distribution.

Circulation drops, ad rates rise

If that headline seems to make no sense, that means that you're not a newspaper publisher.

Despite tanking circulation numbers, newspapers across the country plan to raise advertising rates anywhere between 3 and 6 percent in early 2007.

Publishers want to maintain those 20% profit margins, and with circulation income down, they plan to make it from advertisers (and from the suppliers who fund the retail advertisers). They may find that advertisers feel differently, however.

"We don't want to pay more for less. We're certainly going to try negotiating rates. We take a lot of factors into the rates we are willing to pay," [a Macy's spokesperson] says.

A big factor will be the many media choices now available. When I started in this business in the 70s, I worked for a department store where we spent about 90% of our budget on newspaper advertising. That has changed, and the change will accelerate if publishers continue to diminish their ad value.

An increasing factor, one serving buyers, says Monroe, is the increasing options now available to advertisers that did not exist 20 years ago.

That makes it easier for advertisers to resist increases, and it also makes it easier to look elsewhere for the same or better results.

"Media is not newspaper-centric any longer," he says. "If newspapers begin to charge rates that don't yield the results the advertiser is looking for, they will move to a medium that does."

Nielsen to measure in-store

VNU has created a new division, Nielsen In-Store. "which will measure consumer exposure to in-store marketing vehicles, including television and radio, shelf talkers, digital signage and other point-of-purchase displays."

The new effort follows up research conducted earlier this year with the In-store Marketing Institute in an effort to develop metrics.

Research was conducted on the metric in 2006 by a consortium of advertisers including 3M, Coca-Cola, Kellogg’s, Miller Brewing, Procter & Gamble, and The Walt Disney Company, in cooperation with retailers including Albertsons, Kroger, Walgreens and Wal-Mart.

The service will be tested in early 2007 and rolled out nationwide later in the year, with global expansion to follow.

Montgomery Ward is back (kinda)

I've always been fascinated by the efforts of companies to buy up and resurrect dead brands. Quite often it seems to work, and a Chicago company that specializes in the field has brought back one of retailing's most famous names, Montgomery Wards.

Wards is back only as a cataloguer and Internet site, however -- there are no stores and apparently no plans to build any.

Milgrom has built a $160 million-a-year company through a strategy of acquiring older, established domain and catalog names. A former lighting products supplier to Sears, Roebuck and Co.'s home furnishings catalog, he licensed the right to use Sears' name on catalogs after founding the firm in 1993 and now mails several Sears specialty titles, gifts book Charles Keath, its core HomeVisions catalog and Wards.

I was impressed with the way they have captured Wards' look and feel on the website, which looks just like an old Wards circular. Apparently, it's working.

Is Adidas hurting Reebok?

One of the dangers of mergers is that often the smaller partner is slowly killed off by the bigger one -- not intentionaly, but simply because logic dictates that most of the attention, most of the resources, and most of the opportunities are reserved for the division that generates most of the revenues.

That may be happening in the case of Adidas and Reebok, if this article from the Portland Oregonian is a guide.

[In April] took over a licensed merchandise deal with the NBA from Reebok, acquired in January. Last week it started selling new fashion sneakers designed for each of the 30 NBA teams and has poured more money than ever into basketball marketing.

But perhaps Adidas' own Reebok, and not Nike, will be the biggest loser. Reebok, whose overall business is lagging in sales and order backlogs, has rapidly ceded market share in basketball.

Adidas' market share in basketball shoes has climbed, but so has Nike's. It's Reebok who has dropped.

"It's difficult enough to compete against everyone else, let alone having to compete against your brother," said Matt Powell, contributing editor for Sports Executive Weekly, an industry publication.

International quick notes

Unilever is planning expansion and growth in India and other developing markets: "The Asia and Africa market saw a 5% volume growth for Unilever in the third quarter, compared to 3.1% in Europe and 2.7% in North America."

Also in India, following up on this post from a couple weeks ago, the Wal-Mart/Bharti venture is being looked at by the Prime Minister's office. Thus far, the departments responsible have cleared the proposal, but the government is expecting push-back from opposition parties and from retailers.

Opening the Sarbox

The Securities & Exchange Commission is expected to announce a plan this week (BusinessWeek says it will be Wednesday) to revamp Sarbanes-Oxley, and the PCAOB, which enforces the rules, is also expected to announce a rewrite of its accounting standards.

It's an exercise designed to address businesses' core concern: Compliance simply costs too much. But when the dust settles and final rules are adopted early in 2007, any changes are likely to have a modest impact on Corporate America's bottom line. Their real value, rather, might be peace of mind.

Costs are apparently already decreasing as companies get a firmer grasp on how to do things. The estimate now is that compliance costs are about 0.25% of revenues, with best-of-breed companies at 0.14%.

The big change, rather than cost reductions, may be legal shields:

Without specific direction from regulators, companies fret that anything intimating even the slightest hint of a shortcut could leave them vulnerable to expensive shareholder litigation. It's that fear, probably as much or more than actual compliance costs, that's driving the call for change.

The recent elections, putting in power a Democratic congress, mean that any changes will come from the SEC and PCAOB, not congress, "because lobbyists fear that reopening the law, especially in the new, Democrat-controlled Congress, risks making it worse."

That means the much-discussed changes to exempt smaller businesses from some provisions of the Act are less likely to happen.

Hasty departures

Some top marketing people have gotten the axe recently.

• Two top Wal-Mart execs, Julie Roehm (SVP-Marketing Communications) and Sean Womack (VP, Communications Architecture) are gone. Here's an Adweek article on it, and here's a piece from Media Post that offers some speculation on why Roehm is gone.
• Also, at Chrysler, Joe Eberhardt (EVP, Global Sales, Marketing and Service) is out. According to Media Post, it's in part because he "was at the heart of a dealer insurrection."

Update: Looks like I missed the good stuff by being too early. Now The New York Times is reporting that Wal-Mart is also firing their new agency, Draft FCB. Gotta be tough to win and then lose a $580 million account.

The Times says that Roehm and Womack were fired for having "a personal relationship that violated the company’s strict ethics policy", accepting gratuities, such as meals, forbidden by the company, and showing favoritism toward some vendors.

Apparently Draft FCB must have been one of the favored vendors, since Wal-Mart is putting the account up for review again and not permitting the incumbent to compete.

Roehm and Womack deny an inappropriate relationship and the other allegations, and Roehm says culture was more the problem:

Ms. Roehm acknowledged that her style and ideas did raise eyebrows at Wal-Mart. “I think part of my persona is that I am an envelope pusher,” she said last night. “The idea of change in general can be uncomfortable for many people, and my persona as an agent of change can prompt that feeling.”

In one of her first assignments at the retailer, Ms. Roehm transformed Wal-Mart’s traditionally stodgy shareholder meeting into a three-hour Broadway extravaganza, hiring a troupe of New York actors who sang songs like “The Day That I Met Sam,” the company’s revered founder.

The show elicited groans from longtime company executives.

Several weeks ago, Ms. Roehm courted controversy again when she oversaw production of a holiday TV ad, known inside the company as “Sexy,” that portrayed a husband and wife discussing racy lingerie in front of their extended family. The ad drew customer complaints and was immediately taken off the air, a person involved in the matter said.

Nothing like a good scandal -- especially when it involves both sex and money.

Gap fashions are a flop

Nasty headline, huh? But it's not mine, it was on this Bloomberg article that ran in several papers.

Gap has apparently tried to copy H&M and Target, by getting some big fashion names to design for them. Unfortunately, nothing much happened.

Cynthia Sanner got to Gap Inc.'s New York store on Fifth Avenue two hours before it opened Friday to make certain she would get one of French designer Roland Mouret's dresses made exclusively for the clothing chain.

She needn't have bothered. She stood alone for an hour and 20 minutes before being joined in line by two other shoppers. "I was shocked," said the 35-year-old personal assistant from New York. "I thought it was going to be a mob scene."

Of course, that may be because Gap forgot to promote:

Unlike Stockholm-based H&M's treatment of its designs, Gap didn't display Mouret's name in stores or windows or even on the clothing. "It's missed execution," said Mark Montagna, a New York-based CL King & Associates analyst who rates Gap "underperform."

Oops.

Ahold fallout continues -- now it's Deloitte's turn

It's been several years now, but the fallout from Ahold's US Foodservice scandal (overstating promotional allowances by over a billion dollars) hasn't stopped spreading.

Just this past week, prosecutors in the Netherlands filed charges against Deloitte, Ahold's auditors at the time.

"The disciplinary complaint is lodged for acting as the accountant for the annual accounts of Ahold NV in the period from 1997 to 2002," the prosecutor's office said in a statement.

An Ahold spokesman declined to comment on the complaint, and officials from Deloitte could not immediately be reached for comment.

Survey says newspapers #1 shopping medium

Of course it does ... the survey was sponsored by the Newspaper Association of America.

Okay -- that's a bit too cynical. Actually, I think it's probably true, regardless of who the sponsor is. And there are some really interesting nuggets (I got these from a write-up by the Center for Media Research -- I haven't had a chance yet to digest the full 41-page report), for example:

53 percent of adults used newspapers to make a shopping or purchase decision in the previous 30 days, while 27 percent used the Internet, which now is the second-leading source.

However, there's also this: "A plurality among those age 18-24 consider the Internet to be their primary advertising source ..."

Another interesting point:

Sunday is by far the most likely day for about one half of shoppers to consult advertising, while Saturday is a distant second, noted by one-fifth of consumers. The only other days in double figures are Wednesday and Friday, at 13 percent each.

Since weekday rates are typically 75% or so of Sunday rates, it would seem weekday advertisers are overpaying by outrageous margins. If I were a media buyer, I'd show this report (which is from the NAA, remember) and say, "If your Wednesday edition gets one-fourth the shoppers of Sunday, then I'm only going to pay one-fourth as much."

Movin' on up

From Consumer Goods Technology, a couple important personnel moves:

Jim Suddendorf has been named President at Gelco. "Suddendorf has overall responsibility for managing Gelco Trade Management Group throughout North America. Suddendorf joined Gelco in April of 2006 as chief revenue officer where he was responsible for managing current Gelco client relationships and for driving Gelco Trade Management Group revenues through new sales throughout North America."

Michael Forhez has moved from CAS to Bearing Point as Industry Director, Consumer Markets. "With more than 20 years of experience in sales, marketing and management in the consumer products industry, Forhez will be responsible for evaluating, developing and overseeing efforts to expand business and extend BearingPoint's presence in consumer markets."

Wal-Mart entering India

Wal-Mart and Bharti Airtel have formed a partnership to create a retail chain in India that will apparently bear both companies' names, according to Forbes.

India may soon have stores displaying the Wal-Mart brand despite government rules that prevent foreign companies from operating multi-product retail chains here.

The U.S. retail giant has tied up with India's top telecommunications company Bharti Airtel Ltd. in a joint venture that will set up hundreds of stores across the country, Sunil Bharti Mittal, chairman and CEO of the Indian company, said Monday.

It isn't clear how this will work within Indian law: "India does not allow foreign companies to open multi-product retail stores, [but] they can still make wholesale purchases to support their global supply chains." However, the companies say they will be in compliance.

However, this item from India's Economic Times indicates that Pantaloon, one of the biggest players in the Indian market, isn't frightened.

"The market dynamics will change but we are prepared and plan to scale up our number of Big Bazaar stores to 100 by December 2007, before any international retailer opens up its store here," Kishore Biyani, managing director, Pantaloon Retail India Ltd (PRIL), said here.

He, however, said it needs to be seen how the partnership of Bharti Enterprises with the international player unfolds.

"Wal-Mart will have an effect which will be a challenge for us. However, since the international counterparts have a different mindset, the partnership and strategy needs to be understood," he noted.

Newspapers are a hot medium

Well, on college campuses, at least.

Apparently, 76% of college students read their campus paper at least once a week -- a pretty good penetration figure. And since college students are a fairly attractive demographic, advertisers are taking notice. And so are other media:

One of the most notable examples of the trend occurred in late summer, when a subsidiary of MTV, one of the country's best-known youth brands and part of the Viacom entertainment empire, bought College Publisher, a company that runs websites for about 450 college papers.

So solid are the economic prospects for the student-run newspaper at Florida State University, FSView & Florida Flambeau, that it was acquired in August by a mainstream newspaper, the Tallahassee Democrat.

It's really not that surprising. The big metro dailies are doing badly, but smaller papers serving communities (and focusing their coverage on their community) are doing better. And college campuses are communities.

"There's no more local paper than a campus paper," said Dina Pradel, general manager of Y2M, which founded College Publisher in 1999.

The last stand of the toy chains

Toys R Us and K-B are trying everything to stay alive. I've often argued that the outcome of retail consolidation will be two players in each category, but toys may be the channel that disappears entirely (along with music stores, of course).

Put together a 5% decline in category sales over the past two years and the fact that 58% of toy sales are now through the mass/discount channel, and things look bleak for the last two toy chains (a similar combo of circumstances killed Tower and other music chains).

One attempted solution is to expand the definition of "toys":

Toys "R" Us recognized the importance of youth electronics over the past year. The new strategy: Add coveted merchandise, such as Fisher Price's digital camera (for ages 3 to 10), and get as many exclusives as possible, including a Black & Decker Jr. electronic workbench and a pink version of the VTECH Nitro notebook, a laptop with learning activities and music lessons aimed at young children.

"We were late to be on top of youth electronics and slow as an industry to innovate," acknowledged Ron Boire , US president of Toys "R" Us ...

"We got pigeon-holed in our view of what a toy was," he added. "We let ourselves be defined as a place that sells molded plastic."

Tesco imports its suppliers

Tesco's new venture in the US will apparently be supplied, at least in part, by its UK suppliers, according to Financial Times. A couple of key suppliers are opening up US operations based on Tesco's new distribution center in Riverside county, California.

Tesco, the UK's biggest supermarket chain, is taking two of its favoured British food suppliers along on its bid to open a new chain of small-sized supermarkets in the western United States next year.

Natures Way Foods, which produces prepared salads and lettuce for Tesco, and 2 Sisters Food Group, one of Britain's leading poultry processors, are both planning to establish sites adjacent to Tesco's planned distribution centre in southern California.

The logic seems to be that using established suppliers provides the benefits of familiarity, as well as meeting established quality standards.

Tesco's decision to rely on established relationships with British suppliers rather than new relationships in the US is believed to reflect both its desire to avoid unpleasant surprises and a belief in the industry that the prepared meals business in the UK and Europe delivers higher standard products than are currently seen in the US.

Prepared meals – including salads and cooked chickens – are expected to be play a significant role in Tesco's plans to open about 150 small neighbourhood market stores around Los Angeles, Las Vegas and Phoenix.

I would imagine this is not good news to US suppliers in those categories who saw an opportunity with a big new customer, and instead get new competitors.

SEC pledges to lower Sarbox costs

The chairman of the Securities & Exchange Commission said Thursday that the commission will announce within the next few weeks steps to reduce the cost of compliance with the Sarbanes-Oxley Act.

The U.S. Securities and Exchange Commission and the board that regulates accountants will revise the Sarbanes-Oxley corporate governance law to lower compliance costs for public companies based on their market values, the SEC's chairman, Christopher Cox, said Thursday.

"In the next few weeks the United States is going to unveil significant changes to our implementation of a particular part of Sarbanes-Oxley," Cox said from London.

The new guidelines appear to be oriented toward allowing companies to focus on materiality:

The accounting oversight board will issue a new standard next month for how Sarbanes-Oxley audits should be conducted. The revision will instruct companies and auditors to focus on "what really matters, what's material to the preparation of the financial statements and to ignore what really isn't essential," Cox said.

Sarbanes-Oxley requires companies to hire an independent auditor to verify how well their procedures for publishing accurate financial statements work. The board's revisions will make audits "top-down, risk-based" and "permit reliance on the work of others," Cox said.

I'm sure everyone in the TPM biz will be watching anxiously to see what effect these changes might have/ Will "reliance on the work of others" mean that companies will have less need to recheck the work of their administrative services? Would that be wise?

Tesco freezes expansion in Thailand

Tesco has agreed to a three-month freeze on openings of new Tesco Lotus Express convenience stores in Thailand.

The Thai venture pledged in a letter to the government that it will not open Tesco Lotus Express stores smaller than 800 square meters, or about 8,600 square feet, "that are not currently under construction" as of last Friday and until Feb. 10, the company said in an e- mail response to questions. The move "does not affect" planned openings of new hypermarkets - larger combined supermarket and department stores, it said.

"The objective of this is to allow us to work with the minister, the retail industry and other interested parties toward a long-term solution which is acceptable to everyone," Tesco said. "During this time we hope to explain the benefits Tesco has brought to Thai consumers, suppliers and the economy over the past eight years."

The new Thai government, which took over in a military coup, has pursued a protectionist agenda, with particular emphasis on protecting small businesses.

Small retailers in Thailand, second- biggest economy in Southeast Asia, with 65 million people, are protesting the expansion of big supermarkets and small convenience chain stores into regional provinces. Retail chains including Tesco, Carrefour, and Thailand's Big C Supercenter and CP-711 are venturing into the countryside after growth in the capital Bangkok and neighboring suburban provinces slowed.

Target v. Disney: the war is heating up

Think you've got channel-conflict problems? Try on a battle where one of your biggest customers refuses to promote your product. Or, from the retailer side -- where a major supplier cuts off shipments of a hot product.

That's the latest in the Great Target-Disney War. Apparently, a memo went out early this month to all Target stores telling them to take the following actions:

• Remove all displays for the upcoming releases of Disney's Cars and Pirates of the Caribbean DVDs, replacing them with signage for rival releases.
• Remove all signage/displays for other Disney merchandise, such as Disney Fairies, Disney Princess, and Little Mermaid toys and apparel.

Why? Target is upset about Disney's pricing of movie downloads through iTunes, which is lower than pricing for the same movies on DVD. We reported on this conflict last month here and here.

Now, according to the Wall Street Journal, Disney is cutting off shipments of the two DVDs to Target.

Next move is yours, Target.

UPDATE: I guess the next move was to de-escalate the situation. Target backed down in the face of the possibility of losing distribution of Pirates of the Caribbean.

Although apparently resolved, the fight underscores the continuing tensions between studios that are trying to move to the digital age by offering their movies for download and retailers that have been important partners in turning DVDs into a gold mine for Hollywood.

If Target had imposed drastically reduced shelf space on Disney, other studios would have been more reluctant to make their own cut-rate deals with Apple, which wants uniform pricing in its catalog. Rival studios are suspicious of the deal because Apple CEO Steve Jobs has become a major Disney investor and director — thanks to the sale of Pixar to the company.

A rapprochement was the best outcome for both sides, analysts said.

"It's like jockeying for positions in a long-distance race," said retail industry analyst Mark Husson of HSBC. "You throw some elbows, but you can't win if you're jockeying the whole time. A natural commercial accommodation is made."

Time for an anti-dumping suit against Sony?

According to this item, Sony is selling PS3 for less than it costs to build it:

The cost of manufacturing and materials for the low-end, 20GB version of the console comes to $805.85 ... That means that for every PS3 Sony sells for $499, it will lose $306.85 on components alone. Marketing and advertising costs would then boost the actual cost to Sony even higher.

The federal anti-dumping laws (invoked most famously regarding steel imports) say that it is illegal for a foreign company to sell a product in the US at less than its manufacturing cost. The idea is to protect US companies from unfair competition.

Of course, we know that Sony is doing this because they expect to make any losses back on selling games and accessories (Gillette's famous business model: "Give away the razors, sell the blades"), but isn't this a case where the DoJ should (based on the logic of the law) file an anti-dumping suit to protect Sony's poor, disadvantaged US competitor -- Microsoft?

PS: Actually, I have great doubts about the wisdom of anti-dumping laws, but the irony of DoJ protecting Microsoft from "unfair competition" is delicious.

Sarbox gets a little love

Senator Christopher Dodd thinks that the Sarbanes-Oxley Act is being unfairly picked on. And his opinion matters because he'll be chairing the Senate Banking Committee next year.

"I'm not quite as convinced as others are that there is as big a problem associated with Sarbanes Oxley as some have suggested," said Mr Dodd.

His comments come amid growing signs that senior figures in the US financial community, as well as some regulators, believe that "Sarbox" has received a disproportionate share of the blame for driving company listings away from the US.

Dodd is not opposed to a re-examination of Sarbox, though: "At some point we're going to look at it. I don't know exactly when but obviously it's an issue that needs to be examined."

Barney Frank, who will chair the House committee, thinks it "should be up to the Securities and Exchange Commission and Public Company Accounting Oversight Board, the accounting watchdog, to clarify guidance on how the law should be implemented."

CPG = $2.1 trillion in US

According to a report by PricewaterhouseCoopers, the CPG industry accounted for $2.1 trillion in sales in the US in 2004.

Allowing 15% for trade promo, that's ... a whole lot of spending.

The full report is here.

Which way will Eddie jump?

There is speculation that Sears Holding Company -- its sales are not impressive but it has lots of cash -- may buy Safeway. But then again ...

Other retailers that Lampert is said to be considering as acquisitions are: the Gap clothing chain; the Home Depot home-improvement chain; Anheuser-Busch Cos., the world's largest brewer; automotive parts retailer Manny Moe & Jack, and RadioShack ...

That's quite a list (since when is Anheuser-Busch a retailer?) Might as well add HoukTPM to the list. "Houk denied rumors that the giant consulting firm was on the block, but added, 'For the right offer, a couple billion or so, who knows?'"

Black Friday ads

Want to check out what's going to be on sale the day after Thanksgiving? No need to wait, just go to BlackFriday. Laptops for $499.99! A two-gig jump drive for $19.99! Hurry -- supplies limited!!

Best Buy had their lawyers threaten a lawsuit to get their ad removed, but I suspect this wave is unstoppable -- there are several other such sites. And ultimately, Black Friday may recede in importance. With Wal-Mart beginning their price-cutting in October, it appears that just as the Christmas shopping season is starting earlier and earlier, so will the price-cutting season.

Someday the after-Christmas sales will start on December 1.

Private label demand increases

A study shows what is probably pretty obvious to every shopper and marketer -- that the acceptance of private label products is steadily increasing. (Though the study should be read with some degree of skepticism, since it was funded by the Private Label Manufacturers Association -- not an unbiased observer).

Some highlights:

• About one-fifth of shoppers report that half or more of their grocery purchases are private label products.
• 41% describe themselves as "frequent" purchasers of PL products -- fifteen years ago, it was 12%.
• "Almost 70%" say that PL products are roughly equal in quality to national brands.

The last two items raise a question: If 70% think PL products are just as good, then why aren't 70% "frequent buyers" of PL?

The study also found that shoppers are increasing their purchases of PL products outside the CPG area.

Approximately one-fifth of those surveyed reported that they frequently buy private label HBC products, home office products, household products, and home improvement products irrespective of the channel of trade in which they are sold.

EDLP(tm)

Wal-Mart has decided that the term "EDLP" belongs to them. Some stores think otherwise.

Supervalu Inc. and the National Grocers Association are fighting efforts by Wal-Mart Stores Inc. to trademark “EDLP,” which stands for its “Every Day Low Prices” strategy. Last week they asked the U. S. Patent and Trademark Office to reject Wal-Mart’s application.

They argued that EDLP is a marketing tool used by retailers throughout the country and that no single company has the right to use it to the exclusion of the rest of the industry, according to filings with the federal agency. Supervalu said it has used the wording “Every Day Low Price” in connection with its grocery stores since 1984.

Granting the trademark would unfairly restrict “everyone else’s ability to market and advertise their goods and services,” the grocers’ group said in a statement.

John Simley, a spokesman for Bentonville, Ark.-based Wal-Mart, said the company wanted to trademark the acronym to prevent others from using it.

Do you think I can trademark "TPM"?

Electoral effects on marketing

The big news in the past week was, of course, the mid-term elections. The Democrats taking control of both houses of congress will presumably have some major impacts on the nation as a whole, but how will it affect marketers?

Advertising Age offered some speculation, opining that there will very likely be an effort to limit marketing, especially of fast-food, directed at children. There could be curbs on prescription drug advertising as well.

The article being in Ad Age, it paid no attention, of course, to trade promotion or channel marketing; which is just as well, since on the rare occasions when they address channel marketing, they usually get it all wrong.

To be fair, though, there probably will be little effect on channel marketers, so Ad Age is probably justified this time in ignoring the subject. Though congress has oversight responsibility relative to the Federal Trade Commission, it’s unlikely they will use it to press Robinson-Patman enforcement.

It used to be a truism that Democrats were more enthusiastic about R-P than Republicans, which made sense because both Robinson and Patman were Democrats, as was the president who signed the law, FDR. But that was a long time ago, and recent history indicates that any difference between the parties on R-P is muted at best. The FTC under the two most recent Democratic presidents, Carter and Clinton, was not noticeably more active than when Republicans were in charge.

The two most recent FTC actions relative to trade promotion show a split in regard to the parties. There was a Robinson-Patman case pursued in the Clinton years – a minimum advertised price case against the recording industry for price-fixing on CDs – and there was a (half-hearted) investigation of slotting by the commission in 2000-03 (I served on a couple panels at their hearings), undertaken at the direction of the Republican-controlled Senate commerce committee. The findings could be summarized as “this subject needs further study,” and that was the end of that.

Overall, the record of both parties over the past couple decades indicates that enforcement of R-P in any significant manner is not on their radar. The one exception to this might be the possibility that hostility toward Wal-Mart among some groups might spur action. This is unlikely, but possible.

There has been some talk about possibly restructuring Sarbanes-Oxley – my bet is that this is off the table for the next couple years.

A representative of the American Association of Advertising Agencies was quoted in Ad Age as saying, "All in all, with the first open presidential election in years looming in 2008, Democratic control of either house will be characterized by high-level debates on popular issues. In the advertising, marketing and communications category, that leaves a lot of room for grandstanding.”

Grandstanding being something both parties are good at, it’s something we can always anticipate. But there’s little reason to expect much real action in the area of trade promotion.

Good results from the other guys' marketing

J.C. Penney and Kohls reported good quarterly results:

Wal-Mart may be whimpering, and Federated Department Stores may be struggling. But both J.C. Penney and Kohl's Thursday announced better-than-expected third-quarter results, and bullish predictions about the quarter ahead.

Good for them. But the amusing part of the report was this:

The company also said J.C. Penney benefited from the extensive marketing campaign for Macy's stores, which sent more people shopping at the mall.

Strange-sounding line extension

Not that I claim to be any kind of expert in this area, but this sounds like a very strange idea -- Mattel is licensing the Barbie name to a company to market a line of cosmetics.

Mattel Inc. said on Wednesday that its Barbie business will partner with cosmetics company MAC (Make-up Art Cosmetics) for an "adult-targeted project" that will be unveiled in the spring of 2007.

The toy company declined to give more details on the partnership. Mattel does not currently sell Barbie cosmetics in the United States, although it does sell Barbie children's cosmetics in markets such as Europe, Latin Americas and Asia.

It said the collaboration is the first time that Barbie has partnered with "an adult prestige cosmetics company."

Mattel, the No. 1 U.S. toy maker, has been working to revive sales of its Barbie business amid difficult market conditions and stiff competition from MGA Entertainment's Bratz fashion dolls.

I understand that the women they are targeting grew up playing with Barbies and presumably have strongly-positive feelings toward the brand. But still ... does that mean that they want to wear Barbie perfume?

Still, what do I know? Next year Barbie cosmetics may be all the rage, and I'll be sitting here looking dumb.

Haggar thinks I'm cool

Well, they are at least marketing toward guys my age. New owners of the venerable brand brought in a new marketing chief last year, who recognized that it was useless to try to fight Levi Strauss, Polo, and a host of others for the overcrowded youth market.

Instead, he has taken the opposite tack. Under his guidance, Haggar has abandoned its previous youth-themed ad strategy and is acknowledging that Haggar is a brand for average, middle-aged men who don't read GQ and know nothing about the latest trends from Seventh Avenue.

The new strategy will be unveiled this week when Haggar launches the biggest advertising blitz in its 80-year history. Ads to run on TV, in print and online star ordinary-looking men between the ages of 30 and 45 in light-hearted situations. One pretends to advise on "throwing your daughter's boyfriend out the window," cautioning that if doing so, a man should wear a pair of Haggar pants with a Flexible Waistband. The style comes in handy "when you gotta grab a squirmy one," one of the characters says.

There's logic in the approach: "By 2010, one-third of the population will be 50-plus," says Mr. Croncota. "Why would we turn away from them?" However, most apparel marketers have avoided using older characters in ads, figuring that even us boomers like to think we're still buff twenty-somethings.

It will be interesting to watch the success of the campaign. And in any case, the ad and promo approach looks like fun:

As part of the campaign's antifashion theme, Haggar is financing a segment on a Fox Sports Network reality show. Eight older male models, dressed in Haggar duds, will be pitted against each other in such oddball challenges as a medieval-style joust on lawn mowers. In another challenge, "Paintball Posedown," contestants will pose as fashion models while a paintball gunman fires at them.

Billionaires unite to buy Tribune Co.

As a follow-up to the item below, a couple rich guys are apparently planning to buy Tribune Company:

Two Southern California billionaires who had signaled interest in buying the Los Angeles Times instead joined forces Wednesday in a surprise bid for the entire Tribune Co., the Chicago-based parent of the Times and other media properties.

The offer came from Eli Broad, a philanthropist who made his fortune in housing construction and investment services, and Ron Burkle, whose billions came from owning supermarket chains, according to a person familiar with the offer who was not authorized to publicly discuss it.

Further details were unavailable on the amount of the bid and whether the potential buyers would break up the company that owns 11 newspapers, including the Chicago Tribune, 25 television stations and the Chicago Cubs baseball team.

I was invited to join in the buyout, but unfortunately all my spare cash is currently tied up in paying my kids' tuition.

Tribune may sell itself in pieces

The Tribune Company got disappointing preliminary offers for the whole company, so it's asking for bids on an item-by-item basis.

A deadline Friday for nonbinding preliminary offers resulted in bids valued at about the company's current share price, two people familiar with the process said Wednesday. That led Tribune's investment bankers to begin calling people who had expressed interest in bidding for particular assets to say such offers were now welcome.

Various people have expressed interest in such properties as the Los Angeles Times, Newsday, the Hartford Courant and the Baltimore Sun.

Nobody, however, wants the Chicago Cubs.

More chip price-fixing?

A couple weeks ago, we reported on fines being assessed for price-fixing in the computer memory biz.

It appears the problem goes deeper. This is from The Economist's weekly email newsletter:

Investigations widened on both sides of the Atlantic into the latest allegations of price-fixing among chipmakers, which this time focus on fast-memory SRAM chips. Sony said it was co-operating with an inquiry by America's Justice Department into industry-wide practices. Meanwhile, European regulators raided the offices of several chipmakers as part of their investigations. One of the companies reportedly targeted was Samsung, which was fined $300m last year by America after admitting to price-fixing in slower DRAM chips.

Happy birthday to us!!!

TPMtoday, the world's first (and presumably only) blog concerned with trade promotion and channel management, is a year old today.

I'm sorry I had to miss the party, since I'm travelling and was in a client meeting all day (I'm posting this from the hotel), but I hope all the visitors enjoyed the cake and ice cream.

I checked the log files and found that we have had almost exactly 365 posts (actually, this is #367 if I counted right), though it's definitely not a post every day, nor was it planned to be.

The blog has been a lot of fun and a good way to communicate with people as an add-on to our newsletter, TPMupdate. I hope you enjoy it as much as I do.