A new type of store for Macy's

Macy's has opened a new store in Phoenix's East Valley that is the first of a new format:

For starters, the store is only one level and 122,000 square feet - smaller than a typical store - making it easier to shop, she said.

It's also designed with four entryways and extra-large dressing rooms featuring waiting areas with televisions. The store also features price-checking stations where customers can scan merchandise.

In terms of size and the single-story layout, Macy's seems to be taking a cue from Kohl's. Additional stores of this type are coming soon to Texas, Idaho, and Montana.

I'm not bullish on the department store channel, but it's good to see them still trying to find something that works.

How many ounces in a pint?

Not to get off-topic, but one reason I'd like to see the US switch to metrics is that I can never remember how many of this there are in that. But Ben & Jerry's is out to remind us that there are sixteen ounces in a pint.

This is not an instance of corporate high-mindedness -- taking on a civic responsibility of educating the masses. The reason for B&J undertaking this campaign is that their principal rival, Haagen-Dazs, has begun marketing fourteen ounce "pints" of ice cream.

"One of our competitors (think funny-sounding European name) recently announced they will be downsizing their pints from 16 to 14 ounces to cover increased ingredient and manufacturing costs and help improve their bottom line," the statement said. "We understand that in today's hard economic times businesses are feeling the pinch. We also understand that many of you are also feeling the same, and think now more than ever you deserve your full pint of ice cream."

I can see Ben & Jerry's having some fun with this, but I guess Haagen-Dazs has found itself caught between rising commodity costs and retailers who won't accept price increases. Cutting down sizes has been a traditional method of avoiding price increases, but it's one thing to shrink a candy bar or fill a cereal box a bit less full, and quite another to redefine accepted units of measure.

CVS and the "Lipstick Index"

CVS is taking the bold step of going upscale in the midst of a recession. According to this article, they have been trying for years to get prestige cosmetics and fragrance brands to sell through CVS, but were unsuccessful. Their solution is to open boutiques in the 2500-4000 square foot range, connected to but clearly separate from adjoining CVS stores. At present two are open, fifty are planned for 2009, with the possibility of up to 500 eventually (and talk of being a billion-dollar business).

According to Bloom, CVS shoppers had for years expressed a desire to purchase high-end cosmetics and skin-care products in a convenient location with great service. CVS certainly had enough convenient locations—60% of the female population in the U.S. lives within five miles of one of its 6,800 stores. The key was convincing the top brands to work with CVS. "Health and beauty is important to us, but suppliers have refused to sell us whole classes of products," says CVS CFO David Rickard.

Bloom enticed vendors with a retail environment that looks nothing like a CVS drugstore—white tiled floors, brushed-metal walls, and sea-foam color accents. (The stores measure between 2,500 and 4,000 square feet and are connected to adjacent CVS stores via a breezeway.)

In the course of the video interview attached to the article, a CVS exec refers to the "Lauder Lipstick Index" as part of the justification for the new stores. I had heard the term a couple times recently, but wasn't clear just what it was, so I did a bit of research: It's an idea, proposed by Leonard Lauder, head of the Estee Lauder company, in 2002, that consumers will cut back on big-ticket items in a recession, but will compensate by splurging on a few small "affordable luxuries". Thus a woman might make herself feel better about canceling a proposed winter holiday by buying an upscale lipstick from Estee Lauder.

It's an interesting idea, although The Economist gives it the kiss-off, so to speak, in this graph, which seems to indicate that there's little if any correlation between lipstick sales and the economy -- sales were up a bit in the 2001 recession, but sank in 1991 even worse than the economy did.

I don't know that Mr. Lauder meant his index to be taken quite so literally, though. The idea that people might compensate for foregoing big luxuries by indulging in little ones seems to make sense intuitively, and has obvious applications for a great many marketers in the current economic environment. It would be interesting to know if there is any proof for it, or if any research has been done.

To get back to CVS, their experiment seems like a worthwhile effort. Certainly the times demand innovation, and past history indicates that companies who innovate during recessions benefit disproportionately. Their timing is very good in one regard -- with the decline of department stores, historically the principal channel for prestige cosmetics brands, the suppliers are probably more open to the idea of working with someone like CVS than they were a few years back. They have signed on some leading brands, including Laura Geller, Paula Dorf, and Coty Fragrance.

Walmart opening "Supermercado de Walmart"

Walmart is opening two news stores, in Phoenix and Houston, catering to the Hispanic market. The stores will open in former Neighborhood Market locations of about 39,000 square feet.

The retailer said that the stores were in “strongly Hispanic neighbourhoods” and would feature a “new lay-out, signing and product assortment designed to make them even more relevant to local Hispanic customers”. The staff will also be bilingual.

Wal-Mart’s Sam’s Club warehouse store also plans to open a 143,000 sq ft Hispanic-focused store called Más Club in Houston this year.

Other supermarket chains (e.g., Publix, HEB) are opening similar stores, and a great many retailers, including Walmart, are customizing some of their stores to reflect the demographics of their area. It probably is relevant, as well, that the head guy at Walmar's US stores was formerly the head of Walmart Mexico.

New study questions in-store shopping decisions

Tradition says that 70% of shopping decisions are made in the store. I've heard that figure quoted so often that it seems to be almost an article of faith. From time to time, I've seen it questioned, but nobody questions that a great many decisions are made in-store.

An IRI study, though, says that a result of the recession may be that more consumers are planning out their shopping at home.

... IRI's research found that by the end of last year, more than three-quarters -- 76% -- of consumers were making their purchase decisions at home, up from 60% in the first quarter.

Just because people put together a shopping list at home, of course, does not mean that they follow it when they get to the store and see something they want. It does make sense, however, that people are more cautious in a recession, and will likely make fewer impulse purchases.

But the other point about this is that the article is entitled "Trouble in Store for Shopper Marketing?", with its theme being that if in-store marketing is likely to impact fewer buying decisions, then money should be pulled out of Shopper Marketing.

But that gets us back once again to the question we asked here a couple weeks ago: What is Shopper Marketing? In a poll we ran on the TPMA newsletter, we found that 71% believe it to be a hybrid of trade promo and brand-building. The Ad Age article seems to assume that it is strictly trade promo and that, therefore, if it does not produce immediate sales, it should be dumped.

For those making strictly trade promo decisions, it's worth noting the IRI study, and perhaps moving some promotions to formats where they reach the consumer at home (e.g., inserts or coupons). But Shopper Marketing decisions would be less impacted by the study.

FTC finally settles with Whole Foods

The Federal Trade Commission gave up their years of fighting the Whole Food / Wild Oats merger, getting Whole Foods to agree to a face-saving deal to sell off thirty-two Wild Oats locations (some of which were already closed), and give up the Wild Oats name.

The FTC said the settlement substantially restores competition that was eliminated by Whole Foods' acquisition of Wild Oats, its closest rival.

It does nothing of the sort, of course. It's unlikely that there will be many bidders for the locations to be sold, given the current glut of retail space. It's possible somebody will buy the Wild Oats name, but in reality there never was a competition deficit in the space -- Whole Foods' most serious competitor was not Wild Oats, it was the growing organic aisles/sections in every supermarket chain in the country.

Someday I hope someone explains to me why the FTC went off on such a crusade against this particular merger -- a fairly small one in the great scheme of things, and one that had little impact on competition -- when they were rather quiescent on so many other larger deals in recent years.

A tale of two RFIDs

Just a couple weeks ago, P&G announced that they are discontinuing tagging of displays at Walmart to track compliance, apparently because of lack of cooperation from Walmart.

Now we see the other side of the story, with Walgreen announcing that they are expanding their efforts in using RFID to track in-store implementation of promotions. Why? Because it works:

The results have been impressive: Over the past year, our in‐store execution has grown to nearly double the industry average. Incremental sales assure us that we are on a good path to improving our customers’ shopping experience.

The lesson here, I think, is not a new one. Information is only valuable if it is used. Walmart, for whatever reason, decided that the information it gained from tagging displays was not of sufficient value to use their resources to act on it. Walgreen felt differently. The numbers seem to support Walgreen's approach, but perhapr Walmart was looking at very different numbers from their efforts.

Triplefin acquires Flintfox USA

Triplefin, a Cincinnati-based provider of supply chain solutions, has acquired Flintfox USA as well as an interest in Flintfox's international business. Flintfox is based in New Zealand and offers a TPM package that will be complementary to Triplefin's offerings.

"Triplefin constantly works with our clients to make it transparent and easy for their staff, customers and other authorized users to create, execute and manage promotions," stated Jill Hein, Business Development Account Manager of Triplefin. "Triplefin has been a leader in promotion technology and execution for e-Commerce, DTC and retail channels, but it lacked a truly best-in-class technology for retail trade-spend. Flintfox is the answer, and I am very excited about the integration of Flintfox into Triplefin's Salefish technology platform," concluded Jill.

Flintfox had had a relationship with Kineticsware before that company ran into financial problems.

Is this the new look for Walmart PL?

Supposedly, this pic (and others here) are examples of the new logo and package design for Walmart's Great Value line.

Couldn't possibly tell you if it's true or not, but it's an interesting look. Not that anybody would ever hire me to do a graphics job for them.

This ties in with the post immediately below, speculating on the effect on suppliers if Walmart's private label efforts are successful.

How high will PL go at Walmart?

Walmart is reformulating and repackaging its Great Values food brand, with the intent to significantly increase its market share (it's already, they claim, the #1 food brand in the country).

Which raises a question: how high will Great Value's share go?

According to Information Resources, Inc., the Chicago-based market research firm, private label accounts for 17.6% of dollars and 22.5% of units at Wal-Mart. One securities analyst — Deborah Weinswig of Citigroup — has been quoted as saying that private label might skyrocket to 40% of dollars at Wal-Mart within the next three years. She figures that if Wal-Mart carries the top three branded products in a given category, it could substitute one of them with its own brand.

Even if, as the article argues, the 40% number is too high, if 30% or so is more like it, that still means major food brands will lose ten to fifteen share points at the world's biggest retailer. What is that going to mean to them?

If Great Value is going to be getting that big a share of sales, then it probably also means, as the Citigroup analyst noted, that some brands will be squeezed off the shelf. Which plays into Walmart's efforts at "SKU rationalization":

So Wal-Mart went deep on benchmarking its competition to understand where the product range started and stopped within a given category. Then it worked to achieve a clear offering — paring down to the right number of SKUs so that categories weren’t diluted and fuzzy. With SKUs cut by 10% to 50%, Wal-Mart has been able to achieve higher sales. Fleming says he hasn’t yet seen departments that have lost sales from SKU cuts.

I'd hate the be the #3 brand at Wal-Mart right now.

Forecast says local advertising will drop through 2013

A forecast by BIA and The Kelsey Group says that local advertising (much of it supported by trade promo funding of one sort or another) will decline sharply in all categories except online over the next five years.

Between 2008 and 2013, local ad spending will decline at a 1.4 percent compound annual rate to $144.4 billion. In contrast, the share of interactive ad spending will more than double from 9 percent in 2008 to 22.2 percent in 2013.

The question for many traditional media (especially newspapers) will be whether they can grab a significant portion of the online growth. In a great many markets, the newspaper web site is the leading local site, but newspapers have not grabbed as big a piece of online revenues as they would like.

If they don't get more of the online money, we'll probably see more papers, and maybe some broadcast outlets, joining the Rocky Mountain News.

Traditional media -- including newspapers, direct, broadcast, Yellow Pages, out of home, cable TV and magazines -- are forecast to decrease from $141.3 billion in 2008 to $112.4 billion in 2013.

I'm curious how much of the loss of revenue in local advertising is traceable to funding moving to in-store promotion.

Saks will stop deep price cuts

Saks, which took a lot of heat from fashion designers and other retailers for their deep discounting in Q4, said they won't continue the practice, but they are expecting to reduce prices overall, with the help of their suppliers:

Saks said it was expecting its vendors to provide products at price points more in line with the current climate.

The Q4 price cuts, as much as 70%, caused Saks' margins to drop from 37% to 20%, at the same time sales were dropping 15%, Lower margins on lower sales is a nasty combo.

Barbie in Shanghai

Mattel is opening a Barbie store in Shanghai, according to People's Daily:

World's premier toy company Mattel is expected to open its first Barbie flagship store in Shanghai next month in Shanghai, the country's economic hub, in hope of a market expansion in China when its global sales contracted.

The 3,500 square meter, six-floor Barbie flagship store along Shanghai's trendy Huaihai Road, is expected to open on March 7 to celebrate the brand's 50th anniversary, said Julia Jensen, Mattel's vice president of Public Relation and Communication International said in an e-mail to Xinhua.

A number of major brands and retailers seem to be looking at international expansion as a way of growing through the hard times. Mattel's sales in 2008 were down 1%, but Q4 was down 11%. Mattel has been in China for seven years now, according to the article, but this is their first major store.

The competition doesn't sound frightened:

"The market positioning of Barbie is quite different from Chinese toy brands. I don't think the flagship store would have much impact on the sales of Chinese toys," said Xie Min, the business department head of Huaihai Youth Articles Store, several hundred meters away from the pink Barbie flagship.

"China's toy market has long seen foreign brands including Winnie the Pooh and Mickey. Compared with them, Barbie is still less competitive in terms of its franchisers and product chain," says Xie.

Definitions and metrics

In an article entitled, "What Is Shopper Marketing, Anyway?", Ad Age tries to get to a meaningful definition of Shopper Marketing (something I've tried myself).

A few definitions are offered. Here's an exercise in gobbledygook from an agency: "any stimuli or any marriage of a brand with a shopper or consumer along the shopper continuum which turns them from consumer to shopper to buyer." Which is so broad as to be meaningless.

Something more to the point is this from Kimberley-Clark:

K-C officially defines shopper marketing as "integrated-marketing programs based on a deep understanding of shopper attitudes and behaviors designed to build equity for the brand and differentiate the retailer while the consumer is in shopper mode and prepared to make a purchase," said Mark Scott, VP-sales and shopper marketing.

It's often said that "you can't manage what you can't measure." It's equally true that you can't measure what you can't define. I've written before that I see Shopper Marketing as being the nexus of trade promo and brand advertising which, if correct, would mean that such promotions would need to be measured in ways similar to traditional media (e.g., reach and frequency), and also in trade promo terms (volume lift, incremental profit, etc).

The aborted PRISM initiative was an effort to develop the former, while several companies offer the means to do trade promo measures. But there still is no consensus definition, which means that there are no consensus measures, which means that establishing best practices and benchmarks is still somewhere off in the future.

Newspapers still make a profit

The title for this post may come as a surprise, but Ad Age made a good point today -- for all the bad news in the newspaper business (the Philadelphia newspapers joined the line at bankruptcy court), the business is still profitable. The problem is that their ownerships, many of whom bought up multiple papers in recent years, are so buried in debt from the buyouts that they can't pay the bills on the reduced profits they're getting today.

"Not a lot of papers are operating at a loss," said John Morton, the veteran industry analyst. "There are roughly 1,400 daily newspapers. We only hear about the top markets. That leaves at least 1,300 papers out there."

Publicly owned newspapers averaged an operating profit of 10.8% in the first three quarters of last year, Mr. Morton said. That's not the margin enjoyed by newspapers when they were monopolies, but it's not nothing either.

Ten percent plus is better than the oil companies were doing when gas was at four bucks (something to think about the next time a paper runs an editorial denouncing "excessive profits"). The problem is that it's only half what profits were when projections were made justifying, for example, the $13 billion debt from the buyout of the Tribune Company (now in bankruptcy).

Ad Age has some interesting stats. For example, Lee Enterprises, which just reported a loss of $889 million, actually had a 20.8% operating profit; the loss was from write-downs on the value of holdings. Even Tribune Co. made a modest 5.4%.

So, once again, gloomy as the picture is for newspapers, the business is not going to disappear. The fundamentals are sound, and after the weakest players are eliminated and the rest downsized, the survivors will likely prosper.

Leibowitz to be appointed FTC chair

Jon Leibowitz is to be appointed today to chair the Federal Trade Commission. Leibowitz is currently a member of the commission, so President Obama will need to make another appointment to fill the vacancy.

Leibowitz's views on Robinson-Patman enforcement are unknown (since nobody bothers to talk about it much). He has taken strong positions on privacy issues, which could have impact on on-line marketing practices, and possibly on some in-store practices (e.g., studying shopper behavior via camera, and possibly even collection of loyalty card info).

P&G expects to hold the line on price hikes

This looks likely to be one of a long series of posts on the Great CPG Price War of 2009. First there was this, in which I speculated that perhaps the price hikes are a hedge against uncertain economic conditions (following the model of the '70s). Then we discussed the Delhaize-Unilever spat.

Now we have P&G's CEO A.G. Laffey saying that the price increases his company put through last year will stick.

"Our products don't deliver value [just] because the prices on the shelves are lower," A.G. Lafley, chief executive of Procter & Gamble Co., told analysts and investors at a conference here.

Like several other industry executives who spoke at the event, Mr. Lafley said his company doesn't plan to roll back the significant price increases it has made over the past several months.

There also is a report in the article that Safeway suspended shipments from P&G in late December, but that appears to have been an inventory decision, rather than part of the pricing fight.

Executives from Clorox, Nestle, and Kimberley-Clark are also quoted as saying they will hold on to their price hikes.

The decline of dedpartment stores, chapter 50 (or so)

The Dallas Morning News has an interesting article, "Shoppers departing department stores - and may not be back" hitting on a theme I've posted on often -- the terminal decline of what was once America's principal shopping channel.

There are a few good statistics in the article, one being that there are now ten chains in the category doing $3bil or more; collectively they do $110bil, which is about one-fourth Walmart's sales. How the mighty have fallen.

The most interesting line from the article is this one:

The new mantra for one of America's oldest retail categories: When the economy rebounds, everything will go back to the way it was.

It's probably true. For those chains that survive the recession, things will return to normal. "Normal" for this channel, however, is a long, slow decline. In the almost forty years I've been observing department stores (my first job in this business was in the advertising department of Goldwaters in Phoenix) I have watched them go through several economic cycles. In each recession, they hit a bottom that was a bit lower than the last time; in each recovery they reach a top that was a bit lower.

Meanwhile, brands that have for decades been sold exclusively through department stores are looking for other ways to reach their consumers. An example cited in the article is Estee Lauder, which is now sold on-line. If my brand were heavily dependent on department stores for distribution, I'd certainly be seeking alternatives.

Kmart goes PL on shoes

Kmart cut their relationship with Footstar, which had been running its shoe departments, at the start of the year, and is now producing its own shoes.

Kmart has taken its shoe business in-house and is introducing low-priced sneakers endorsed by NBA player Al Harrington and women's shoes aimed at attracting the "frugalista," a retail executive said Wednesday.

"We were neglecting to serve our Hispanic and African-American customers," said Nick Grayston, who served as CEO of Foot Locker's U.S. business before becoming president of footwear for Hoffman Estates-based Sears Holdings Corp. last June.

"We've injected some fashion in our shoes, which had been sadly lacking," he said.

They have a line of men's/boy's sneakers endorsed by Harrington (of whom I've never heard, but I'll assume he's a mildly big deal), priced as low as $19.99 -- which seems to be taking a page out of Steve & Barry's book.

I haven't been too worried up 'til now

But when I find out that Girl Scout cookie sales are down, it's clear that the sky is truly falling.

National numbers are not yet in, but regional Girl Scout councils nationwide are seeing the impact of the down economy, as well as bad winter weather, in declines as large as 19% in pre-order sales, which took place January through early February.

I will do my duty to jump-start the economy by buying a couple extra boxes of Thin Mints.

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.

More on the food-price battle

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

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

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

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

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

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

I love the Wii

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

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

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

And besides that, Mario Kart is a blast.

P&G no longer tagging displays for Walmart

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

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

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

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

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

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

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

Hmmm ... Walmart not collaborative?

Local TV in decline

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

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

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

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

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

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

A bit of speculation on food pricing

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

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

But analysts say they're already seeing an increase in so-called promotional dollars, or money that vendors give to retailers to subsidize temporary discounts like two-for-one offers.

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

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

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

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

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

Chaos in the luxury market

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

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

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

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

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

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

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

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

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

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

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

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

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

P&G expanding car washes

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

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

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

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

Update on automotive channel-stuffing

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

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

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

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

Fewer stores, fewer brands, fewer choices

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

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

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

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

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

Touching increases value

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

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

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

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

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

Macy's changes course (or do they?)

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

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

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

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

A first in Second Life

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

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

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

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

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

Are GM and Chrysler stuffing the channel?

There are indications that General Motors and Chrysler, in an effort to make their sales figures look better to the Feds, are using incentives to push car dealers to accept unrealistic shipment levels. If so, this is classic channel-stuffing.

AutoNation, the largest dealership chain, is resisting:

GM and Chrysler "have implemented wholesale incentive programs where they basically say to get the incentives for the inventory you want, you have to buy more inventory," AutoNation Chief Executive Mike Jackson said Thursday in a conference call to discuss fourth-quarter financial results.

"I think this is the wrong thing to do," Jackson said. "We are not playing that game."

[...]

"The channel is full, and they are trying to stuff more in," he said.

The manufacturers want dealers to order as many cars as they did last year, but AutoNation is forecasting a 24% sales decrease.

Grocers complain that prices aren't dropping

Business Week reports that grocers are warning they will fight food manufacturers who raised prices last year in the face of commodity price increases, but have not lowered them as the commodity prices have declined recently.

Manufacturers respond that their price increases were not excessive in light of the cost increases they had previously absorbed. This graph offers some support, showing that producer prices increased more than consumer prices for the seven quarters preceding Q4 '08.

Nonetheless, retailers are threatening increases in private label and possibly dumping uncooperative suppliers. SuperValu's CEO noted that "In almost every category, you have other vendors to look to."

It appears that suppliers may be trying to compensate for the increases by bumping up their trade spend:

But analysts say they're already seeing an increase in so-called promotional dollars, or money that vendors give to retailers to subsidize temporary discounts like two-for-one offers.

The Cincinnati Enquirer carried a similar article, noting that Walmart is talking tough:

"We worked with them when raw-material costs rose," said John Simley, a Wal-Mart spokesman. "Now that they've dropped, we want to see prices come back down. Our suppliers know we are the advocate of the consumer."

NRF predicts return to growth in Q4

The National Retail Federation predicts that sales will be down 2.5% in the first half of 2009, down 1.1% in the third quarter, but will rise 3.6% in Q4 (compared, of course, to weak sales in Q4 '08).

They also think that retailers have now reduced inventory enough that price-cutting will abate a bit:

"Because of what's happened, retailers are being more conservative with inventory, and so the need to have that panicked price-cutting is lessened," says Wells. And in addition to better inventory management, adds an NRF spokesperson, stores are "trying to be efficient as possible, to do more with less in their advertising, and sometimes changing their merchandising mix."

Latest media casualty: Mad

Not that it has anything to do with trade promo, but Mad magazine is switching to quarterly publication after 56 years as a monthly.

The venerable humor magazine today announced that starting with issue #500 in April, it will move to a quarterly publication schedule from its current monthly. The magazine’s version for younger readers, MAD Kids will cease publication with the issue on sale February 17th, while the final issue of MAD Classics will go on sale March 17th. Both of the spinoff magazines launched in 2005. Circulation numbers for the magazines were not readily available.

Handling the news with style typical of MAD, Editor John Ficarra said, “The feedback we've gotten from readers is that only every third issue of MAD is funny, so we've decided to just publish those."

Just about every item I've seen on this has some variation on "What, me worry?" in the header or text. It is worrying (to work it in here, as well) that the economy has damaged even such an institution. Though, in reality, it is probable that (as with many/most recent victims in media and retail) the economy has merely sped up Mad's partial demise. When I was a kid, I read Mad religiously (if that's the right term), but how many kids are doing so today? Times change, and media changes with it.

Nielsen drops PRISM

Nielsen has announced that it is "suspending" their PRISM initiative, stating that the prices for the information created would be too high in the current environment.

"While the industry as a whole is very supportive of the syndicated service, many clients, in the face of the current economic environment, are not in a position to fully fund a syndicated service at this time."

Nielsen said it will keep providing custom work measuring and analyzing shopper marketing "until a syndicated service is financially viable for many of our clients."

I hope the initiative is revived. Although I was initially skeptical about it, I eventually came around to the view that it would provide valuable data, and now I'm disappointed not to see that data, and (more importantly) not to see how it is used to improve targeting of in-store promotions.

We will continue to have the most basic (and most important) measure of trade promotion -- POS (though often lacking, for in-store promotions, vital performance data to give full meaning to it). But PRISM was intended to be about Shopper Marketing, as distinct from trade promotion. Shopper Marketing, as I understand it (it's not always clearly defined), is intended to be more than trade promo alone -- it is intended to perform both the usual functions of trade promo (immediate sales lift) and of national advertising (brand building) . Without PRISM we will not have any measure of the second function.

It also seems that the costs are not excessive, though any cost may reasonably be viewed that way in the current economy.

... the cost of PRISM data, which an executive for a consortium member said ranges from the low to mid-six figures annually (and up to seven figures for bigger marketers), is particularly daunting in the current economy.

A million-dollar (to choose the higher end of the range) expenditure to measure and improve the effectiveness of a billion-dollar expenditure seems quite reasonable to me. But again we are playing by different rules today.

GameStop makes money on used games

GameStop, according to Wall Street Journal, is making a large part of its profit from sales of used games.

About 42% of GameStop's overall gross profits come from its secondhand business, compared with half that level for new games. "When you consider that most retailers operate on single-digit margins, it's astronomical," said Evan Wilson, an industry analyst with Pacific Crest.

The big contribution to the bottom line is due to the margins on used products -- typically the used games are sold for double what the store gives the former owner (and that payment is in credit toward future purchases). Thus GameStop averages 48% on used product, compared to 20% on new games and a miserable 7% on new consoles.

A guaranteed argument-starter

If you want to get a heated argument (or at least a spirited discussion) going, just put together a list and title it "Best of ______". Whether it's the Top 100 Movies of All Time or the Best Books Ever Written or the 10 Best Quarterbacks, you're certain to leave a name off the list that many people believe should be near the top.

Interbrand has been putting out lists of the top brand name for a long time now, but this year for the first time they have compiled a list of the Most Valuable U.S. Retail Brands.

Numero Uno isn't going to surprise anybody, with Walmart's $129.8bil brand value being rated roughly six times that of runners-up Best Buy's $22.0bil and Home Depot's $20.8bil. Target and CVS follow.

But two of the top ten "retail" brand names are brands I would think of first as products -- #6 Dell and #10 Coach. Besides Dell, two other on-line retailers are in the top fifteen -- #11 Ebay and #14 Amazon. (Is Ebay a retailer at all? They sell nothing, others sell through them. They are really more like a mall, aren't they?)

See how quickly we can get an argument started?

There were a number of other interesting points. I was surprised to see Sherwin-Williams, with their mostly small outlets located in strip malls, ranked at #23. I was equally surprised to see American Girl, with only three or four outlets, on the list. But on reflection, both companies, however different, have done a good job of establishing thyemselves as brands, and maintaining their brand identity.

Where's Macy's?

The most interesting thing about such lists, though, is not who's on them, but who isn't. The #1 department store chain in the country, Macy's, is conspicuous by its absence, as is the former #1 retailer in the world, Sears.

Three department stores made the list -- Nordstrom (13), Kohl's (22), and JCPenney (24). Interbrand states, though, that department stores as a group have become "commodity chains without real difference." But they add a hopeful note:

... Macy's, Saks Fifth Avenue, Dillards and Sears have considerable brand strength, though they didn't make the list. All have the opportunity to capitalize on their brand to improve their financials.

But the most glaring omission was ...

No Supermarkets?!?!

Not a single traditional supermarket made the list. The only food retailer was Whole Foods at #47. Kroger? SuperValu? Didn't make the cut.

Traditional grocery earned the weakest customer loyalty scores. Over-reliance on discounts, rewards and promotions undermines any move toward a meaningful proposition and results in low brand strength.

If customer loyalty is a key measure of brand strength (and most would agree it is) then it's hard to argue that supermarkets have strong brands. Interbrand notes that further undermining the brand names of the leading chains is their multiple banners (Kroger includes Ralph's, Fry's, etc). And they also mention how excessive reliance on promotional funding can undercut branding:

The grocery sector also often misses out on opportunities for product differentiation, since small entrepreneurial manufacturers can’t afford to supply supermarkets due to the cost of supporting their promotions and the payment of slotting fees. In the U.S., there are a trillion dollars moving from the manufacturer to the grocer every year. As long as their vendors continue to pay for play, supermarkets may see no need to understand and serve the shoppers in their stores.

That last sentence sounds a bit harsh (and that's the first time I've heard that trade promo equals a trillion (!) a year in the supermarket channel alone), but I do agree that supermarkets harm themselves by locking out smaller suppliers, who could help them create a brand difference. Unfortunately, they're now hooked on trade promo, which is the difference between profit and loss, and kicking the habit (or even cutting back substantially) might be too tough a challenge.

I don't agree with all the rankings, but I found the exercise interesting and thought-provoking. Give it a read, and enjoy arguing with Interbrand (or with me).

Are the agencies starting to get it?

There has been a notable increase recently in the interest shown in shopper marketing by Madison Avenue types. They are apparently becoming aware that all that grubby in-store stuff actually produces sales, and also that it represents far more money than the more glamorous TV advertising they've long been addicted to.

Adweek has an article this week about shopper marketing that points out that American Idol reached 35 million people for its season finale last year, while 150 million shop at Walmart each week. After acknowledging that the stores are today's true mass medium, the article focuses mostly on the number of ad agencies that are creating shopper marketing divisions and on the creation of in-store advertising networks.

I'm still not convinced that the agency world really understands trade promo and in-store (and they probably won't get fully on-board until we start holding our annual meetings in Cannes), but they are slowly groping their way toward understanding.

Magazines take a big hit

I sometimes am criticized for writing too much about the decline of the newspaper industry. It is perhaps a fair criticism, though I do so because newspapers are, outside the store, the largest medium for trade promotion spending. Newspapers are not alone, however -- all the media (again, excepting the store) are hurting.

According to the Magazine Publshers of America, advertising revenue in their medium was down 7.8% last year, with the fourth quarter down a mind-boggling 13.8%. These numbers are worse than most of those I've seen for newspapers. Some of the major magazines have even worse numbers: Time was down 14.1% for the year, Newsweek -27.1%, the New York -20.7%. Those are some scary numbers.

Circuit City, R.I.P.

Not that folks who read TPMtoday don't already know, but just for the record: Circuit City is closing down. The first thing to do is to offer best wishes to the 30,000 people who will be losing their jobs.

Beyond that, it is time to reflect again on the narrowing of distribution channels. A few years ago, the toy channel consolidated down to only Toys R Us (and Walmart), and now consumer electronics (which lost CompUSA and Tweeter in 2008) consists of Best Buy (and Walmart).

Here's a post from early 2007:

I've often advanced this theory (as have others), which says that we are moving toward a retail landscape in which there will be only two significant outlets in each channel. I've used as examples:

• Best Buy/Circuit City
• Home Depot/Lowe's
• Barnes & Noble/Borders
• Target/Wal-Mart
• Kroger/Super-Valu
• etc.

There are a corollary and a variant to this theory. The Manufacturers’ Corollary holds that there will be only two suppliers in each product category. The logic behind this is that suppliers will have to be large enough to deal with the retail giants, and is supported by the tendency of the retailers to want to improve efficiency by winnowing their supplier base. Supporters of this corollary point to P&G’s acquisition of Gillette. They argue that P&G was already bigger than its competitors, so the acquisition was not intended primarily to strengthen their hand vis-à-vis Unilever, but rather its purpose was to allow them to sit at the table with Wal-Mart as equals.

Which brings up the Wal-Mart Variant to the Two-Per-Channel Theory. It holds that the final two in each channel will be:

• Best Buy/Wal-Mart
• Home Depot/Wal-Mart
• Barnes & Noble/Wal-Mart
• Target/Wal-Mart
• Kroger/Wal-Mart
• etc.

It's certainly beginning to look like the betting should be on the Walmart Variant.

The end of the "second paper"

This week it was announced that the Tucson Citizen has been put up for sale by its owner, Gannett, and will be closed if there is no buyer within sixty days. The chances of anyone buying it are pretty slim -- who wants a mid-market paper with 17,000 circulation?

Similar announcements have been made in recent weeks about the Seattle Post-Intelligencer and Denver's Rocky Mountain News. What all three papers have in common is that each is the #2 paper in its market, and the demand for newspapers is no longer sufficient to support two papers per city, other than in New York and maybe a few other places.

Some have predicted that there may soon be major cities with no papers. I'm not convinced that's going to happen, and I hope it doesn't, but it's hard to rule it out at this point.

While the recession will no doubt take the blame from some, what is happening now is just the effect recessions have of speeding up the demise of already-weak businesses. Newspapers have needed a new business model for some time, but have yet to find it. Here's an interesting article from Wharton School of Business suggesting some fixes, including turning themselves into non-profits, becoming niche businesses rather than mass-market, and trying to make people pay for on-line content (it works for the Wall Street Journal, but New York Times failed at it). I don't know which, if any, of those solutions will work, bt I wish the people of the newspaper business good luck in finding the solution.

Leibowitz for FTC?

Washington rumors are that FTC Commissioner Jon Leibowitz will be promoted to head up the commission after Barack Obama takes over on Tuesday.

Leibowitz, a Democratic commissioner with broad Capitol Hill experience, is expected to be named to head the FTC, at first in an acting capacity, the sources said. Commissioner William Kovacic, a Republican, now holds that job.

The five-person FTC also has an open seat.

The rumors go on to say that Einer Elhauge, a Harvard law professor who has advised the new president, will be appointed to head the Justice Department's antitrust division.

Wharton questions in-store marketing assumptions

The Wharton School of Business has published a study by one of their faculty, together with a couple European academics, that calls into question the long-held idea that most purchase decisions are made in the store. If this is the case, then perhaps the huge shift of marketing funds from traditional media to in-store promotion is less justified than thought.

Among the findings, which were based on a study of purchasing in the Netherlands:

• Young, unmarried adult households with higher incomes do 45% more unplanned buying.
• Households led by an older person and those that have larger families do 31% to 65% less spontaneous purchasing.
• There is 25% less unplanned buying among shoppers who mainly use newspaper ads for price information.
• People who consider themselves very "fast and efficient" shoppers are far less likely to make impulse buys -- 82% less than the average.
• If the purpose of a shopping trip is "immediate needs or forgotten items," the rate of buying in unplanned categories falls by 53%.
• Unplanned purchasing goes up by 23% if the shopping trip itself is unplanned, but it goes down by 13% if it's a major or weekly trip.
• If a shopping trip includes stops at multiple stores, there is 9% less unplanned buying at the second or third store.
• Unplanned purchasing goes up by 44% if the shopper goes to the store by car instead of on foot.

Some of these items are intuitive, especially the first and the last. It's hardly a surprise that people with greater disposable income are more likely to buy on impulse. Nor is it surprising that people who have to lug shopping bags home are more likely to limit their purchases.

The last item particularly calls into question the study's applicability to the US market, where shopping is done almost universally by car, except in highly urbanized areas. A difference of 44% in buying patterns is pretty substantial.

Nonetheless, it's valuable to have basic assumptions questioned, and it would be good to see if further studies would show similar results. Perhaps this is just one of those ways in which US and European buying habits differ; perhaps this has valuable lessons, but only as applied to a limited (but important) area of the US market; or perhaps it calls into question some of the most important trends in recent consumer marketing.

It's important to note, though, that in-store marketing has grown not only because of in-store purchase decisions, but because the store is an effective medium, especially in light on the fragmentation and accelerating decline of traditional media.

It's also important to note that, regardless of the outcome of studies, suppliers and retailers should rely, in making promotion decisions, on analysis of their own results -- when you promote in-store do you get lift, and is that lift profitable? If so, keep doing it. If not, change things.

Borders brings in former Nash Finch CEO

Borders has hired Ron Marshall, a former CEO from Pathmark stores and food distributor Nash Finch, to be its new boss, hoping to stop continuing losses.

Borders Group announced Monday that it has shaken up its top management, as well as a double-digit drop in holiday sales from a year ago and a potential delisting from the New York Stock Exchange.

Ron Marshall, who is a founder and principal of Wildridge Capital Management and a longtime retail executive, will replace George Jones as Borders’s chief executive. Mr. Marshall, 54, will also serve as a director. Borders also named a new chief financial officer, chief administrative officer and a new top executive for merchandising and marketing.

Some are pointing to Marshall's experience as a turnaround specialist in his previous roles. No doubt that's the big reason for his appointment, but I can't help noting that he will probably bring a CPG/food mindset to the book biz, helping to further the convergence of retail practices.

A service provider takes a fall

Satyam, a major Indian supplier of IT and business process outsource services, has shocked their customers by admitting that they have been cooking their books for several years (more than a billion dollars is missing). It seems quite possible they will go out of business, though efforts are being made to salvage the company.

Losing an important supplier is a major concern to all companies who outsource and is often cited as a reason for keeping work inside, but the infrequency with which this sort of thing happens, and the tremendous benefits of outsourcing non-core functions, proves to me that it is a risk worth taking.

There will also be those who point to it being a "foreign" firm and use that as an excuse, but this sort of thing is not exactly unknown in the US and Europe (Enron, Ahold, etc). Well-run Indian (and Chinese, and other) firms will emerge stronger as a result of tighter scrutiny.

Abercrombie stays on the high road

I posted an item last month on the horrible results Abercrombie & Fitch was posting, and the punishment they were taking on Wall Street as a result. The numbers (-24%) continued to be awful in December (although that was slightly better than November's horrific -28%).

A&F continues to refuse to cut prices. I visited one of their stores just before Christmas and there were no markdowns in the store. There were also practically no shoppers. As I said last month -- I admire their stand on the principle of maintaining their brand image, but it's going to be interesting to see if they can continue to do so if the recession lasts much longer.

Are we there yet?

TNS has published some data suggesting that we may have reached the bottom of the recession. I'm optimistic enough to think they may be right, although their evidence is just a few data points (December was -1.5% in retail sales, a slight improvement over November's -2.5, and consumer shopping intentions improved very slightly).

I'm contrarian enough that my willingness to accept the data may just be my reaction to what sounds to me like wildly overstated cries of doom, but it does seem likely to me that if we are not at the bottom we are likely very near it.

It's not just the big daily newspapers that are suffering

Most attention is being focused on the problems of the big-name newspapers, but smaller publications are in trouble, too. This weekend saw the last issue of AsianWeek, a 60,000-circ publication that has been serving the fastest-growing ethnic group in the US.

"There is a huge potential in the Asian-American market," Fang said. "But we're facing the difficulties and the reality of the newspaper environment and the economic environment."

Somebody will serve the needs of this big and growing market, but it probably will not be in the same format.

Resale price maintenance in a recession

I came across this study from Japan, Demand Uncertainty and Resale Price Maintenance, which argues that RPM in conditions of uncertain demand will be "profitable for the manufacturer and not damaging to the retailers."

I am embarrassed to admit that I had not before now given any thought to how RPM might have different effects under current conditions than it did a year or so ago at the time of the Leegin decision that changed the law on RPM. The position taken by the paper may well be true in Japan where, the author tells us, retailers have the right of full return on unsold merchandise. That is not generally the case in the US (other than for books and perhaps a few other categories).

Which raises some questions (and I'm not going to pretend I have answers). If I were a retailer, I think I'd be reluctant, in the current retail environment, to buy merchandise covered by RPM policies unless I were given return guarantees, for fear of being stuck with unmoveable inventory as other retailers cut price on competitive products. Are manufacturers giving return guarantees in such cases? If not, are they offering other solutions (perhaps sale periods when price-cutting is allowed, or inventory financing allowances)?

This is a good time for a reminder that the FTC will be offering workshops on RPM -- more info on that here.

A late report on a good study

My New Years resolution should probably be to deal with things on a more timely basis. I attended a webinar a couple months ago, presented by AMR and DemandTec, and decided, as I was listening to it, to write a blog entry about it. You know how it is, though – things came up and … well, I’m finally writing it.

The title was Who Is Driving Trade Promo?, and it dealt with a study by AMR of trade promotion practices related to promotion analysis and optimization, and comparing the practices and results of food/beverage and non-food CPG companies. The webinar is available here and the white paper here, and if you missed them, they are worth your time. There’s a lot of good stuff, but I’ll just deal with a couple of items here.

The first finding, somewhat surprising as the white paper admits, was that the food companies are more advanced in their practices and have better results -- the researchers expected to find that the non-food companies (the biggest of which are bigger and have better margins) were the leaders.

One very interesting result is that the food/beverage companies most often cited by both Wall Street analysts and retailers as best of breed in trade promo practices did significantly better in stock performance than the best of the non-food CPGs. In the six-month period studied, the results were:

Food/beverage firms +0.52%
Non-food CPGs –5.02%
Dow Jones Industrial Average –4.72%

Another important point was that the food/beverage companies were more likely to use ROI measures to determine proper spending levels (48% to 35%), while the non-food companies were more likely to set their spending in comparison to competitors (26% to 14%).

The biggest difference, though, was in how well the food/beverage companies use their predictive/optimization software. Quoting from the whitepaper:

Use of predictive simulation and optimization tools is also linked to faster evaluation of promotion performance among food & beverage firms … For food & beverage companies in particular, this is associated with significantly faster promotion analysis times – a mean of 25 days, versus 35 days for consumer products firms who use the same tools. Notably, food & beverage manufacturers that use predictive simulation tools are able to drive post-event performance analysis time down from a mean of 44 days for non-users – a time savings of nearly 43%.

I find it interesting that use of the tools makes no difference to the non-food companies in terms of speed of analysis, while it makes a huge difference to the food companies. It was outside the area of this study, but it would be good as a follow-up to determine what the differences are in how the companies use the tools. There are several important summary points, and again I’ll suggest that you access the full webinar and/or white paper, but this one sentence says it all, I think: “The study findings suggest that the use of predictive technologies paired with the proper focus and discipline can help make the use of trade dollars far more effective.”

Remember when Bill Blass was a big deal?

It wasn't that long ago, really, that Blass was a big name in fashion, but now ...

NexCen wanted to unload Bill Blass from its books months ago but only just now made the sale. And like every pair of Manolos in this town, they had to mark it waaaaay down to get it out the door. Though NexCen sought $25 million for the designer business in September, they sold it for a mere $10 million. The lucky buyer is Peacock International Holdings LLC, a men's dress shirt and neckwear company.

When Blass retired and sold the company less than a decade ago, it was doing $700 million annually. The article doesn't say what sales are now, but given that the ready-to-wear line has been shut down, it would seem likely that sales are a fraction of that.

Maybe the company can be re-built; the brand name is still worth something ($10mil, perhaps).

Happy New Year!

May 2009 bring you everything you are hoping and wishing for.

Poll says internet has passed newspapers as news source

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

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

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

Who pays for all the markdowns?

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

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

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

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

Independent grocers ask for R-P enforcement

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

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

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

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

TNS predicts 2% retail growth in 2009

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

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

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

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

The end of the VHS era

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

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

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

Walmart leaves PRISM waiting at the altar

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

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

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

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

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

Merry Christmas

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

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

Walmart and Carrefour expanding in South America

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

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

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

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

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

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

Borders drops "sale or return" ...

... for one vendor, at least.

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

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

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

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

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

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

Staples expanding in-store marketing

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

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

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

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

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

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

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

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

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

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