Federated Merger Another Blow to Papers

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By: DAN SEWELL, AP Business Writer

(AP) Federated Department Stores Inc.’s takeover of May Department Stores looks like bad news for the newspaper industry, which already has been hurt by years of reduced department store advertising.

The operator of Macy’s and Bloomingdale’s says its advertising plans for its former rival still are not complete and that it won’t necessarily reduce newspaper advertising.

However, its conversion of stores under multiple names into the Macy’s brand will allow nationwide ad campaigns, particularly on television, as Macy’s will be in nearly all major TV markets with 850 stores.

Merrill Lynch analyst Lauren Rich Fine said this week that Federated already appears to be shifting spending from newspapers to television and direct mail.

She said in a research report that the shift might account for a downturn in newspaper retail advertising revenues in August. Cincinnati-based Federated is one of the industry’s largest advertisers with an estimated $900 million of newspaper ad spending — about 2% of newspaper ad revenue.

“It’s one advertiser, but it comes at a time when I would argue that every dollar counts, because it was a pretty weak ad environment overall,” she said, adding that the post-merger consolidation presents “a double whammy” because it could mean even more Federated newspaper advertising cuts.

Department store advertising has long been a newspaper mainstay with full-page and double-page ads.

“They’re sort of like anchors at a shopping mall,” John Morton, of Morton Research Inc., said. “They tend to draw people to the newspaper.”

Borrell Associates Inc., a media research company, estimated in a 2004 report that department stores cut newspaper advertising by nearly $2 billion, or 24 percent, in the previous four years.

Department stores have been struggling against increased competition from discount retailers such as Wal-Mart Stores Inc. With industry consolidation and a loss of stores, many are looking more to electronic media and direct mail.

Meanwhile, as advertising shifts, newspaper companies are also grappling with higher newsprint and other costs as well as declining circulation. This week, The New York Times Co. and Philadelphia newspapers, owned by Knight Ridder Inc., announced job cuts.

At Philadelphia Newspapers Inc., where 100 jobs will be cut, publisher Joe Natoli noted that the Federated-May merger will eliminate the Strawbridge’s nameplate, one of the newspapers’ largest advertisers.

Natoli said Thursday there has been some reduction in department store advertising, but he declined to cite specific numbers.

“It’s more what’s coming,” Natoli said. “It’s uncertain how that will wind up playing out. Consolidation is usually not a good thing for us.”

Federated announced this week plans to cut up to 6,200 jobs beginning next year, and also said it will convert all 62 Marshall Field’s stores to the Macy’s nameplate in fall 2006.

Tribune Co. spokesman Gary Weitman said that Marshall Field’s, a Chicago icon, has been a large advertiser and the company hasn’t seen any dropoff since the merger was announced early this year. It’s probably still too early to tell if the change will have an effect on advertising, he said.

Federated spokesman Jim Sluzewski said it’s premature to predict changes in the company’s advertising plans for next year because they’re still being developed.

“In the media spending aspect, what we’ll be able to do is really, for the first time, national TV buys,” Sluzewski said. Previously, since Macy’s was not nationwide, national buys had too much waste.

He said Federated made a buy for Macy’s earlier this year on ABC’s hit TV series “Desperate Housewives,” and drew interest from consumers, including in cities where there were no Macy’s.

He added that Federated is looking at advertising in national magazines such as fashion magazines, but he said it hasn’t been determined whether those advertising changes would affect newspaper buys.

“It’s clear that newspaper advertising is still an important vehicle for our stores,” Sluzewski said.

John Kimball, chief marketing officer for the Newspaper Association of America, said Federated could end up boosting newspaper advertising in some of Macy’s new markets. But, overall, newspapers are adjusting to the decline in business from big advertisers by pursuing smaller categories such as specialty retailing and services businesses, he said.

“Newspapers have been working very hard in coming up with a lot of thousand-dollar answers to the million-dollars problem,” Kimball said.

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