Kmart Will Continue Newspaper Ads

By: Gretchen Parker, Associated Press Writer

(AP) Kmart Corp. is going out of its way to reassure newspaper publishers that it will continue to buy advertising to draw customers into its stores, even as the discount retailer goes through a bankruptcy reorganization.

Nonetheless, newspaper owners around the country are watching closely as one of their key advertisers looks for ways to cut costs and slim down in order to emerge from the reorganization process in better shape.

With the newspaper industry facing a major advertising recession and a drop-off in classified ads, the potential loss of a large advertising client could hardly come at a worse time.

“If they can’t survive, it would have a huge impact on newspapers all over the country,” said Lynn Dickerson, publisher of the McClatchy Co.’s Modesto Bee in California. “Newspapers are holding their breath and keeping their fingers crossed that (Kmart) can emerge from this bankruptcy stronger and healthier.”

Kmart spent some $171 million on newspaper advertising in 2000, the most recent year for which data are available, according to the newspaper industry magazine Editor & Publisher. The magazine rated Kmart No. 8 in its top 100 brand advertisers in newspapers. Kmart spent about $35 million of its 2000 budget with Chicago’s Tribune Co. and $7 million with the E.W. Scripps Co. of Cincinnati.

Kmart marketing officials say the company will continue to buy advertising as long as it stays in business. The Troy, Mich.-based retailer prints and ships 72 million glossy, full-color, 10-page circulars inserted every week in newspapers nationwide.

Kmart executives have found out the hard way that cutting back on advertising can lead to less foot traffic at their stores.

To save money, Kmart slashed the number of pages in the weekly insert last year during the holiday shopping season, and sales fell immediately, said David Karraker, the retailer’s director of marketing communications. Shoppers seeing fewer items in their weekly circular led to a decrease in foot traffic and fewer sales.

By the last week of December, the insert was back to its original size. Kmart CEO Charles Conaway blamed the company’s poor fourth-quarter earnings in part on the cut in advertising, Karraker said. At a hearing last week in Chicago, Conaway fought for permission to keep paying a few critical suppliers, as well as newspapers for advertising.

Bankruptcy Court Judge Susan Pierson Sonderby ruled that the payments to print media were “necessary to keep the business as a going concern.”

Still, recession-weary newspaper publishers are readying for the worst — the possibility that Kmart won’t make it. Some analysts say Kmart will have to close up to 700 of its stores, regardless.

The Modesto Bee, an 85,000-circulation paper, lost one of its top 10 advertisers last year when Montgomery Ward & Co. closed. Publisher Dickerson said the paper rebounded by refocusing efforts on smaller customers.

She managed to raise ad revenue 6% last year — while advertising in newspapers nationwide fell 8.6%, the worst decline in more than 50 years.

If Kmart fails, the big worry among print media may not be the loss of a single client, said John Morton, a media analyst in Silver Spring, Md. Papers could lose even more revenue as a result of big discount stores having less competition.

“The more discount retailers you have, the more advertising competition you have,” he said. “It’s better to have more than just Wal-Mart and Target.” When Federated stores went broke in the late 1980s, print advertising by Sears, JCPenney, and Kmart dropped off, he said.

Many newspapers contacted by The Associated Press declined to disclose details about how much advertising revenue they would lose if Kmart cannot recover.

Tampa (Fla.) Tribune Publisher Steve Weaver said the retailer is among his newspaper’s top 10 advertisers. There are 42 Kmart stores in the Tampa Bay area.

“We always worry about our good customers, and when we learn one’s in trouble, we worry about them acutely,” he said. “We don’t grow if they don’t grow.”

Knight Ridder CEO Tony Ridder said his company has been classified a critical vendor, and he has been assured Kmart will pay its bills in full. Still, the second-largest newspaper publisher in the country increased its reserve in case Kmart has trouble paying its advertising bills.

A newspaper trade group says the industry has weathered worse than the potential collapse of Kmart. James Conaghan of the Newspaper Association of America said the number of help-wanted ads alone fell 39% in the third quarter of last year, compared with the third quarter of 2000. “There’s no way you could interpret (the Kmart bankruptcy) as good news, but it’s not of the same magnitude as the overall recession we’ve experienced in the last year,” Conaghan said.

James Hopson, publisher of the Wisconsin State Journal, agreed.

“The newspaper business is a big business. We have lots of customers and aren’t dependent on any one or any handful of customers,” said Hopson, who also is vice president of Davenport, Iowa-based Lee Enterprises, a publisher of 23 daily and 100 weekly newspapers.

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