STORES REMAIN BULLISH DESPITE BEAR MARKET

By: Joe Nicholson, Ellen Liburt and Mark Fitzgerald E&P's Fourth-Quarter Retail Outlook For Newspapers





In the newspaper industry, there is a simple fact that sometimes gets lost in the hype over ephemeral events such as last year's dot-com revolution: All business is local (requisite tip of the hat to the legendary "Tip" O'Neill). And so it goes that what happens in the retail community is of vital interest to the newspaper industry. Retailers provide more than one-third of total newspaper ad revenue, according to the Newspaper Association of America.



As retailers approach the crucial holiday sales season, Wall Street is skittish, with analysts predicting a falloff in consumer spending from last year and a slowing in the retail-sales growth rate. Even though some of these stock analysts are the very same who were busily hyping the "new economy" this time last year - consumers ended up losing money in the market they would have spent on the holidays this year - their opinions have served to help hold down the price of retail stocks (but then, most stocks are down right now, aren't they?). And in the newspaper business, third-quarter earnings reports from the publicly traded companies were largely disappointing, with sagging retail advertising sales and higher newsprint prices the chief contributors to disappointing earnings growth.



But an informal survey conducted by E&P in the past few weeks found that retailers themselves are surprisingly optimistic - and that they intend to spend the same or more on advertising in newspapers as they did during last year's holiday sales season, a bonanza for most retailers. Still, analysts and forecasters we consulted remain skeptical, with one claiming retailer "angst." Even in a worst-case scenario, however, retailers' losses may well be newspapers' gains.



The retail outlook



In markets across the country, in sector after sector, retailers interviewed by E&P were determined to prove the analysts wrong.



Department Stores: "We will be very, very aggressive," declares Matt Spahn, director of media planning and analysis at Sears, Roebuck and Co., which advertises in 2,000 or so newspapers. "We'll focus on the most important markets," adds Spahn, who notes that Sears, based in Hoffman Estates, Ill., is coming off a strong third quarter. He says holiday ad spending will be "up slightly" from a high level last year with most of the extra spending going to increased pre-print page counts.



At Macy's West, a 90-store group based in San Francisco, Sheila Field, senior vice president for marketing and sales promotion, says she's entering the holiday sales season "doing quite a bit of newspaper advertising," mostly ROP. Field is very optimistic that holiday sales will match or exceed last year's levels.



Milwaukee-based Carson Pirie Scott department stores plan a newspaper ad campaign comparable to last year. "We're very upbeat," says Richard Schwab, vice president of marketing and administrative services, noting his chain has extensively remodeled its stores. Schwab is particularly bullish about sales prospects in the booming Chicago market.



In the highest, most fashionable reaches of the retail realm - at Bergdorf Goodman - Senior Vice President of Marketing Michael Calman says, "Business has been very strong for us and will translate into a very heavy ad schedule" with The New York Times in the fourth quarter.



It is not just the higher-line store chains that believe the season will turn out to be joyous. At Rocky Hill, Conn.-based Ames Department Stores, a 480-store chain aimed at moderate-income consumers, Senior Vice President for Marketing Eugene E. Bankers says he will do "a little bit more" run-of-press (ROP) advertising this holiday season because his chain has opened stores in new markets such as Chicago, Cleveland, and Pittsburgh. Bankers, who notes that pre-printed inserts in 53 newspapers represent the bulk of his advertising, says he believes his company's holiday sales results will be "fine."



At Reading, Pa.-based Boscov's, which has 34 department stores in the Northeast, Burt Krieger, executive vice president, says, "September was a very good month, and I'm hoping that's a precursor of a trend for the fall." Looking at last year's holiday spending level, Boscov's plans to use a "comparable" amount of advertising this season in more than 50 newspapers, Krieger says. The largest part of his ad budget goes into newspapers.



At Seattle-based Bon Marche department stores, which has 36 full-line department stores and six furniture stores, Vice President for Media/Effectiveness Brent Frerichs says he's buying about the same amount of newspaper advertising as last year, adding that he mostly buys ROP. "We really want to be as far forward in newspapers as possible," he says.



Maggie Krost, vice president of advertising for The Charlotte (N.C.) Observer, a 246,984-circulation Knight Ridder daily, says ad spending by department stores in her market has been somewhat soft, but she believes retailers are shifting some dollars to the end of the year.



At Belk department stores in Charlotte, Senior Vice President of Marketing Karen Von Der Bruegge expects fourth-quarter sales to top those in the same period last year. Holiday advertising by Belk - whose 210 stores span 13 states, mostly in the Southeast - will be about the same or maybe show a slight increase. Newspapers are the biggest ad vehicle for Belk. Von Der Bruegge says she's entering the holiday sales season smiling.



Another smiling executive is Lee Corbett, director of marketing at Michael's Stores in Irving, Texas. The arts-and-crafts chain, which uses both inserts and ROP, expects its sales to do extremely well in the fourth quarter. He says his holiday-sales-season ad spending will be "about the same."



Electronics: In this category, Jim McDonald, senior vice president for RadioShack stores, plans "a ton" of holiday newspaper advertising. "I'm doing more than I did last year," says McDonald, adding he plans to use inserts "heavily" and ROP "very selectively." Overall, he says, "We're very bullish. ... We expect a terrific Christmas."



Nearly everyone agrees that probably the hottest category this year will be high-end electronics, especially if Sony's PlayStation 2 makes it to market.



Julie M. Engel, senior vice president for advertising at Eden, Minn.-based Best Buy Stores, has been purchasing Sunday inserts with an average of 32 pages in 350 newspapers. "Pagination increases during holidays. We expect to be up about 10% this year over last on page counts," Engel says.



Kristen Lark, director of communications for The Good Guys Stores of Brisbane, Calif., says the regional electronics company has boosted its mostly print ad budget 20% or so to approximately $50 million in the last year with a newspaper ROP campaign focused on Mondays, Tuesdays, and Fridays every week. She plans to buy "slightly more" newspaper ads during the holidays than she did last year.



Kids: In the kids' segment, Davis S. Walker, vice president for Toys 'R' Us in Paramus, N.J., says his 705 stores are "positioned for our strongest fourth quarter in 10 years." Walker plans to concentrate on the use of free-standing inserts (FSIs), with his ad budget up $15 million from last year's November/December period.



Clothing: Regarding the apparel category, which has always been crucial to holiday sales success, some have voiced concern about whether there's enough "newness" in fashion.



Wendy Liebmann, president of New York-based WSL Strategic Retail consultancy, says: "Sales strength here is really critical, and there isn't a lot out there that's new and exciting. Tied into this is the question of how much more of this stuff do they [consumers] really need."



Kurt Barnard, president of Barnard's Retail Consulting Group in Upper Montclair, N.J., has a contrary view. He contends consumers want to buy and will buy - but they will "simply buy what they need." Barnard says inventories are high right now and that the recent drop in temperatures should help apparel sales. "Clearly, people have not been buying too much apparel in some time," he observes, "and I'm quite sure that fashion apparel is going to move fairly well - but will shift to specialty stores."



Win-win season?



Taken together, the retailers surveyed by E&P clearly believe that this will be a robust holiday sales season for both themselves and newspapers. However, newspapers typically benefit even if retailers do not do well, because when merchandise is not moving, it gets put on sale, and the sales need to be advertised.



When holiday season retail sales are challenging, department stores buy more newspaper ads "because you have to entice the customer into your store and newspapers are one of the elements to do that," says Bankers, the marketing chief at Ames Department Stores.



Bon Marche's Frerichs says those department stores that encounter struggling sales may throw some last-minute money into ROP: "Very few people will pull back at that point because that figures to be a recipe for certain disaster. At that point, you have to move the inventory or you are stuck with it and are going to have to take large markdowns to move the inventory."



Emme P. Kozloff, retail analyst at New York-based Sanford C. Bernstein & Co., emphasizes that there could be more newspaper retail advertising because "as retailers get stuck with inventory toward the holidays, they may become increasingly more promotional and do larger, more frequent circulars."



The analysts



Challenging retail sales have been predicted by many analysts, including Kozloff, who forecasts "good, not great" holiday sales. Daniel Barry, senior retail analyst at New York-based Merrill Lynch, goes further than Kozloff and forecasts "a disappointing Christmas for retailers, especially in comparison with last year, which was the best Christmas season since post-World War II."



Adds Kip Cassino, Knight Ridder research director: "My own theory is that it may not be as big a Christmas as everybody is hoping for. The question is how much worse [than expectations] it is going to be." And Miles Groves, senior vice president and chief economist of the Bethesda, Md.-based Barry Group, a newspaper marketing consultant, predicts, "The angst among retailers will support demand for both pre-print and display advertising."



In the spirit of a rising tide raises all boats, there is one nonholiday factor that is certain to contribute something to ad sales during the holidays as well as throughout the year: Hundreds of new stores have been opened by some of the nation's largest retailers.



The Walgreen Co. has opened 462 new stores, going into new markets in Atlanta, Baltimore, and Southern California. Kroger Supermarkets recently bought 20 new supermarkets in Virginia, and is opening or expanding 138 supermarkets; and Lowe's Home Improvement Warehouse has opened 95 new stores.



In the end, retailers' haul - and newspapers' ad sales - will depend on the mood of consumers, and that in turn will hinge in large part on oil and heating fuel prices, the outcome of the November elections, and whether the public believes the economy and the stock market are simply slowing or going south altogether. Meanwhile, for most newspapers, the holiday season will serve as a reminder that all business, like all politics, is still local.







Reporting contributed by Steve Yahn.







Copyright 2000, Editor & Publisher.