Will Retailers' Poor Holidays Haunt Newspapers?

By: Lucia Moses Retailers were trimming more than trees this holiday season, and the results of their weak sales could haunt newspapers in the new year like leftover fruitcake.

Retailers such as Wal-Mart Stores Inc. and Federated Department Stores Inc. cut their year-end estimates as experts pronounced the holiday sales season the worst in decades. And the deep discounts stores used in desperation to get the business they got will cost them in profits.

The retailers' poor fourth quarter could mean a slow start for newspapers this year, increasing pressure on the second half. Retail already was expected to be the softest ad segment this year: analysts are forecasting 3% to 4% growth in newspaper retail advertising for 2003, compared with as much as 8% in national and 6% in classified.

"The toughest sector I think is going to be retail," said Edward J. Atorino, who follows newspapers for Blaylock & Partners in New York. He's predicting 3.5% growth for retail, versus 5% to 6% for classified and 7.5% for national, assuming a stronger second half.

Others see retailers continuing to rely on the heavy promotions that helped salvage sales in the fourth quarter, to newspapers' benefit. Factors that hurt Christmas sales -- consumer concerns about financial security, prospects of war, and the overall economy -- will not be going away soon and will continue to make it hard for retailers to sell goods in the new year.

"They are more likely to cut out image-building media than newspaper ads and circulars," said George Rosenbaum, chairman of Leo J. Shapiro and Associates LLC in Chicago. "Newspaper advertising is not going to be hurt by increased pressure on the retailer."

Stores "have to keep the business going," agreed Tom Holliday, president of the National Retail Federation's Retail Advertising and Marketing Association, who predicts newspaper retail advertising will tick up 1.5% in the first quarter. But even if newspapers do get a bigger slice, its slice likely will come from a smaller pie.

Analysts see another negative for newspapers from the recent holiday season. Shoppers increasingly went online to buy, and while online receipts represent only about 1% of retail sales, that percentage is likely to grow. "People are learning to visit Web sites before going to the stores," Rosenbaum said. "It means retailers can replace some of their investment in newspaper advertising."