Macy's ad buy: Going bye-bye?
Newspaper advertising by the nation’s largest traditional department store chain may be cut in half by 2008, costing the industry some $425 million in sales, or nearly 2% of total retail revenues, according to one Wall Street analyst.
The drastic drop in newspaper ad spending could result from a new approach to marketing by Federated Department Stores, says Paul Ginocchio, a securities analyst at Deutsche Bank who has completed a comprehensive look at how the 866-store chain plans to promote its Macy’s and Bloomingdale’s brands in the future.
Federated and the newly acquired May Department Stores last year spent a combined $1.2 billion on newspaper advertising, making them, by far, the industry's largest retail account.
When Federated absorbed May, most analysts believed the consolidated chain would trim ad expenditures by 10% to 20% by closing redundant and unproductive stores, as well as by adopting a common name for most of its outlets. By fall, Federated will change to "Macy's" the names of such legendary local retailers as Famous-Barr, Filene’s, Foley’s, Hecht’s and others.
With the majority of the Federated stores operating as Macy’s, the merchant can begin marketing the common brand through such relatively efficient media as broadcast and cable television, magazines and the Internet, according to Paul.
He speculates that a national branding approach likely would commit only 25% to 40% of Federated's ad dollars to newspapers in the future, as compared with 70% today. At that rate, Federated would be spending $407 million on newspaper advertising in 2008 vs. $831 million in 2005 – a 51% reduction.
In Paul’s hypothetical analysis, he estimates $254 million of the money pulled from newspapers would go to additional TV advertising, $22 million more would fuel online advertising and $40 million would be left to fatten Federated’s bottom line.
Paul says the operators of major metro papers – the New York Times Co., Tribune Co. and Washington Post – are the most vulnerable to a potential shift in Federated’s media mix. Chains in smaller markets not served by Macy’s or May – like Lee, Gannett and Media General – have less to lose.
Paul bases his projection on the way such national chains as Wal-Mart, Sears and Target spend their advertising dollars. But there may be a reprieve for newspapers.
Rather than buying advertising to generically tout its stores as great places to shop, Macy’s historically has used its ads to promote individual products to drive sales. To date, newspaper advertising has proven to be the best “call-to-action” medium for Macy’s, Kohl’s and other merchants employing this strategy.
So long as newspapers keep pulling in the customers, Paul believes the industry may be able to hang on to more advertising than suggested in the worst-case scenario described above. If Macy’s continues to emphasize promotional advertising, then papers may be able to hang on to about half of the $425 million Paul fears they otherwise might lose.
Whatever the magnitude of the erosion, publishers should be worried. “We see few categories," says Paul, "that can replace lost department store revenue.”
The drastic drop in newspaper ad spending could result from a new approach to marketing by Federated Department Stores, says Paul Ginocchio, a securities analyst at Deutsche Bank who has completed a comprehensive look at how the 866-store chain plans to promote its Macy’s and Bloomingdale’s brands in the future.
Federated and the newly acquired May Department Stores last year spent a combined $1.2 billion on newspaper advertising, making them, by far, the industry's largest retail account.
When Federated absorbed May, most analysts believed the consolidated chain would trim ad expenditures by 10% to 20% by closing redundant and unproductive stores, as well as by adopting a common name for most of its outlets. By fall, Federated will change to "Macy's" the names of such legendary local retailers as Famous-Barr, Filene’s, Foley’s, Hecht’s and others.
With the majority of the Federated stores operating as Macy’s, the merchant can begin marketing the common brand through such relatively efficient media as broadcast and cable television, magazines and the Internet, according to Paul.
He speculates that a national branding approach likely would commit only 25% to 40% of Federated's ad dollars to newspapers in the future, as compared with 70% today. At that rate, Federated would be spending $407 million on newspaper advertising in 2008 vs. $831 million in 2005 – a 51% reduction.
In Paul’s hypothetical analysis, he estimates $254 million of the money pulled from newspapers would go to additional TV advertising, $22 million more would fuel online advertising and $40 million would be left to fatten Federated’s bottom line.
Paul says the operators of major metro papers – the New York Times Co., Tribune Co. and Washington Post – are the most vulnerable to a potential shift in Federated’s media mix. Chains in smaller markets not served by Macy’s or May – like Lee, Gannett and Media General – have less to lose.
Paul bases his projection on the way such national chains as Wal-Mart, Sears and Target spend their advertising dollars. But there may be a reprieve for newspapers.
Rather than buying advertising to generically tout its stores as great places to shop, Macy’s historically has used its ads to promote individual products to drive sales. To date, newspaper advertising has proven to be the best “call-to-action” medium for Macy’s, Kohl’s and other merchants employing this strategy.
So long as newspapers keep pulling in the customers, Paul believes the industry may be able to hang on to more advertising than suggested in the worst-case scenario described above. If Macy’s continues to emphasize promotional advertising, then papers may be able to hang on to about half of the $425 million Paul fears they otherwise might lose.
Whatever the magnitude of the erosion, publishers should be worried. “We see few categories," says Paul, "that can replace lost department store revenue.”
posted by Newsosaur at 7:42 PM
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