Retail slump will gut newspaper ad sales
Assuming the projection detailed below proves to be correct, print and online sales for the industry would amount to no better than $31 billion this year after diving to something like $38 billion in 2008.
The last time industry sales were as low as $31 billion was in 1993. In 2007 dollars, $31 billion would be worth $43 billion.
Hopes were dashed today for a reprieve in the fierce decline in newspaper ad sales when a wide spectrum of retailers reported dismal sales in December in what the New York Times called “one the worst holiday shopping seasons in decades.”
The holiday period generates a third or more of the annual profits for most retailers. Deep discounting to clear inventories in the fourth quarter almost certainly put even more pressure on retailer profits than the anemic sales numbers would suggest.
The pain for merchants translates directly into pain for newspapers, because retailing is by far the largest advertising category, producing no less than half of industry revenues. With employment, automotive and real estate classified advertising already severely depressed by the worst economy in generations, the collapse of retailing will put further pressure on already-battered newspaper sales.
Apart from a lower-than expected sales increase of 1.7% at Wal-Mart, the numbers were all red for most other national retailers. With sales off 4%, Macy’s said it would close 11 stores, including outlets in St. Louis and downtown Los Angeles. Revenues fell 10.6% at Nordstrom, 14% at Gap, 19.8% at Saks, 24% at Abercrombie and Fitch and 31.2% at Neiman Marcus.
With long-time companies like KB Toys, Mervyn’s and Linens ’n’ Things already in liquidation, many retailers will fade from the scene altogether in 2009. Companies like Circuit City, Macy’s and others plan to close under-performing stores to save money.
The International Council of Shopping Centers, a trade group, estimated in October that 148,000 retail stores would close in the United States in 2008 and that another 73,000 would do so in the first half of 2009, reflecting a potential annual rate of 146,000 closings in 2009.
Another major way merchants will attempt to save money will be by cutting back on advertising. While publishers report that merchants advertised as much as they afford during the difficult holiday shopping season in hopes of attracting the most possible business to their stories, many newspapers have experienced a sharp decline in ad demand since the first of the year.
Unless a palpable rebound in the economy gets consumers shopping again, this is going to be another long and difficult year for newspapers.