Monday, July 06, 2009

Macy’s halved newspaper ad spend since ’05

Macy’s has cut in half the amount of money it spends on newspaper advertising since 2005, depriving the struggling industry of some $616 million in sorely needed revenues.

The drastic plunge has hit particularly hard the metro papers that used to rely on sumptuous and highly profitable schedules from the likes of Famous-Barr, Filene’s, Foley’s, Hecht’s, Kaufmann’s, May, and Marshall Field & Co.

Macy’s acquired these iconic local stores – and others – when it acquired May Department Stores Co. for $11 billion in 2005 in a highly leveraged buyout.

In 2005, Macy’s (nee Federated Department Stores) and May together spent a collective $1.2 billion annually on newspaper advertising. By 2008, the spend declined by 51.4%. Macy’s last year bought only $583.3 million in newspaper ads, according to data from TNS Media Intelligence published by Advertising Age.

Macy’s was the second-largest advertiser in newspapers in 2008, trailing only Verizon, which put $681.9 million into the medium. Macy’s far surpassed the No. 3 newspaper advertiser, General Motors, which last year ran $320.9 million in ads.

When Macy’s bought May, one of the major initiatives in the merger plan was a new national branding strategy that would subsume the names of the various local stores under the Macy’s name. The idea proved to be controversial, inspiring revolts among consumers in many cities who unsuccessfully demanded the reinstatement of the names of their favorite local stores.

But the national branding strategy also brought about a major shift in ad spending that hit newspapers particularly hard. (The prospect was predicted here in 2006.)

While Macy’s has been chopping its total marketing budget ever since the merger, the company has increased its reliance on magazine and television advertising to the detriment of radio and newspapers.

As illustrated in the table below, Macy’s put 71% of its advertising dollars into newspapers in 2005 but only 59% of its budget into the category in 2008. In the same three years, by contrast, television advertising rose to 27% from 17%.

The diminishing commitment to newspapers has played havoc with metros across the country, where pages of lucrative run-of-press department store advertising long had been one of the mainstays of their revenue plans.

Given the sharp shift in Macy’s advertising away from newspapers in three short years, this looks to be another one of the long-term secular changes – like the shrinking demand for classified advertising – that won’t be reversed when the economy perks up.

11 Comments:

Anonymous Anonymous said...

Welcome to the future. Macy's decline has hurt newspapers even more because of the consolidation of department store retailers and the appearance of low-cost discounters like Wal-Mart and Costco, which don't advertise broadly in newspapers. You can't blame the department stores for readjusting their ad budgets, when you consider the continuing decline in newspaper readership that you have previously documented. Until newspapers do something serious about improving their readership numbers, particularly among younger demographics, ad revenues will continue to plummet.

6:03 AM  
Anonymous Aaron Pressman said...

This is a really important analysis. Far too many people seem to think the rising of blogging is killing newspapers, when in fact, it's the disappearance of advertising to a whole host of other places (not to mention just flat-out reduced ad budgets). Check out the pie chart -- TV is getting the a much bigger slice.

6:20 AM  
Anonymous Patrick Thornton said...

@Alan,

Newspaper demographics surely have to play a role in Macy's newspaper ad spending declines. The key demo for many advertisers is 18-35. Macy's maybe 18-49. Regardless of which demo Macy's is trying to target, the average newspaper reader falls outside of that demo. The last figures I saw put the average newspaper reader at 55.

Anecdotally, many people my age occasionally skim a newspaper, but most of the dedicated newspaper readers I know are around my parents age (upper 50s) or older. Consolidation may be part of Macy's decline in newspaper ad spending, but I think the shift to TV and radio signals a realization that newspapers aren't a great medium for Macy's.

7:33 AM  
Anonymous lkm said...

Newspapers aren't the only victims. Macy's has also cut a number of employees who used to create those ads. Closed the entire Atlanta-based department, I believe.

7:48 AM  
Blogger sixtwosue said...

I wonder why direct mail is not part of this Macy's pie chart. I get Macy's mail all of the time, but as a newspaper family, I always make sure I use the coupon from the Courant instead of the one in the direct mail piece.

10:31 AM  
Blogger LouDuk said...

Interesting to see who the top advertisers are in the newspaper world. I wonder just how much influence those advertisers have over newspaper content?

3:39 PM  
Anonymous Rocky said...

This goes beyond Macy's. One of the unavoidable changes is that advertisers can now reach out to customers in much more effective ways than a run-of-print campaign.

Take airlines for example, which used to be heavy newspaper advertisers. Now with email, Twitter, etc. they can reach millions of people for near zero costs.

Not only can they reach them, they can reach them with highly targeted messages. The airlines I fly have rich databases of all my travels and know where I like to go.

Harris Teeter, a regional grocery chain, is similarly using shopping card data to send targeted sale emails based on purchase history.

This is just one of many non-craiglist or Google related changes.

8:36 PM  
Anonymous Cristian Fleming said...

@ LouDuk,

I'm an editorial cartoonist for a paper that doesn't even run Macy's ads, but because our parent publisher also owns one that does I was forced to change the content of a cartoon I did that was deemed potentially upsetting to Macy's. It wasn't even a commentary directly aimed at Macy's.

For reference, I am a cartoonist for a paper in Brooklyn, NY and businesses here have come to expect Macy's to hold its annual fireworks display on the East River. They count on the fireworks taking place there for much needed business. This year the fireworks were moved to the Hudson River, on the other side of Manhattan Island and it upset a fair number of citizens and businesses that have seen the fireworks take place off the shore of Brooklyn since I can remember. I was not allowed to run an editorial cartoon critical of that decision because the publisher was worried it might upset Macy's, who funds and orchestrates the yearly 4th of July fireworks display in New York City. Possibly the worst part about this is that the newspaper self-censored. They were so concerned about what Macy's might think that they chose to avoid running a legitimate criticism with near unanimous public support in the paper's circulation area.

I'm betting in the current panicked environment more than ever editors are being forced to tailor their content to avoid even the slightest potential loss of ad revenue. If large advertisers had influence before it's a good bet it's magnified now.

10:45 PM  
Blogger Cathryn said...

The erosion of department store advertising pre-dates the internet. Starting in the late 1980s, when the retail industry started to consolidate, the number of department store advertisers declined. Simultaneously, retail executives fought bitterly with newspapers over what the thought were usurious ad rates - even though newspaper had a two tiered ad rate card, with "retail" raties significantly lower than "national" rates. In general, I find it very interesting that conventional wisdom pegs the demise of newspapers to the internet. Many practices that pre-date the internet had started to dismantle to foundation. The industry closed there eyes and put their fingers in their ears.

5:04 AM  
Anonymous Susan said...

How this trickles down to 'real life'. Recently had to withdraw funds to make it through this economic crisis (& personal one). I've not even looked at adverts in the Post or NYTimes as it's been so distressing. When I say I need 'stuff,' I mean I've been without so much the last several years that I can't even cobble together a dress & shoes for an informal mtg, much less interview. So the last week, I started looking in newspapers (which I always have, never gave those up). Looking for ads for Macy's (& other retailers) to see what's on sale, what's new, what's what. Nothing.

For two days, I thought, what the hell? Then I realized, oh no, it's worse than I thought. They're not advertising--at all. I found a lonely little L&T ad for Clinique. That's it. And I do as someone else writes above--I use(d) coupons from newspapers & not direct mail. On purpose. Due to the no-spending-at-all, I no longer receive the direct mail.

Very sad about this...love your blog, though.

5:04 AM  
Anonymous Social Media Commando said...

Eureka!

This is terrific and inspiring news...for new media marketing.

Macy's still needs to promote its profit center and retain/grow their customer base.

I'm curious about the flip side of this equation, the Social Media, TV, and Online businesses who are profiting from some newly unfrozen marketing dollars.

(OK, I'm sure Macy's isn't devoting all their newspaper advertising reductions to other forms of ads. Still I wonder how much is going to new forms of media).

6:59 AM  

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