Thursday, January 08, 2009

Retail slump will gut newspaper ad sales

The unprecedented meltdown in retail sales in the fourth quarter of last year all but assures that newspaper advertising sales in 2009 will fall another 17% – or more – on top of a similar plunge in 2008.

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.


Anonymous Anonymous said...

It's a depressing thought, Alan, and the view from Australia - where we are just starting to go through the same pain barrier - is not pretty. However, examining the table of ad revenue for 2008 and the forecasts for 2009 it would appear that after falling by increasing rates over the four quarters of 2008, the rate of decline is forecast to lessen over the four quarters of 2009. Is there any room for optimism in these figures?
I heard Jan Schaffer, in her address to a Future of Journalism conference in Melbourne last November, forecast that a large number of mastheads may fail altogether, amounting to something of a clear-out of ailing titles. Will this leave those still standing in a better position over the medium to long term?

3:10 PM  
Blogger Newsosaur said...

In response to the two questions raised in the above comment:

1. I reduced the projected rate of decay in the later quarters of 2009 in the hope that we would be seeing at least the initial stirring of an economic recovery. If a recovery fails to materialize, then this forecast will prove to be too optimistic.

2. In markets served by multiple newspapers, the survivor should be able to see an improvement in sales if its competitor goes out of business. The strongest newspapers standing after this ordeal will be the ones who best adapted their business models to the the interactive technologies.

4:39 PM  
Anonymous Anonymous said...

In a two-newspaper metro area, the leading paper is getting the A schedule from the big retailers like Macy's and Safeway and the lion's share of auto dealer ads, while the second paper is getting just a fraction of that advertising. Once the competition is eliminated, the advertising up tick for the top paper is not substantial, but it is better than nothing! It's no game changer any longer.

5:20 AM  
Anonymous Anonymous said...

Alan: I think that newspaper salespeople were trained for decades to be order takers from big stores, and the only positive thing that could come out of this is that the survivors will have to learn to sell to individual local businesses by proving that each ad they bring in can bring in at least that much business.

I once heard of a new ad rep, who was just starting, personally promise that she would pay for the ad herself if it didn't pull. While that was extreme (it did pay off for her though) I think reps can survive by making that case.

I also remember another trick that a sales rep, female, used to sell ads during the late 1980s recession. She laughed and sad "you have to show them a little leg."

7:02 AM  
Anonymous Anonymous said...

Canada's national paper The Globe and Mail announced voluntary buyouts and layoffs of 10% of its 800 person workforce. Declining auto, real estate and classified advertising were cited as the reason.

6:27 PM  
Anonymous Anonymous said...

The amazing thing about the projections to me is that internet growth for newspaper companies has more than slowed, it has begun to deteriorate as well. We had started to see this trend in some companies at end of 2009, but to see it industry wide is truly shocking.

These companies are really starting to run out of places to turn.

7:57 PM  
Anonymous Anonymous said...

Can you give us an update on your predictions?

12:02 PM  

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