Newspapers still pop up as must-have items on retailers’ media plans, but the shape of those investments has undergone as much change as the heels on women’s shoes. Spending growth for retail ads in newspapers, estimated at 19 percent between 1995 and 2000, represents only half of the 37 percent hike in U.S. retail sales during that period (see chart). Preprints, rather than run-of-paper ads, account for most of that increase.
Buyers and sellers suggest many reasons for such troubling trends. Retailers base their media-buying decisions on the universe of marketing options. At the February Retail Advertising Conference in Chicago, for instance, attendees avidly paged through newspapers during breaks. In the sessions, however, speakers focused on forging relations with specific customers via a variety of marketing opportunities. Di-Ann Eisnor, chief executive officer of Eisnor Interactive, suggested using the narrow band that wraps a newspaper, rather than a run-of-paper ad, as a “brand touchpoint.”
In contrast, newspaper executives often focus on the ebb and flow of retail sales in their individual markets—store openings, closings, where small businesses put ad dollars.
Exploring these different viewpoints reveals why retailers are turning away from newspapers and toward other media, and why regaining their attention will require significant effort—effort many ad executives say they’re eager to give.
RETAIL REALITY
In
a perfect world, retail-advertising dollars would pour into newspaper pages.
After all, retailers and their marketing troops acknowledge the sales strength
of the daily paper. When it comes to quick reaction times and promoting events
and sales, especially with price-and-item details, they say, a retailer can’t
beat run-of-paper ads.
“We know newspapers are important factors in our advertising, and they remain part of our baseline program,” says Margery Myers, vice president of corporate communications and public relations for Talbots Inc., a women’s-apparel group headquartered in Hingham, Mass. (see story).
Yet retail provided half of newspaper-ad dollars in 1995 and only 44 percent in 2000. Retail-ad spending in U.S. newspapers grew just 3 percent last year, to $21.5 billion, and newspapers vary in how much gain comes from linage growth and how much from rate increases, says James G. Conaghan, NAA vice president for market and business analysis.
Retailers, who regularly grumble about high rates and diminishing audiences in all mass media, have long listed five additional barriers to their use of newspapers: lack of customer profiles, lack of ad positioning, poor reproduction, long lead times on inserts, and newspapers’ inability to target a retailer’s market .
Industrywide projects have lowered some of these obstacles, but recent moves to a 50-inch newsprint web added a sixth hurdle: Hard-fought-for Standard Advertising Units often don’t fit 50-inch newspapers with diverse page lengths and column widths.
NAA statistics indicate that half of the 516 dailies surveyed last year climbed aboard the 50-inch bandwagon, and not everyone uses NAA’s recommended image size. “An advertiser has to provide the same ad in many different formats,” laments Michael Monsour, president of Market Place Print in Pittsburgh.
His company placed $450 million in advertising last year, including newspaper preprints and ROP ads for clients such as Home Depot, RadioShack and Office Depot. The growing plethora of ad sizes adds tremendously to retailers’ costs and preparation, undercutting newspapers’ advantage of quick reaction times, Monsour claims.
Ad executives, on the other hand, view trends in retailing as the biggest drag on retail-ad growth. Consolidation among department stores is reducing the ranks of big advertisers. Montgomery Ward, 10th on Competitive Media Reporting’s 1999 list of top newspaper retail-advertisers, filed for bankruptcy in January and said it would shutter 250 stores. This announcement followed the December bankruptcy of Bradlee’s Inc., a 105-store discounter in Braintree, Mass. Sears, Roebuck and Co. of Highland Park, Ill., the number-four newspaper retail advertiser, announced in January that it would close 89 of 3,011 stores. J.C. Penney Co. of Plano, Texas, said it would close 50 of 1,100 department stores and a number of its 2,600 Eckerd drugstores.
Analysts and mall operators expect other retailers to move into most of the failed stores, but even when the number of stores in a local market stays the same, the one or two big-name retailers operating them spend less on newspaper advertising than three or four would.
“You don’t have as many players,” says David J. Storey, vice president of advertising for Gazette Communications, owner of The Gazette in Cedar Rapids, Iowa (morning, circulation 65,180).
The
arrival of a massive specialty seller like Home Depot of Atlanta usually heralds
the death of eight or nine small-but-reliable local accounts, says John W. Kelly,
advertising director of The News Tribune in Tacoma, Wash. “Home Depot has
been a very good customer, but its ads are primarily preprint,” he adds.
Those dollars “don’t offset what you lose” when lumberyards and
hardware stores close.
Retail sales flow in an ever-larger stream to massive discount operations that snub newspapers, such as Wal-Mart Stores of Bentonville, Ark., ranked by the National Retail Federation of New York City as the top retail company in the world. Wal-Mart’s sales volume reached $165.4 billion in 1999, dwarfing that of newspaper customers like number two, Kroger of Cincinnati, which sold $45.4 billion in food and other merchandise, and number three, Sears, with sales of $41.1 billion.
NRF’s Stores magazine reports that another discounter, Costco of Issaquah, Wash., enjoyed sales growth of 13.1 percent in 1999 while spending less than $1 million on newspaper ads. Costco’s sales volume of $27.5 billion placed it well ahead of the $18.2 billion sold by Federated Department Stores Inc. of Cincinnati, newspapers’ top retailer.
But the retail market shifts constantly. Department stores appeared to lose ground to mall stores last year. In a nationwide study of 1,000 adults, Maritz Poll of Fenton, Mo., reported that 71 percent of Americans planned to shop at mall stores other than department stores during the last holiday, compared with 69 percent who were headed to department stores, 59 percent who relied on discounters, and 38 percent each who said they would use catalogs, specialty shops and boutiques.
“About 20 percent of shoppers anticipate using the Internet this year, up from 7 percent last year,” Maritz Marketing Research Inc. reported in a November press release. Nevertheless, the role of the Internet in retail sales and retail ads remains murky. Brick-and-mortar stalwarts like Wal-Mart, JCPenney and Toys ‘R’ Us of Paramus, N.J., saw sales at their online sites climb 97 percent during the holiday season, Nielsen//NetRatings of Milpitas, Calif., reported in December. Purely online retailers saw increases of 69 percent—but no profits—during the same time.
Where do online shoppers see ads for online sites? A Parade magazine survey asked 1,350 adult Internet users that question last year. About two-thirds said they responded to online banner ads or links, while 56 percent mentioned network television ads, 55 percent magazines, 52 percent cable TV, 51 percent word-of-mouth, 43 percent radio, 40 percent newspapers, and 29 percent outdoor ads.
Craig M. Sinclair, vice president of advertising for 3,000-store Walgreens in Deerfield, Ill., says his company has yet to make any online ad buys, but its World Wide Web site offers e-commerce and invites customers to register for e-mail communication. Walgreens, the nation’s 14th-largest retailer, sees promise in e-mail ads to its customer base. A recent NAA study tracks retailers’ growing experimentation with online, rather than print, coupons (see story).
On top of these trends, a stormy stock market and a drop in consumer confidence cloud the current picture. The Conference Board’s Consumer Confidence Index in December stood at 128.3, down from 141.7 a year earlier.
Consumer spending makes up two-thirds of the overall U.S. economy, so when consumers feel the chill of a cooling economy, retail sales turn icy. The U.S. Commerce Department reports that monthly retail sales reached more than $270 billion in September; then momentum faltered. Sales fell 0.1 percent in October from the September peak and a further 0.5 percent in November. December and its holiday-season showed a gain of only 0.1 percent over the previous month. This turned the fourth quarter into “the weakest quarter since 1990, when the country was in the midst of its last recession,” reported The New York Times Jan. 13.
As retail sales slow, competition for retail ads speeds up. In early January, Mediaweek magazine described how radio-station operators are increasing their share of local ad dollars and may reach 9 percent this year. Television stations are hiring additional salespeople to go after local business, too.
In addition to such regular rivals, retailers constantly seek new marketing methods. Last year, for example, apparel retailer Britches Great Outdoors of Dulles, Va., paid $2,500 apiece to wrap six Volkswagen Beetles in advertising, then gave them to employees to drive. The Washington Post reports that other retailers pay monthly fees to individuals who agree to have their cars wrapped with ads.
That’s a long way from ROP pages.
COMPLAINTS
AND RESPONSES
Ask publishers how they meet the
needs of advertisers, and they report progress.
Yes, they say, total U.S. circulation has declined, but television and radio struggle with their audience numbers, too (see chart). Meanwhile, magazines confront a two-fisted threat. The December issue of Capell’s Circulation Report noted a drop of 30 percent in newsstand sales for magazines tracked by the Audit Bureau of Circulations in Schaumburg, Ill. New government limits on circulation sweepstakes are expected to reduce subscription sales for a medium where annual churn averages 48 percent.
Pointing out the competition’s troubles impresses few retail advertisers, however, and they talk tough. Len Kubas, president of Kubas Consultants/The Newspaper Research Center in Toronto, consults with about 50 dailies on pricing ads, designing rate structures and building revenue. As he explains, “Advertising costs have two dimensions. One dimension is rate or price—what the advertiser is charged per unit of advertising. The second dimension is audience delivered. If a medium delivers a large audience, then any rate increase will be tempered by the extent of the incremental audience. But newspaper circulation has been declining over time, while rates have continually been hiked. This means that ROP rate increases are magnified by the amount of audience decline. This translates into higher cost per thousand, since the CPM for ROP is basically the higher rate divided by the reduced circulation measured in thousands.”
Steve Wishnow, president of Steve Wishnow Associates in Rockville, Md., and a former retail executive, told attendees at NAA’s Smaller-Market Symposium last June that retailers typically budget 2.0-to-2.5 percent of retail sales revenue for advertising. They spend those precious dollars wherever they get the best return on investment, and increasingly, this means free-standing inserts. Sinclair says Walgreens’ research finds its customers have learned to look for Sunday preprints. “They plan their shopping for the week.”
This ROI depends partly on third-party services such as MPP, whose executives carefully analyze target markets and, like any customer, bargain hard. “Retailers come with a certain amount of dollars,” Monsour says. “My job is to help them spend them where they will get the best return.” If he cannot get a reasonable cost-per-thousand from newspapers, his clients turn to other media, such as direct mail.
In fact, newspaper delivery of retail preprints has dropped since the 1997 peak, when dailies delivered 82.0 billion (see chart). In 1999, dailies delivered 39.7 billion full-run inserts and 41.1 billion part-run, targeted to only the households the advertiser wants to reach.
Postmaster General William Henderson reported in January that during September-November 2000, advertising mail totaled 243 billion pieces, an increase of 6.8 percent. Robert J. Coen, senior vice president and director of forecasting for Universal McCann in New York City, estimates that direct mail scooped $44.7 billion of all ad spending last year and will get an additional 5 percent, for a total $47.0 billion in 2001, compared with a projected $51.4 billion total for newspapers.
The ability to place ads in the households of consumers most likely to buy from a retailer’s stores constitutes one of direct mailers’ chief weapons in the war for retail-ad dollars. Monsour says that retailers have improved research in recent years and want to pinpoint their buys to most likely customers. Most newspapers now provide circulation by ZIP code and, with total market coverage, Sinclair finds a growing number can provide ZIP-code delivery or better around stores.
Yet Monsour says too many publishers make retailers supply preprints for zones that are larger than the geographic area the customers want to cover.
Karen E. Hardison, vice president of marketing for The Newspaper Network in Sacramento, agrees. For this article, she asked her salesforce to poll retail clients in drugs, furniture, home-improvement and specialty categories about how they view newspapers’ progress in meeting their needs.
“In some cases, targeting has gotten worse,” she reports. “A retailer may want to buy one ZIP code, but the newspaper insists on an entire zone with 10 or 11 ZIP codes, which increases the cost of the program.”
In 1998, NAA kicked off the Quality Insert Program, with standards publishers must meet to have their papers certified. The standards cover ZIP-code delivery, accepting inserts that arrive at least seven days before publication date, clear communication of requirements, and standard invoices. As of January, only 13 U.S. dailies had certification.
Many of the rest, Hardison says, demand inserts too far in advanceŠas long as 10 days at East Coast papers. Often, “the advertiser knows the preprint isn’t inserted until the day before delivery.”
“The problem for the retailer is, ‘How close to the in-home date can I determine product mix and price?’ ” Monsour explains. “We have negotiated reductions in deadlines for many clients. Newspapers do it if they can. The problem is that most can’t.”
In another bid to meet the direct-mail threat, dozens of publishers have set up direct-mail operations. This helps local or national retailers mount a local event such as a store opening. But Monsour sees two drawbacks for large, multimarket advertisers: “The time and expertise required of the client to manage the program through 100, 200, 300 contact points, and the lack of standardization and quality control among different programs.”
The same issues hamper individual newspapers’ burgeoning online operations. Knight Ridder of San Jose and other companies are developing joint print-online sales campaigns. In Tacoma, Wash., Kelly helps one store place ads on Palm Pilots, for instance, but Monsour says it is early for similar regional or national combos. “We need standardization” before retail buys of newspaper Internet sites become routine.
Critics give the industry mixed grades on meeting other retailer concerns. They acknowledge that more newspapers provide readers’ demographics, but as of late January, just 99 dailies had signed up to have readership research studies audited by ABC. Meanwhile, says Tom Holliday, executive vice president of the Retail Advertising and Marketing Association in Chicago, other media give retailers more and better data.
The newspaper industry has made a concerted effort to improve print quality, with some success. NAA’s Newspaper Color Reproduction Quality Task Force works with the Newspaper National Network, NAA’s New York City sales subsidiary, to track and grade tear sheets. Task-force member John McKinney, quality coordinator of The Oregonian in Portland, rates ads printed so poorly that the advertiser refuses to pay for them or demands a make-good as failures. The rate of failures, 3.6 percent in 1998, dropped to 1.7 percent in 2000. Robert Gemske, graphic-services director for NNN, says that fewer national advertisers voice worries about print quality than did a few years ago.
NAA subsidiary NICC also has developed the Electronic Insertion Order, or EIO, an Internet ad-placement service that debuted in January. NAA researchers have published reports on successful newspaper ads, newspapers’ strong role in shopping and other retail issues.
But Hardison and Monsour say such improvements don’t yet register as significant with their retail customers. Nor do their advertisers say requests for ad positioning receive adequate responses. Asked to rate performance on these measures as compared with five years ago, Hardison answers, “Status quo.”
COMMON GROUND
Yet some publishers respond in a
way that is anything but status quo. NAA’s Display Federation meets periodically
with representatives of several dozen retailers in a Retail Forum and, in some
cases, helps retailers try out marketing strategies.
Sinclair welcomes such efforts, especially attempts to get more people to pick up and read newspapers. Some experiments, such as guaranteeing doorstep delivery, appear basic. Others, such as placing newspapers with sports on the front page in stores that appeal to men and lifestyle features on Page One in stores that target women, require sophistication.
Other retailers move beyond experiments. Since 1997, Talbots has been expanding its use of newspapers to include image ads.
Local retailers find that newspaper ads pay off, too. Stripling & Cox’s four department stores, a division of 57-store The Dunlop Co. headquartered in Fort Worth, increased newspaper advertising by 50 percent last year. Profits tripled, average unit-sales at the stores rose more than 5 percent, and each month saw double-digit increases in traffic. Stripling & Cox President Michael Allen said the newspaper campaign brought new, younger customers through the doors.
“A lot of department store [managers] know they need newspapers,” observes E. Gene Villarreal, retail-advertising director of the Star-Telegram in Fort Worth. Yet many department stores and smaller businesses decrease advertising as ROP costs steadily mount. “We are all guilty of disenfranchising small businesses,” Kelly says. “As we pay more for staff and newsprint, the cost of ads has increased to the point where we have priced small mom-and-pops out of the newspaper.”
Many ad executives have lost contact with small businesses and conduct audits to determine newspapers’ share of local advertising, including the service sector. When Kelly compared his client roster with a list of all businesses in the Tacoma area, he was shocked to discover only 10-to-12 percent advertise with his newspaper. Many are small operations.
To recapture these customers, Kelly has hired two commission-only reps and turned them loose on accounts that his other sales execs haven’t visited or cannot sell. “Just increasing advertiser penetration by 1 percent could [bring in] a huge amount,” he notes. Kelly also tries out broadcast pricing. TV networks, he notes, charge less for commercials placed in reruns than for those in first-run, prime-time shows.
“Our Monday and Tuesday issues are usually smaller than the Sunday paper. Why not treat Mondays and Tuesdays as rerun days?” His paper offers small merchants low rates on those days.
In a quest for creative selling, Storey begins by talking with retailers to learn not what the newspaper can sell them, but what a retailer needs. “We develop programs that focus on their clientele.”
Kelly says his sales teams put programs together in the ways customers want them. “We try to say yes.”
If necessary, Villarreal suggests other media combined with newspapers to meet retailers’ needs. “I want them to look on us as their agency. Our attitude is, ‘Your business is to sell, and we want you to succeed.’ ” In this spirit, Belo of Dallas, Gazette Communications, Media General of Richmond, Va., and other companies cross-sell ads in print and broadcast properties.
In January, grocer Bi-Lo switched from Advo to newspaper preprint and ROP ads in seven Southeastern markets. TNN arranged the $1 million deal, and “the final step in clinching the sale was the development of a customer-satisfaction program,” says Louisa Koken, TNN executive vice president for sales. “If a customer calls to request a preprint, the newspaper immediately delivers a copy.”
Monsour says that retailers appreciate special attention. He recalls newspaper executives who warned him of an approaching storm that would ruin a retailer’s sales event and arranged to reschedule the ads in that market. He welcomes any aid directed to a retailer’s requirements rather than a newspaper’s.
But Holliday says its will take a major national marketing push to significantly alter newspapers’ retail-ad erosion. Other media enjoy ongoing “buzz” among retailers, he explains. What would it cost for newspapers to adequately raise their profile? “Something in the $50 million range,” he suggests.
John Kimball, NAA senior vice president and chief marketing officer, doubts that publishers will support such an effort. He says that one-on-one meetings with retailers “may work over the long haul.”
Whatever their strategy, publishers turn solemn when asked about this year’s retail net. NAA’s Conaghan expects expenditures in newspapers to grow by 3 percent overall. The exact number will vary by market, but nationwide, not meeting expectations worries analysts and publishers alike.
Most ad directors echo Kelly’s conclusion: “It is going to be a challenging year.”
Copyright 2001, Newspaper Association of America. All rights reserved.
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