Macy's, Wal-Mart Hold Their Ground

Earnings Reports Bring Mixed News, but Retailers Not Cutting Marketing Budgets

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NEW YORK (AdAge.com) -- There may be plenty of doom and gloom swirling around the retail industry, but for now two major retailers --Macy's and Wal-Mart -- are still spending on advertising.
Macy's on Wednesday cut its full-year earnings outlook as profits slipped, but said it will continue to make investments in marketing.
Macy's on Wednesday cut its full-year earnings outlook as profits slipped, but said it will continue to make investments in marketing. Credit: AP

Macy's yesterday cut its full-year earnings outlook as profits slipped, but said it will continue to make investments in marketing. The budget looks to be expanding, as the retailer supports a new relationship with Dunnhumby and prepares for major programs around its 150th anniversary and the holiday season. A Macy's spokeswoman said that marketing plans will not be affected, and will be "very visible" in the second half of the year.

Segmenting with precision
Dunnhumby, a consumer-insights firm, has earned a reputation as an expert at accelerating sales trends through its work with Kroger and Home Depot on the retail side. The firm will be charged with developing customer-segmentation models to be applied across the retailer's business, an effort to support its localized My Macy's initiative.

"For Macy's to continue to build a sustainable competitive advantage, we need to fully understand our customers and mold our offering to satisfy each customer's specific needs," Terry Lundgren, Macy's chairman-CEO, said in a statement. "Our intention is to leverage knowledge of customer segments to drive same-store sales, profitability, customer loyalty and, ultimately, shareholder value."

The department store chain said that second-quarter earnings dropped to $73 million from $74 million, while sales fell to $5.7 million from $5.9 million.

Wal-Mart stays focused
Wal-Mart is also investing in advertising -- and is weathering the consumer slowdown better than most. To combat shopper malaise and boost sales, the discount giant is focusing ads on food, consumables and seasonal shopping occasions like Mother's Day and July 4. Spending on TV and circular advertising during the second quarter was up "significantly" over last year, Wal-Mart said.
Wal-Mart is focusing ads on food, consumables and seasonal shopping occasions like Mother's Day and July 4.
Wal-Mart is focusing ads on food, consumables and seasonal shopping occasions like Mother's Day and July 4.

"You probably have seen that we have made significant improvements in our marketing and in-store communications," Eduardo Castro-Wright, president-CEO Wal-Mart Stores Division, said during a conference call. "Customers have responded well, and they will continue to see it even more integrated into our stores during the second half of the year."

Wal-Mart reported a 10% jump in second-quarter sales to $101.6 billion, and profits followed suit, rising 17%. The retailer cautioned, however, that it is experiencing sales volatility from week to week and sales at stores open at least a year would likely only improve between 1% and 2% during the third quarter. Wal-Mart has said that it is seeing different sales trends around paycheck cycles.

Catering to penny-pinchers
"Wal-Mart's customer is reflective of society in general," President-CEO Lee Scott said during a conference call with investors. "While some of them live paycheck to paycheck, our customers represent a broad income segment, and they are all challenged today. When energy and oil prices go up on top of inflation in healthcare and core food items, there's a great deal of pressure on the customer."

Kohl's, JC Penney and Nordstrom also report second-quarter results this week. Analysts expect each retailer to report a decline in earnings.
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