The party's over: Retail

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For retailers, marketing in 2001 may well resemble the carnage of a Dec. 26 sales floor.

A host of executives and chief marketing officers are taking new positions at retailers, along with a batch of new advertising agencies. Several agency relationships appear challenged, ranging from the long-term one between Sears, Roebuck & Co. and agencies Y&R Advertising and Ogilvy & Mather, to newer agency relationships, such as those between J.C. Penney Co. and DDB Worldwide.

Not only that, but retailers also are up against tough comparisons, particularly for the first half of the year, when comparable-store sales - sales at stores open at least one year - are compared with the heady numbers of early 2000, when the economy was still roaring and the dot-com bubble had yet to burst.

"I wouldn't say the party's over, but it's not as lively as it was a year ago," said Richard Baum, retail analyst at Credit Suisse First Boston.

Kurt Barnard, president of Barnard's Retail Trend Report, agrees. "There will be a traumatic transition from a euphoric high to a sustainable muted pace," he said. Mr. Barnard is not predicting a recession, but a slow, gradual improvement evident by the end of the first half. "Wall Street will hate them [retailers] until they realize even on Wall Street a sustainable level is not something to sneeze at," he said.

Stores Mr. Barnard predicts will do well include discounters such as Wal-Mart Stores and Target Corp.'s Target Stores. Kohl's will continue to shine, as will stores catering to teens and home fashions. He predicts same-store sales to increase an average of 4 percent in 2001, even with growth of 4 percent in 2000 but down from 6 percent to 7 percent growth in 1999. Despite such rosy predictions, Wal-Mart, Target and Federated have reported that December sales have fallen below expectations.

Soft landing or not, Credit Suisse First Boston's Mr. Baum still sees major bumps for retailers in the year ahead. Retailers nationwide significantly expanded over the economic boom, adding about 2,000 stores last year to a nation already over-stored, said Mr. Baum.

At the same time, "We are seeing a slowdown in spending," said Mr. Baum. Consumers aren't spending at the same rate they did in the past, with some having maxed out their credit. A lot will depend on interest rates, he noted, as well as energy prices. "If energy prices don't come down, it would definitely put a crimp on spending," he said. The International Council of Shopping Centers, a trade group, reports that holiday shopping at specialty stores rose just 2.2 percent over 1999.

While optimistic about discounters Wal-Mart and Target Stores, Mr. Baum is concerned about department stores, saying, "there's no reason to think they will do any better."

The outlook for department stores also was bleak in the opinion of PricewaterhouseCoopers chief economist and retail analyst Carl Steidtmann, who believes there is a growing possibility of a recession that will "certainly have an ill effect on consumer spending."

Department stores "in particular will have a very hard time," he said. "Their sales have been mediocre even in good times."

Among the troubled retailers, Penney, the nation's second-largest department-store chain, parted with its first chief marketing officer, Stephen Farley, at the end of November after about a year on the job. Penney replaced him with Linda Knight Quick - only to run into another obstacle when her former employer, May Department Stores Co.'s Foley's, went to court to block the move.

The first campaign produced by Penney's new agency DDB Worldwide, Chicago and Dallas, tagged "It's allinside," was criticized by the retailer's new Chairman-CEO Allen Questrom before Wall Street investors.

Similarly, new Sears President-CEO Alan Lacy has indicated some dissatisfaction with the giant retailer's advertising, currently at Y&R and Ogilvy, New York and Chicago.

Kmart Corp.'s new chairman-CEO, Charles Conaway, charged with rescuing the discounter from its second bout of major financial trouble, is said to have been involved in the selection of TBWA/Chiat/Day, New York, as new agency for its $100 million account, with work scheduled to break in the first quarter. Kmart also has a new chief marketing officer in Coca-Cola Co. veteran Brent Willis.

Pure-play online retailers, meanwhile, rapidly are disappearing from the cyber skies. The most prominent e-tailer,, has a new chief marketing officer, ex-MasterCard executive Alan Brown, and soon will have a new agency. Amazon is searching for an agency to build its brand globally; U.S. shop FCB Worldwide, San Francisco, isn't participating in the review.

Overall, Pricewaterhouse-Coopers' Mr. Steidtmann anticipates retail sales of $3.2 trillion in 2001, increasing by about 4.5 percent, with a growth rate of only 2.5 percent to 3 percent in the first quarter jumping to 5.5 percent to 6 percent in the second.

Retailers are shaking up their marketing, Mr. Steidtmann said, but what they need to do is hope that oil prices fall and that the Federal Reserve cuts interest rates at the beginning of the year. That will help determine what's in store for 2001.

Copyright January 2001, Crain Communications Inc.

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