In-store efforts up, but shops faltering

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Shopper marketing has never had a higher profile, with Wal-Mart Stores each week outdrawing any TV network and Procter & Gamble Co. just concluding a closely watched review partly involving retail work.

But the reality is that several leaders in retail marketing services-shops that manage in-store and retail trade promotions for marketers-are hurting.

Merchandising services firm Spar Group, one of the top six marketing services firms in the U.S. in Advertising Age rankings, announced earlier this month it could lose its Nasdaq listing because its stock was trading below $1. CoActive Marketing Group reported disappointing results for the fiscal year ended March 31 following an earnings restatement required by the U.S. Securities and Exchange Commission, then reported a 4% sales decline in its recently concluded first quarter. And Jon Kramer, a pioneer in retail co-marketing and a most enthusiastic proponent of the discipline, stepped down last month as president of Grey Global Group's J. Brown Agency only eight months after helping craft a merger with broker Crossmark's in-store marketing unit.

The business models and circumstances differ in each case, and some executives in the industry see the problems as isolated occurrences rather than a general malaise. Spar, for example, got more than 30% of its business from providing in-store merchandising services to JCPenney's Eckerd drug stores, but lost the business when the unit was sold in August to retailers Jean Coutu Group and CVS.

In fact, consolidation-be it from mergers or Wal-Mart Stores gobbling ever larger chunks of the U.S. retail landscape-is a culprit in taking some business from specialty agencies, Mr. Kramer said.

"The value proposition is changing," he said. Much of what marketers paid co-marketing agencies for years ago was managing the complexity of handling multiple in-store programs for multiple retailers. But with fewer, bigger retailers, there's less complexity to manage.

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Consolidation also has led package-goods players to put more of their own marketing executives on sales teams for big retailers, and Mr. Kramer said those executives are doing some of the strategic work co-marketing agencies did years ago.

Mr. Kramer still believes adding broker capability to an advertising agency makes sense, because marketers need a field force to execute programs and retailers demand more help. "The problem is that the dollars really haven't gone there yet," he said, noting that both retailers and manufacturers are often reluctant to pay for those feet on the street. But he still believes such mega-retailers as Wal-Mart are vehicles too important for marketers not to invest heavily long-term.

Retail consolidation cuts other ways, too. Last winter's strike by supermarket workers in Southern California-prompted by chains' attempts to cut costs to gird for a Wal-Mart Supercenter invasion-forced CoActive to delay programs and revenue, contributing to its earnings disappointment, said Chairman-CEO John Benfield. But Mr. Benfield said a looming strike threat in Northern California this year wouldn't likely hit as hard, because the market is smaller and CoActive is better prepared. "Economic conditions and client consolidations kind of caught up with us [starting in early 2003]," he said. "But those issues have since been resolved."

Among factors pressuring specialty players in the industry, however, is growing interest by full-service agencies and more broadly focused promotion shops in the business (see story, left).

Not every shopper-marketing vendor is struggling, and some are bouncing back. Catalina Marketing, operator of the Checkout Coupon network, after a year of turmoil that included an earnings restatement and senior management overhaul, saw sales rise 15.1% to $95.4 million last quarter in its core store-based businesses. Last week, Catalina signed Tyson Foods as one of the first clients for a new service that delivers ad messages through coupon machines (see story, right).

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