How the retail giants' spending stacks up
|STORES||ANNUAL SALES2||MARKET SHARE1||% OF SALES TOWARD ADVERTISING|
|SEARS HOLDINGS||3, 847||$51 billion||1.7%||4%|
Macy's Inc. and Sears Holdings store and sales figures include all store banners inside and outside the U.S.
1. Based on Advertising Age 100 Leading National Advertisers 2008 report.
2. Based on the most recent full-company annual data.
BATAVIA, Ohio (AdAge.com) -- The No. 1 reason for Walmart's buck-the-market success in recent months is its long history of low prices, but advertising is also playing its part.
The retail behemoth, long known for its penny-pinching prowess, has gone on a massive media-spending spree in the past year, hiking measured media outlays some $300 million while much of the market pulled back.
By spending so much more as rival retailers cut, Walmart is on track to go from the ninth-biggest to the second-biggest spender in the category, just behind Macy's. Walmart somewhat shockingly spends less than 1% of sales on advertising, less than half the ratio for leading competitor Target and well below the 4% to 4.5% for Sears Holdings. Even after last year's big rise, Walmart's total measured spending clocks in below that of Macy's -- a retailer with less than one-tenth its sales.
Of course, Walmart, famed for wrangling deals from suppliers, could have paid less than the measured $300 million by negotiating off the rate card. Still, it was a massive jump by any standard, as Walmart's spending on measured media soared 55.7% to $835 million compared with the same period the year before, according to TNS Media Intelligence (the data exclude outdoor, as well as December figures for cable TV networks and national spot radio in both years because TNS has yet to report December 2008 data for those sectors).
Walmart's comparatively low ad-sales-to-spending ratio also indicates that the company has room to grow if it chooses to. But it also seems to indicate that Walmart -- which still spends a lot less per sales dollar on marketing -- is getting more bang for its bucks than rivals. In fact, the company turned in same-store-sales growth in recent months of 2% to 3% while most of the retail world was seeing declines, some steep.
There were exceptions. Similarly value-positioned club retailers Costco and BJ's have seen better same-store gains than Walmart for the most part in recent months without similar jumps in ad spending and traditionally much smaller ad budgets than Walmart either absolutely or relative to sales. And CVS, which cut spending 10% to 12.5% last year, based on available TNS data, posted same-store-sales growth similar to Walmart's in recent months.
But Walmart's spending hike appears to be one indicator that marketing, once a "red-headed stepchild" there, as one supplier executive put it, has attained new status. Another is that merchandising, which once clearly had the upper hand in the corporate pecking order, now must clear many of its decisions through the marketing department, he said.
Clearly the increase indicates a new emphasis on marketing by the giant retailer, another supplier executive said.
The question now is whether the spending increase will last under newly appointed CEO Mike Duke, who last week, less than two weeks into his new position, took the unprecedented step of announcing up to 800 layoffs in Walmart Stores' corporate office, including the flagship chain's marketing department. To some suppliers, that reflects continued pressure for Walmart to deliver margin growth under tough economic circumstances, leaving less allowance for future ad increases.
To be spending so much more on advertising at a time the company is laying people off won't set well with some in a Northwest Arkansas community where both big layoffs and big ad-spending hikes are unheard of.
"Our purpose is saving people money so they can live better, so we're going to continue to do the things we need to do in order to communicate with our customers," said spokesman David Tovar, who said Walmart, notwithstanding the central-office layoffs, likely will increase its overall head count by "tens of thousands" at stores this year. He declined to comment on the spending increase.
For Walmart's competitors, generally losing both sales and share, the general downturn in ad spending combined with a ramp-up by their big competitor seems not to bode well.
But Mike Boylson, chief marketing officer of JCPenney, said the retailer has maintained its ad-to-sales ratio (despite TNS data indicating a 9.5% spending decline) and said the marketer is investing in new media not tracked by TNS. Nor does he believe Walmart spending more necessarily threatens JCPenney, he said. "Our mix is different. We share a lot of the same customers. I would argue that we are probably the department store of the Walmart customer."
Rob Price, senior VP-marketing and advertising at CVS, said key elements of his chain's marketing also aren't captured by TNS, such as its ExtraCare loyalty program.
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Contributing: Natalie Zmuda