Emerging Retail Trends

In 1964, communications theorist Marshall McLuhan forwarded the notion that the, “Medium is the message.”  His theory seems clearer today as we see in-store merchandising activity receiving more attention as a medium unto itself, rather than the recipient of benefits derived from other media.  Two recent studies and one about to be released major study have made the idea of store-as-medium their major focus. 

An article appeared in the Cincinnati Business Courier on September 21, 2007 that reported on a major research investment being made by Procter & Gamble, Kroger and dozens of other major retailers.  All-in-all, 40 companies have invested tens of millions of dollars in the project called PRISM, or Pioneering Research for an In-Store Metric. In the study, hundreds of infrared sensors were utilized over the last five months to count the number of people who walked down a particular aisle or specific product category, and purchases were tracked. This level of investment is clear evidence of the importance being placed on in-store as the emerging marketing medium of this century.

According to a report by Deloitte Consulting for the Grocery Manufacturer’s of America, the overall marketing budgets of 19 CPG companies include an increase from 3% to 6% on in-store marketing this year. The companies think that amount will reach 8% by 2010. That compounded annual growth rate is 21%, greater than internet advertising at 15% and traditional media (TV, print, radio) at 2%.  The report states that retailers are spending at an even faster rate of 26% compound growth annually. According to Advertising Age, the previously mentioned P&G is spending $500 million of its $ 8 billion in global ad spending on in-store marketing.

In a recent Times & Trends report, Information Resources Inc. (IRI) seems to triangulate the notion of Store-As-Medium. IRI says that manufacturers are indeed turning more-and more to in-store marketing as traditional advertising seems to be on the decline. IRI suggests that, if the medium is the message, the message will have to be constantly tweaked and strategies sharpened as merchandising activity and effectiveness are already on the decline. As always, closer communication between the manufacturer and retailer is the prescription against any future slippage.

One area I’ve been paying a lot of attention to in the past five years is packaging.  More often than not, packaging is the reason for the success or failure of the product, not the actual product itself.  It’s been proven that the design of the the package is one of the top 3 reasons people buy something, just behind the price and the primary need the product fulfills. 

Take, for instance, Wrigley’s recent introduction of their new gum “5”.  The effort they have put into the package design and positioning of it is another very visual example of the importance of packaging.  Think for a minute about the issue in rolling out a new gum.  In a category that is very mature, with numerous brands and no real value proposition to offer, Wrigley is introducing “5” with one of the key attributes being the package itself.  They designed it to be “cool” and something a person would not hesitate to put on a conference room table next to their Blackberry or iPod. 

Smart move.

Yesterday, we saw the key purchase of an in-store media company by the broadcasting giant, CBS.  This is just another demonstration of the growing importance of in-store media.  As reported in the Wall Street Journal, Sept. 7, 2007, CBS paid $71.5 million for SignStory, which had in-store video montiors in 1,400 supermarkets.


I’ve mentioned previously the increasing importance of in-store advertising and this is just another confirmation of this trend.  Mainstream news sources have been talking about how companies are running from traditional media such as network television, etc., and moving their spending to in-store activities.  This is an understatement.  The real problem is that there are not enough viable vehicles to absorb the movement of advertising dollars.  I’m very bullish on this and I believe very strongly that in the next 5 years, we’re going to see the emergence of a number of new ”consumer-specific” advertising vehicles.  I’m not sure exactly how these will appear or where, but I do know that there will be a lot of money spent developing new advertising mediums.

In the words of the vintage broadcast networks, “Stay tuned. We’ll be back shortly.”

This past week, Wal-Mart unveiled their new tagline, “Save More, Live Better”, replacing their old slogan, “Always Low Prices, Always.”  The fact that Wal-Mart is changing their slogan confirms what I first began saying 4 years ago:  Wal-Mart is in trouble.  The move also signals what the trend they have been establishing in the past several years of increasing their prices on select items.  Wal-Mart is not the low price leader on every item.  They are clearly moving to a strategy of being the low-price leader on key items and taking a higher marging on other items. 

This move by Wal-Mart is going to force every retailer to improve the quality of their price message.  It doesn’t mean retailers are going to have to lower prices.  It merely means they’re going to have sharpen their message.  For retailers that choose not to compete on price, it means they will need to emphasize service, selection, experience, or whatever their niche is.

In the long-term, the move by Wal-Mart is another signal of their problem in finding a way to satisfy Wall Street.  As we move into the 4th quarter, watch Wal-Mart become even more aggressive in terms of merchandising select items in categories such as consumer electronics, toys, and small appliances. 

With the continuing mortage saga moving further and further upstream in terms of the types of mortages being impacted, I’m expecting to see fallout in early 2008.  It is going to come from several retailers filing for bankruptcy at the beginning of the year.  Because of that, vendors need to consider how much credit to extend now through the end of 2007.  I’m not going to state specifically who I expect to fall by the wayside, but there will be casualties.  Stay tuned to this blog over the next month or so as I’ll be talking more about this critical subject and the implications it will have on the entire retail landscape.

Every couple of years, we go through the cycle of major companies selling off brands they deem no longer worthy of their focus. The cycle never ends, and with the amount of hedge money in the marketplace, look for some interesting moves in the next couple of months. The announcement by Unilever is just the start. I believe Kraft will sell off some brands and SaraLee will sell even more. The end result is that it will create significant opportunities for some smaller companies to pick up some brands. The downside is that these brands will come with so much debt connected to them that it will be difficult for any of them to mount anything significant in terms of a long-term marketing push.

I can’t pass up the opportunity to comment on the recent cover story in Business Week magazine (August 6, 2007). The headline read “The Pet Economy”, with a picture of a pampered dog on the cover. The article talks about how the the pet industry has been booming and is continuing to grow. If you’ve been following my annual Emerging Retail Trends reports, you’ll know that I first said this more than 3 years ago. I’d agree that the pet economy is showing no sign of slowing anytime soon. Thanks Business Week for commenting on what Emerging Retail Trends first reported on 3 years ago!

Several years ago, I talked about the need for companies to have secondary suppliers and sources for goods and services. With all of the supply chain issues coming out of China, the need for companies to have alternative sourcing is more important than ever. The problem with China is only the tip of the iceberg. The on-going issues with the transportation grid are only going to get worse. In the next 15 months, we will be facing potential strikes on the west coast ports and the implementation of new Homeland Security rules regarding the movement of containers. These factors are not to be taken lightly, and depending on how they all play out, could cause major disruptions even before we call into play the usual issues surrounding weather, currency valuations, energy, etc. Retailers and manufacturers alike need to be paying more than lip-service to this issue because if and when supply-chain disruptions do occur, there will be those who cannot recover from them and will ultimately be forced out of business.

Wal-Mart’s announcement today of price cuts on as many as 20,000 items in a back-to-school push really shouldn’t surprise anybody. They are in a tough spot and the only way out is to dive deeper with their pricing. I’ve talked about this on several occasions in earlier blogs (Feb. 18 and Dec. 04, 2006 to name just a couple).

Wal-Mart has to keep their real estate productive and the only proven method they have to build sales is through discounting. The vast majority of their other attempts to go upscale have backfired. For vendors, it means the ride is going to get rough. However, there is light at the end of the tunnel (although it is still probably 10 years away).

I firmly believe Wal-Mart is now in a mature state of existence in the US. In my opinion, there are only a handful of things that will save them:

1. Spin off Sam’s
2. Build up Neighborhood Markets
3. Open a new, small deep-discount format
4. Begin to move away from the SuperCenter concept

If you’re in the real estate end of the retail business, you are going to see major shifts in space. Hang on! It’s going to be a wild ride for the next few years and, as a result, it’s a great time to be part of the retail industry.

HSN and other television-driven, shop-at-home formats are going to start rapidly declining in the next 3 years. They are already becoming very frayed around the edges. I’m basing this on the following reasons:

1. There has always been a very high return rate on their products which have served as a damper on their profits.
2. When compared to the speed at which people can shop online for anything at anytime, the format moves too slow.
3. The ability to use the Internet to seek out a lower price for something that is being shown on the television shopping channel is quickly turning these programs into nothing more than a product showcase for the manufacturer.
4. Cable capacity / competition is forcing every cable operator to increase the fees they charge their content providers. The continued upward spike in these fees is another cost that must be passed along to the consumer.

I know there has been a lot of money thrown at these formats in recent years from very smart investors like Barry Diller, but, in the end, they are going to lose out to the flexibility of the Internet.