Cincinnati, OH, August 14, 2006--Federated Department Stores Inc.'s conversion of hundreds of stores to the Macy's nameplate could be painful for newspapers as the largest retail advertiser in newspapers is expected to move its spending toward network and cable TV and magazines.
Analysts predict newspapers stand to lose hundreds of millions of dollars in revenue.
Macy's is set to become a nationwide brand on Sept. 9 with the conversion of about 400 former May Co., stores to the Macy's nameplate and the start of Federated's first national branding campaign. The change will give Macy's, which became the largest retail advertiser with last year's acquisition of May, a presence across the country with more than 800 Macy's stores in 45 states, the District of Columbia, Puerto Rico and Guam.
Federated has declined to provide specifics until its brand-building campaign is ready to begin. Company spokesman Jim Sluzewski said newspapers will continue to be an important advertising medium.
"Obviously we will be doing national advertising since we will be a national brand for the first time," Sluzewski said. "The bottom line is that we will be advertising where our customers are reading and watching."
In a conference call with analysts Wednesday, chief financial Ooficer Karen Hoguet cited a sponsorship with the Bravo cable show Project Runway, which recently featured Macy's INC clothing line.
A research report issued in May by Deutsche Bank Securities Inc., said that retail advertising with newspapers has been sluggish over the last several quarters and is expected to get worse. "We think Federated may dramatically alter its mix to match its national 'America's Department Store' strategy, which could affect newspaper advertising far more than nameplate conversions and store closures," the report said.
Of the $2.7 billion that Federated spent on advertising in 2004, 2005 and the first quarter of 2006, 70 percent went to newspapers and 16 percent was spent on television, according to the research group TNS Media Intelligence.
Federated's shift to a national retail brand could reduce the percentage of advertising going to newspapers to 40 percent, taking about $400 million per year from newspapers within a few years, according to some analysts. Deutsche Bank analysts expect a less dramatic shift but say the reduction in newspaper ad spending could still top $200 million a year by 2008.
John Morton, a newspaper industry analyst based in Silver Spring, Md., said retailers periodically decide to spend more on other media such as TV but typically come back to print. "Before, I was pretty sure they would come back," he said, "but the Internet makes it harder to predict with a bigger percent of businesses moving in that direction."
Morton said that newspapers will get some of that business since they have Internet sites. "But clearly it's not good news when retailers move away from print," he said.
"When you are thinking about building a brand, TV really cements that image," said Stephanie Hoff, an analyst with Edward Jones. "Local TV and print is just not as effective or efficient from a financial or brand-building standpoint."
