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Friday, March 1, 2013

Retail Closings and Advertising

By this time of year, business analysts are beginning to take stock of the consumer economy. Forecasts now abound for retail store closings for 2013. The December 2012 holiday selling season was somewhat underwhelming and GDP estimates for 2013 are muted at best.

Here is a composite of what many are forecasting for retail store closings in calendar 2013.  In no particular order, we find:

J.C. Penney--300-350 store closings

Best Buy--200+

Sears Holdings--KMart 200+
          Sears 100+

Office Depot--150
Office Max--150

(These two companies are merging so this number could go higher especially if a number of stores are in close proximity to one another)

Radio Shack--350

Right now, the consumer is approximately 70% of the U.S. economy. Some people talk about the coming renaissance of the US industrial base but, realistically, that is going to take years if it is going to happen. So, the consumer still drives the bus in the US economy.

With all these projected closings, does this mean our economic future is all gloom and doom? Well, what is really going on? In a free market economy, there is always an ebb and flow of relative corporate strength.  Harvard economist Schumpeter described it as “creative destruction” over 70 years ago. When it comes to retail, there is almost a fashion cycle in evidence. A few years back, some were saying that Sears would soon be back on track. Hedge fund manager and brilliant financial engineer, Eddie Lambert was taking over Sears Holdings which also included K-Mart. Many thought that he could unlock hidden value in the two chains and they would become big players again. Lambert, as brilliant as he is, had little hands on retail operating experience and things have yet to turn around. Yet, is it is his fault? When I sent a draft of this post out to several Media Realism panel members, a young media strategist fired back--"Sears? Radio Shack? Do those chains still exist? I thought that Target and Wal-Mart killed them both.”

Other chains seem to be having trouble with major e-commerce competitors such as Amazon.com.  More than one retail analyst has described Best Buy as now being little more than a showroom for their rivals online businesses. Best Buy will try to fight back by matching prices but it seems the consumer mindset is turning away from them.

What is succeeding in retail these days? There are always niche players and new concepts that capture the imagination of American consumers. As a group, though, it is the extreme value section that is really thriving. Family Dollar stores added some 475 locations last year and has 500 new openings slated for 2013. Dollar Tree has similar percentage gains in store count as well. They do a great job appealing to low income and financially stressed customers many of whom have no credit cards and are completely unbanked.

This should tell us something. Nobel laureate Joseph Stiglitz continues to hammer away in interviews and articles about how the American middle class is “being hollowed out.” Looking at these retail numbers he is definitely on to something when the most dynamic growth is coming in the extreme value sector.

Over the intermediate term, this trend in retail is not good for either media properties or advertising agencies. May I suggest that you run some tabulations on the extreme value sector? You will find that they are not lusty buyers of conventional media and use even less digital options as a strong plurality of their customer base may well be totally offline.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com


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