It is a bit hard for me to believe but I launched Media Realism six and one half years ago today. Nearly 300 posts later, I have tracked readers in 139 countries and heard from people involved in advertising, media and marketing in 96 of them.
My first post was on January 4, 2009. It was entitled “Integration problems? Maybe the “Over the Hill Gang can help.” It covered the issue of how much digital one should use in a media plan relative to conventional media options. I suggested that you go to very mature people in the industry who may be retired or about to retire to get a straight answer.
Now, that several years have passed I think this group of people may be more valuable than ever to serve as consultants or mentors to younger media strategists. My original group consisted of several men and women who were 58-62 years old with over 30 years experience in the media wars. None was what I would call rich but all were millionaires. They were the type profiled in the 1996 book, THE MILLIONAIRE NEXT DOOR or what famed economist Robert Heilbroner dubbed “The Common Millionaire.” So, each had or has a net worth of $1.5-5 million. Not rich but not struggling either.
As the years have passed a few people have moved out of this group but many new acquaintances have entered who fill the bill nicely. Some of my original kitchen cabinet demurs now when I ask their opinion on a media topic as they say they are too far removed from day to day activity to give an informed point of view. All, however, remain sharp eyed analysts who watch changes in the media world with interest.
Why go to these people? I have found that people who are too close to a problem tend to get very defensive when you talk about the future or possible threats. The value of these graybeards is that they have run the marathon and are now entering the stadium for the last quarter mile or they have recently crossed the finish line. Nothing can hurt them now.
So, my best sources and most objective colleagues and more insightful critics tend to be those about to retire or those who have left the business in the last two years. Many still consult a bit, and a few trade media and advertising shares quite aggressively so they still have money in the game despite the lack of paycheck.
One friend told me that a young person now refers to him as an “eminence grise” which he says beats an executive vice president or sales director any day.
Here are a few comments from people whom I correspond with frequently and I find invaluable sounding boards:
--"Don, I have my house paid for as well as my beach house. My kids are through college and I paid for my daughter’s wedding. My 401k is low seven figures. If I get whacked in the next corporate belt tightening, so what? So, I call things as I see them and am candid with my CEO (privately) about everything. He is in the same boat as I but a lot wealthier. We both know the game we have loved is coming to an end and fairly soon”.
--“I got downsized last year. They were afraid of a lawsuit given my age so I got a nice severance package. My wife and I spent a few months in Paris last year and I have yet to touch my rollover. I sleep better than ever but maintain a lively interest in all aspects of advertising and marketing. When you ask me to comment on blog topics, I love it. I am as objective as I will ever be”.
--“Consulting is hard. Everyone asks me to be candid and then get super pissed off when I call it as I see it. I am cutting back. It works best when top management asks me to analyze a problem or give a P.O.V. I do a write up and then meet with them face to face. Some only ask me back if I echo their opinion going in but others seem to appreciate my brutal candor”.
--“No one can do much to me anymore. My major bills are behind me and how much golf can one play? I see things more clearly than I did five years ago. When I retire in a year or two, I hope people seek my counsel. If not, I will be fine. I would like the money but I do not need it. That independence is my greatest strength”.
So, to all of you younger people out there, may I suggest that you find one of these type of individuals as a sounding board for ideas, the state of the business or for career advice.
Who to avoid? There are three types to run not walk away from. They are:
1) Anyone who is remotely bitter. If someone talks about how they got “screwed” by an organization, I would avoid them. You do not want someone who looks at life through a rear view mirror. I know people in their 80’s who buy stocks that they think have a great future and want to leave them to their grandchildren. This is the type of optimistic thinker you want to cultivate.
2) Someone who repeatedly tells “war stories” of advertising’s golden age. I find it fun to reminisce for an hour with an old friend or colleague but you have issues in front of you and problems in the future. Look for forward looking types.
3) Avoid all whiners. There are still contemporaries of mine who talk about how great things were when one could buy three TV stations in a market and get a 90% reach. Great. Those days are gone and are not coming back. Ever. Such harmless losers cannot help you.
You will find that these older pros are usually flattered when asked for advice. Let then back inside the tent for a day or two and you may learn something.
To all my United States readers (approximately half of the Media Realism audience), may I wish you a Happy Independence Day weekend.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Saturday, July 4, 2015
Wednesday, June 24, 2015
2016 Political Advertising
Candidates for president are lining up in both major parties with the Republicans having as many as 20 entries while the Democrats have three declared to date. This has caused much chatter in the media and joy in the management offices of television stations in early primary states and those dozen or so states in November, 2016 that will be known as “battlegrounds.” Also, and very importantly, online and social media political advertising will likely soar. With so many apparently well funded candidates plus record breaking Political Action Committee (PAC) spending, it may be the year for many of us in battleground states to lean heavily on Netflix, HBO, and PBS to avoid the nonstop political messages.
Consistently, projections seem to indicate that what will really zing in 2016 is digital media spending. Rolling up all campaigns in 2012, digital snagged about $200 million from all campaigns. In 2016, the working estimate that I hear the most is for digital to flirt with $1 billion which is an eye-popping five fold increase over the previous presidential year. Areas talked about the most are online video and social media which may be hard to track so the tally might understate the action. Watch for a dramatic increase over the mid-year elections of 2014 in Facebook postings, You Tube Videos that have gone viral, and targeted e-mails and many more Twitter tweets. Social media is very inexpensive and can be done on the fly. It is perfect for the pace of the world of 2016.
While all the action is soaring in digital, conventional TV and cable will also likely have great years and will still dwarf digital spending. Local TV stations are currently struggling in a very lackluster year across the country but their bean-counters at headquarters are licking their chops when forecasting for 2016. Here are some off the record comments from some broadcasters I know regarding next year’s TV action. Their candor is humbling:
--“Thank God for the Roberts court. They have guaranteed us nice billing through the next two political cycles. The Citizens United decision struck me as insane but it sure gives my station a big helping hand.” (To oversimplify, in Citizens United, the court, in essence, removed limits on individual, corporate and union political spending)
--“It is curious. People still line up to spend money with us and we should do great with the presidential primaries in our state and get some nice money in the general election with a reasonably competitive US Senate race and a real battleground in the presidential sweepstakes. But, honestly, the cable guys can offer so more precision than we can to a candidate. They can run different messages on various channels and really target in both demographically with channel selection and geographically with zoned buys. Yet, political dollars will easily bail out my network affiliate station next year. Will they wise up and use more cable and ramp up digital? Who cares? By the time they do, I will be retired!”
--“About 30 years ago, I was a strong and aggressive young salesman. When I was assigned the political sales beat one year, I asked for a meeting with my sales manager and general manager. In the session, I asked if I were in trouble. They said of course not. Well, politicals were a dumping ground in one sense in those days. You had to give the lowest possible rate and you also bumped lots of long standing advertisers in strong programming. They assured me that my future was safe. Today, everyone brags about political spending. It is amazing how things have changed. The awful truth is that the business is weak in most markets and political bucks are a shot of adrenaline that we desperately need for our billing. Now, as a GM, no one is upset if they are assigned political spending.”
Some people, in a minority, were not so bullish on network affiliate prospects for political billing:
--“Karl Rove has to be angry with losing the last two presidential races. This time, they will not get outsmarted and ultimately out-advertised as they were in 2008 and 2012. The GOP has to be grooming pollsters and media people who will be state of the art next year in terms of forecasting and media execution. And, my bet is they will use a lot less over the air TV than people may think. They have tons of money but they will allocate it very well.”
--“This forecasted spot TV bonanza may be a mirage. Iowa will do great for their caucus and WMUR in New Hampshire will break records. After the GOP field thins, it will change probably after the South Carolina primary. Watch for social media to grab some serious money.”
--A long time media researcher says: “Let’s say it is Clinton vs. Bush. They both have baggage and large numbers of people who will not vote for them simply due to their names. So, TV is not going to persuade people as much as you might think. It may help get the vote out on November 8, 2016 but I do not see it as crucial or as big as others do. The “ground game” of getting the vote out will be the key".
So, digital spending for politicians will grow exponentially next year. With the record amounts being spent, the rising tide will raise both digital and television be it over the air or cable. Nothing, as I like to say, lasts forever. So, watch for on line to overtake broadcast in the years to come (2024?) in political campaigns. At that point, broadcast TV will be in a world of hurt without their huge biannual bailout.
If you would like to contact Don Cole directly, you may do so at doncolemedia@gmail.com
Consistently, projections seem to indicate that what will really zing in 2016 is digital media spending. Rolling up all campaigns in 2012, digital snagged about $200 million from all campaigns. In 2016, the working estimate that I hear the most is for digital to flirt with $1 billion which is an eye-popping five fold increase over the previous presidential year. Areas talked about the most are online video and social media which may be hard to track so the tally might understate the action. Watch for a dramatic increase over the mid-year elections of 2014 in Facebook postings, You Tube Videos that have gone viral, and targeted e-mails and many more Twitter tweets. Social media is very inexpensive and can be done on the fly. It is perfect for the pace of the world of 2016.
While all the action is soaring in digital, conventional TV and cable will also likely have great years and will still dwarf digital spending. Local TV stations are currently struggling in a very lackluster year across the country but their bean-counters at headquarters are licking their chops when forecasting for 2016. Here are some off the record comments from some broadcasters I know regarding next year’s TV action. Their candor is humbling:
--“Thank God for the Roberts court. They have guaranteed us nice billing through the next two political cycles. The Citizens United decision struck me as insane but it sure gives my station a big helping hand.” (To oversimplify, in Citizens United, the court, in essence, removed limits on individual, corporate and union political spending)
--“It is curious. People still line up to spend money with us and we should do great with the presidential primaries in our state and get some nice money in the general election with a reasonably competitive US Senate race and a real battleground in the presidential sweepstakes. But, honestly, the cable guys can offer so more precision than we can to a candidate. They can run different messages on various channels and really target in both demographically with channel selection and geographically with zoned buys. Yet, political dollars will easily bail out my network affiliate station next year. Will they wise up and use more cable and ramp up digital? Who cares? By the time they do, I will be retired!”
--“About 30 years ago, I was a strong and aggressive young salesman. When I was assigned the political sales beat one year, I asked for a meeting with my sales manager and general manager. In the session, I asked if I were in trouble. They said of course not. Well, politicals were a dumping ground in one sense in those days. You had to give the lowest possible rate and you also bumped lots of long standing advertisers in strong programming. They assured me that my future was safe. Today, everyone brags about political spending. It is amazing how things have changed. The awful truth is that the business is weak in most markets and political bucks are a shot of adrenaline that we desperately need for our billing. Now, as a GM, no one is upset if they are assigned political spending.”
Some people, in a minority, were not so bullish on network affiliate prospects for political billing:
--“Karl Rove has to be angry with losing the last two presidential races. This time, they will not get outsmarted and ultimately out-advertised as they were in 2008 and 2012. The GOP has to be grooming pollsters and media people who will be state of the art next year in terms of forecasting and media execution. And, my bet is they will use a lot less over the air TV than people may think. They have tons of money but they will allocate it very well.”
--“This forecasted spot TV bonanza may be a mirage. Iowa will do great for their caucus and WMUR in New Hampshire will break records. After the GOP field thins, it will change probably after the South Carolina primary. Watch for social media to grab some serious money.”
--A long time media researcher says: “Let’s say it is Clinton vs. Bush. They both have baggage and large numbers of people who will not vote for them simply due to their names. So, TV is not going to persuade people as much as you might think. It may help get the vote out on November 8, 2016 but I do not see it as crucial or as big as others do. The “ground game” of getting the vote out will be the key".
So, digital spending for politicians will grow exponentially next year. With the record amounts being spent, the rising tide will raise both digital and television be it over the air or cable. Nothing, as I like to say, lasts forever. So, watch for on line to overtake broadcast in the years to come (2024?) in political campaigns. At that point, broadcast TV will be in a world of hurt without their huge biannual bailout.
If you would like to contact Don Cole directly, you may do so at doncolemedia@gmail.com
Saturday, June 13, 2015
Ad People and Mobility
Not a month goes by where I do not hear from a reader who is a young person, usually in media, at an agency who wishes to talk or e-mail about his or her future. Generally, they work at small or mid-sized firms and they tend to be in the back roads of American advertising meaning smaller cities rather than advertising hubs. They often ask how they can stay current with the rapid changes going on, ask what they should be reading, and where they think they can learn the most.
Generally, I suggest that they ask their boss to send them to media and digital conferences. They can learn a lot, make a contact or two, and prove its worth by writing a report to management or doing a power-point on what is happening in the marketplace. If one is a thousand miles from an advertising mecca, this could help your entire shop. Most say their CEO says that it is too expensive. Well, at that point, I suggest that they move to an advertising hub if they want to continue to grow.
The response is interesting. If someone is in their 20’s and single, they tend to be open to the idea. Some find the idea of New York intimidating while others say they want to own a house not far from the office. That pretty much kills New York.
Mobility is something that demographers have looked at for some time. Since the time of the Alexis de Tocqueville’s analysis of America in the first half of the 19th century, U.S. citizens have been the most mobile people on earth. It has always fascinated me how when Southeastern England boomed during the Margaret Thatcher era, many unemployed in the north of England stayed on the dole or lived marginal lives when a move a few hundred miles away could have guaranteed some gainful employment. In continental Europe, it is often but not always more extreme. There is evidence that in some smaller Italian cities, it is not unusual for a young adult to stay in their hometown and often rent or purchase an apartment in the same building as their parents. This is great for family life and a sense of community but it does limit employment opportunities for some very talented people. I have witnessed the same thing in Portugal.
So Americans will move but there are caveats. As a general rule, the higher your level of education the more likely you are willing to move for a good job. If you have not finished high school, you are not apt to leave home even if you are unemployed. One reason for this is that you cannot afford to travel to a new location and look for work. So, if you live in rust belt town in rural Pennsylvania and are poorly educated and out of work, you do not have the resources to go to Texas and search for work there.
The ad people whom I have discussed this topic with often ask for a town with a VERY low cost of living and a vibrant advertising agency community. Well, there are not any if you are honest about it. The least expensive places to live in America are metros areas such as McAllen-Brownsville, TX, Johnson City, TN, Johnstown-Altoona, PA and Anniston, AL. They are surely some talented people living there but those metros will never be ad hubs.
Shift to the most expensive metros and you find San Jose, CA, Stamford, CT, San Francisco, Boston, New York, Washington, DC and Austin, TX. While Stamford is a magnet for money managers, the rest are high tech hubs that should be hubs for the new world of digital advertising.
When people ask me why go to a big city, I give several reasons:
1) Peer pressure. You can learn from many pros around you. If you are a lone media planner or writer in Duluth, you may have unlimited potential. Yet, even your boss and coworkers do not realize how good you are or could be. In a more competitive and larger environment, you will grow by necessity.
2) Stability--the ad business has never been stable and there are no guarantees. If you are in an ad capital and your company goes south, there are other places to work. Or, you can do a start up yourself. In a small city if your shop is king and has problems, you may have to shift careers.
3) New Media--people in outlying markets say they are 100% up to speed on the changes going on in the industry. They know it is nonsense. If you work in an ad hub you are in the middle of what is going on today. Several markets are the “Silicon Valley” of advertising.
4) Chance for advancement--many 10-20 person shops are places that are great to work in, lots of fun, allow you to do good quality work and build lasting friendships. At some point, unless you own the place, you will hit a brick wall regarding growth. In a major advertising center, you may max out but at a higher plateau than if you stayed in the small town.
What if you try the big city and hate it? Go back to a smaller market! All of us deserve to be happy and, if you lower your sights, you may be content out of the mainstream. There is nothing wrong with the quiet life.
Yet, if you do not try to reach your full potential, you could wind up old and bitter as many that I have met over the years. So, when you are young, go for it!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, June 7, 2015
Job Geography
Several months back, I was watching a morning news show on cable and a governor was talking about his plans to create more good paying jobs in his state. He muttered something about tax incentives and said over the next several years it was likely that on his watch the state would become a hi-tech leader. I just had to laugh. It is simply not going to happen in his political lifetime.
I will not name the man or his state but he seems more than a bit out of touch with the new world of job geography in the United States. I have done more than a little research on this topic and job growth other than in natural resources tends to lean heavily on two major factors--education level of the local population and the degree of innovation going on in the business community.
To explain, let’s back for a minute. A few years ago, I was playing a verbal game of trivial pursuit regarding businesses. Someone threw up the question, “Where was Microsoft founded?” One said Redmond, Washington and everyone else but I said Seattle. I said Albuquerque. “How do you know that,” our lead questioner asked without hiding his annoyance. I told him that I had followed the fortunes of the company for over thirty years and remembered that Paul Allen and Bill Gates, the founders, were Seattle born and wanted to move back home very early on in the game.
At the time, Seattle was not doing all that well as a metropolitan area. Once Microsoft took off and eventually went public, the Seattle metro started to do better. After going public, many Microsoft employees became instant millionaires. So, a number of them cashed out and started their own businesses locally. They started a few thousand new businesses and most stayed in the area. Two prominent firms led by Microsoft alumni are Real Networks and Expedia. Why stay in Seattle? Well, the talent pool is full of very smart people. Demographers often refer to it as a “thick labor market.” If you look at these “thick” markets such as Silicon Valley, Austin, Boston, Denver, Atlanta, and increasingly, little Boise, you see them generating a hugely disproportionate share of patents relative to the size of their population. The number of patents taken out is an excellent surrogate for measuring innovation from my perspective.
If you look at economic history an interesting pattern develops as an industry begins to take hold. First, in the baby stage, the innovators can be scattered all over the place. Take the auto industry. In 1920, there were over three hundred car manufacturers, many in the Midwest but in a large number of states. Many went bust and some were swallowed up by bigger players. When an industry starts to hit its potential, a consolidation takes place and the players become more concentrated, e.g., Detroit for cars and Hartford for insurance. Finally, as you mature, you may move to cheaper markets to operate in and the clustering is gone.
Interestingly, most of our high tech areas tend to be very expensive places to live and to do business. Silicon Valley has a very high cost of living and especially so in housing. Why do startups continue to go there? I think that it is very much a function of the thickness of the labor market mentioned above. If you operate in Silicon Valley, you can attract great people with great ideas. Also, the best and the brightest love the social interactions. Think of the learning opportunities in a community like Silicon Valley where literally hundreds of tech companies are operating and many flourishing. Innovation and higher productivity have to come from such an environment. Many foreign giants have large offices in hi-tech cities for the same reason.
Also, and very importantly, is availability of money. Many venture capital (VC) firms still operate there and use what has been called in the industry “the 20 minute rule.” When a 20 something techie in a hoodie passes muster after their brutal cross examinations in their presentations for seed money, the VC pros do not simply write the checks and patiently wait. They usually want the new venture to open locally. This allows them to offer hands on advice and often help with hiring. Techies may not know how to run an accounting department or find a good general manager while they dream up the next life-changing new product. The VC leaders, who money is on the line, know just the men and women to help fill in those needed posts.
The growth of tech has caused some interesting pay discrepancies across the nation. In the brainiac markets, salaries are higher for ALL workers not just the tech savvy pros. In fact, people with high school diplomas in thick labor markets generally make more than college graduates in places that are struggling such as Flint, Michigan or Johnstown, Pa. Standard of living is another matter. Housing is very inexpensive in the lower income areas but so is pay. Increases tend to be much higher and faster in the high growth tech areas.
Surprising people are reacting to innovation. In 2013, Wal*Mart, yes, Wal*Mart, opened up Walmart.com in San Bruno, CA (Silicon Valley) rather than in corporate headquarters in Arkansas. Why? How many sharp online marketers and designers want to live in Bentonville, Arkansas? The talent pool is in Silicon Valley and if they are to beat back Amazon (a tall order), they need the best people in the business to do it.
So, ad agencies ought to look at this trend look and hard. People often have told me over the years how their mid-sized market would one day become an advertising mecca. It did not happen. Now, a new danger seems to be emerging. What if Apple, Google, Amazon and few others take their online and mobile advertising in-house? There will certainly be a talent pool nearby to handle the speciality jobs required. You probably have noticed that a large number of media assignments for billion dollar global advertisers are under review this year. As they shift away from conventional media (largely TV) over the next several years, will agencies be able to hang on to most of the digital assignments? Or, will they too have offices in Seattle, Silicon Valley and Austin? It will be interesting.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or post a comment on the blog.
I will not name the man or his state but he seems more than a bit out of touch with the new world of job geography in the United States. I have done more than a little research on this topic and job growth other than in natural resources tends to lean heavily on two major factors--education level of the local population and the degree of innovation going on in the business community.
To explain, let’s back for a minute. A few years ago, I was playing a verbal game of trivial pursuit regarding businesses. Someone threw up the question, “Where was Microsoft founded?” One said Redmond, Washington and everyone else but I said Seattle. I said Albuquerque. “How do you know that,” our lead questioner asked without hiding his annoyance. I told him that I had followed the fortunes of the company for over thirty years and remembered that Paul Allen and Bill Gates, the founders, were Seattle born and wanted to move back home very early on in the game.
At the time, Seattle was not doing all that well as a metropolitan area. Once Microsoft took off and eventually went public, the Seattle metro started to do better. After going public, many Microsoft employees became instant millionaires. So, a number of them cashed out and started their own businesses locally. They started a few thousand new businesses and most stayed in the area. Two prominent firms led by Microsoft alumni are Real Networks and Expedia. Why stay in Seattle? Well, the talent pool is full of very smart people. Demographers often refer to it as a “thick labor market.” If you look at these “thick” markets such as Silicon Valley, Austin, Boston, Denver, Atlanta, and increasingly, little Boise, you see them generating a hugely disproportionate share of patents relative to the size of their population. The number of patents taken out is an excellent surrogate for measuring innovation from my perspective.
If you look at economic history an interesting pattern develops as an industry begins to take hold. First, in the baby stage, the innovators can be scattered all over the place. Take the auto industry. In 1920, there were over three hundred car manufacturers, many in the Midwest but in a large number of states. Many went bust and some were swallowed up by bigger players. When an industry starts to hit its potential, a consolidation takes place and the players become more concentrated, e.g., Detroit for cars and Hartford for insurance. Finally, as you mature, you may move to cheaper markets to operate in and the clustering is gone.
Interestingly, most of our high tech areas tend to be very expensive places to live and to do business. Silicon Valley has a very high cost of living and especially so in housing. Why do startups continue to go there? I think that it is very much a function of the thickness of the labor market mentioned above. If you operate in Silicon Valley, you can attract great people with great ideas. Also, the best and the brightest love the social interactions. Think of the learning opportunities in a community like Silicon Valley where literally hundreds of tech companies are operating and many flourishing. Innovation and higher productivity have to come from such an environment. Many foreign giants have large offices in hi-tech cities for the same reason.
Also, and very importantly, is availability of money. Many venture capital (VC) firms still operate there and use what has been called in the industry “the 20 minute rule.” When a 20 something techie in a hoodie passes muster after their brutal cross examinations in their presentations for seed money, the VC pros do not simply write the checks and patiently wait. They usually want the new venture to open locally. This allows them to offer hands on advice and often help with hiring. Techies may not know how to run an accounting department or find a good general manager while they dream up the next life-changing new product. The VC leaders, who money is on the line, know just the men and women to help fill in those needed posts.
The growth of tech has caused some interesting pay discrepancies across the nation. In the brainiac markets, salaries are higher for ALL workers not just the tech savvy pros. In fact, people with high school diplomas in thick labor markets generally make more than college graduates in places that are struggling such as Flint, Michigan or Johnstown, Pa. Standard of living is another matter. Housing is very inexpensive in the lower income areas but so is pay. Increases tend to be much higher and faster in the high growth tech areas.
Surprising people are reacting to innovation. In 2013, Wal*Mart, yes, Wal*Mart, opened up Walmart.com in San Bruno, CA (Silicon Valley) rather than in corporate headquarters in Arkansas. Why? How many sharp online marketers and designers want to live in Bentonville, Arkansas? The talent pool is in Silicon Valley and if they are to beat back Amazon (a tall order), they need the best people in the business to do it.
So, ad agencies ought to look at this trend look and hard. People often have told me over the years how their mid-sized market would one day become an advertising mecca. It did not happen. Now, a new danger seems to be emerging. What if Apple, Google, Amazon and few others take their online and mobile advertising in-house? There will certainly be a talent pool nearby to handle the speciality jobs required. You probably have noticed that a large number of media assignments for billion dollar global advertisers are under review this year. As they shift away from conventional media (largely TV) over the next several years, will agencies be able to hang on to most of the digital assignments? Or, will they too have offices in Seattle, Silicon Valley and Austin? It will be interesting.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or post a comment on the blog.
Tuesday, June 2, 2015
Recovery, what recovery?
Depending on which talking head on cable business channels you are listening to, we are in the 6th or 7th year of recovery from The Great Recession of 2008. Everyone cheerfully admits that the economy is recovering at a painfully slow rate, but almost all appear cheerful that things will turn out just fine in the near future.
On Friday, after a brief vacation, from my laptop, TV and most cellphone messages, I was hit with two pieces of downbeat data:
1) The official government figures were readjusted. Originally, GDP growth for the first quarter of 2015, was placed at -.2% but was not said to be -.7% owing to bad weather in the 1st quarter plus the muscular U.S. dollar making American goods less attractive overseas.
2) The US Federal Reserve, hardly a subversive organization, released their report on The Well Being of US Households. The report, as usual, had disturbing statistics for those among us who eat demographics for breakfast. A few highlights were:
--Some 47% of Americans could not cover a $400 emergency or sell something to cover the amount owed. (several of us wondered about whether they could go to friends or relatives)
--31% have gone without some form of medical care in the past year as they could not afford it.
--53% of those earning under $40,000 per year described themselves as “just getting by.”
--Despite the distance from 2008-2009, some 14% are still “underwater’ on their mortgages ( amount owed is greater than what they could sell the dwelling for).
I ran these stats by some successful people who said it was “nonsense” or “impossible”.
Then I looked toward less obvious choices. I contacted a broadcaster whom I have known for years in a rust-belt DMA. He said, “Don, of course, the data are accurate. Car advertising has perked up here because the fleet is old (over 10 years) and people’s cars are falling apart and they need to get to work. But, the increases are far lower than most recoveries in the past. The dealers are using alternative media and there is little that we can do. Also, our retail business is awful. Two of our biggest clients closed their doors in the past year. People in our town are not spending--they do not have much money.”
Retail analysts are focusing on companies such as Tiffany’s which recently reported blowout earnings despite the stronger dollar discouraging some European buyers. Their target is not simply the often mentioned to 1% but really covers the top 5% of households who are doing just great. Yet, both Michael Kors and Coach disappointed with earnings lately and their stocks got hammered. Change in consumer tastes? Perhaps.
What is going on? If you want to be entertained and hear some straight talk, google or go on You Tube and watch retail analyst Howard Davidowitz. Unlike the talking heads on the mainstream media, he gives you the unvarnished truth as he sees it. When asked why mid-level retailers are largely struggling he states: “The people do not have any money.”
So, look beyond the New York, Boston and San Francisco’s of the world. Most people are struggling despite stock market strength and strong Tiffany earnings. As a mountain state broadcaster wrote to me, “Recovery, what recovery?”
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
On Friday, after a brief vacation, from my laptop, TV and most cellphone messages, I was hit with two pieces of downbeat data:
1) The official government figures were readjusted. Originally, GDP growth for the first quarter of 2015, was placed at -.2% but was not said to be -.7% owing to bad weather in the 1st quarter plus the muscular U.S. dollar making American goods less attractive overseas.
2) The US Federal Reserve, hardly a subversive organization, released their report on The Well Being of US Households. The report, as usual, had disturbing statistics for those among us who eat demographics for breakfast. A few highlights were:
--Some 47% of Americans could not cover a $400 emergency or sell something to cover the amount owed. (several of us wondered about whether they could go to friends or relatives)
--31% have gone without some form of medical care in the past year as they could not afford it.
--53% of those earning under $40,000 per year described themselves as “just getting by.”
--Despite the distance from 2008-2009, some 14% are still “underwater’ on their mortgages ( amount owed is greater than what they could sell the dwelling for).
I ran these stats by some successful people who said it was “nonsense” or “impossible”.
Then I looked toward less obvious choices. I contacted a broadcaster whom I have known for years in a rust-belt DMA. He said, “Don, of course, the data are accurate. Car advertising has perked up here because the fleet is old (over 10 years) and people’s cars are falling apart and they need to get to work. But, the increases are far lower than most recoveries in the past. The dealers are using alternative media and there is little that we can do. Also, our retail business is awful. Two of our biggest clients closed their doors in the past year. People in our town are not spending--they do not have much money.”
Retail analysts are focusing on companies such as Tiffany’s which recently reported blowout earnings despite the stronger dollar discouraging some European buyers. Their target is not simply the often mentioned to 1% but really covers the top 5% of households who are doing just great. Yet, both Michael Kors and Coach disappointed with earnings lately and their stocks got hammered. Change in consumer tastes? Perhaps.
What is going on? If you want to be entertained and hear some straight talk, google or go on You Tube and watch retail analyst Howard Davidowitz. Unlike the talking heads on the mainstream media, he gives you the unvarnished truth as he sees it. When asked why mid-level retailers are largely struggling he states: “The people do not have any money.”
So, look beyond the New York, Boston and San Francisco’s of the world. Most people are struggling despite stock market strength and strong Tiffany earnings. As a mountain state broadcaster wrote to me, “Recovery, what recovery?”
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, May 17, 2015
The Retail Revolution--An Update
As online sales have grown, it seems that retail forecasts have gone from one extreme to another. One camp simply says that retail is essentially dead while the other much smaller group claims that conventional retail will bounce back when our sluggish economy starts hitting on all cylinders again. To me, they are both a bit off the mark.
Recently, Forrester Research, the new media watchdog, has forecast that by 2018, online sales will be 11% of all retail sales. This would mean that over the next three years online would grow by 9-10% each year compounded. That is slower than in previous years for sure but keep in mind that online now starts each year at a significantly higher base than it did several years ago. Also, few are forecasting very strong growth in our GDP. Most analysts would be happy with 3% in 2015 and 2016 and right now it looks as if we might not get that.
Online sales have grown in amazing ways. For years many thought that Amazon would thrive selling only books and music. Well, many of us had it completely wrong. Sales keep soaring as increasingly people are using online as their new mall.
Speaking of malls, I have seen talking heads on both CNBC and Bloomberg say that all malls will disappear in the next 15-20 years. Cooler heads say that many are in trouble but about half will survive. A long time ad agency executive who has covered the retail beat for a generation said this about mall closings: “Yes, many will not survive. Those that will are the malls that cater to the upscale. Here is my acid test for the probability of a mall’s survival--if a mall has a Neiman Marcus, Sak’s or Nordstrom as their anchor store(s), the odds are good they will survive. Some will even get stronger.” He went on to quote a statistic that many of us have heard repeated a great many times recently--”The top 10% of American households in terms of household income are responsible for 45% of total consumer spending. Malls that cater to them have solid prospects for the long haul.”
I asked another outspoken analyst about Wal-Mart and its struggles of late. He said simply “About 50% of Americans are REALLY struggling financially right now. They are what people call the Wal-Mart nation. About 20% of Wal-Mart’s base in currently on food stamps. Sadly, these people just do not have any money. So, amazingly, Wal-Mart has gotten too expensive for them. That is why I believe the “Dollar Stores” have seen a big uptick in growth. They are the default option for the bottom portion of the bottom 50%".
Besides the high end stores, another source told me that Home Depot and Lowe’s should do well as some people no longer “underwater” on their homes will begin to put some money in to them. He also said TJ Maxx has a bright intermediate future in apparel.
One issue that I have observed of late is that analysts often are not totally in tune with the habits of the young adults. A young lady told me that she loves shoes. She literally visits Zappos (the online shoe store owned by Amazon) daily and every two weeks has them send her 6-7 pairs of shoes with a free return policy. When I asked if she thought they might be annoyed with her she smiled and said, “I buy at least two pairs per month. I am a great customer.” Showing my age I asked her if her boyfriend/fiance is comparing her to Imelda Marcos. She scrunched up her face and said, “Who is that, sir” (If you are over 50, you probably get it).
Another young adult told me that she orders all household cleaning products, toothpaste, even soap online. Every couple of months a case of Dove soap arrives at her doorstep. When I asked why she just did not go to Target or another big box retailer she said, “Why should I waste the time? They deliver right to my door and often I beat the sales tax.”
These young adults grew up on the web. Yes, some people like to shop and some do not. Getting basic items like soap or detergent online can certainly save you time. Younger people who are addicted to apps now often order coffee on Starbucks Mobile in several cities. Delivery men on scooters often take a fresh cup of java or cappacino right to you. Uber is now experimenting with delivering restaurant meals in a few cities. Very few of these millennials will ramp up their mall or store visits once they have completed most of their early purchases online. So, the brick and mortar base is aging.
All this has several implications for the retail landscape:
1) Many thousands of service jobs can be eliminated as online buying gains more traction. You also do not have to pay people as much in a warehouse fulfilling an order at 2:30 am as you do someone working on the floor of your brick and mortar store. No commissions to pay either.
2) Entrenched brands have to benefit from the online trend. Unilever must be thrilled with the young lady who buys her Dove by the case. She never does comparison shopping. Her lifetime value to them has to be huge. If they do line extensions, they can send her an online coupon in with her bi-monthly Dove order. So, as online grows, it may be harder for new products to enter many categories. The big will likely only get bigger.
3) Conventional media especially local TV and radio stations have to lose here. If speciality stores in malls (who pay most of the rent) continue to go under and retail continues to stumble, where will their revenue come from going forward? I think and have said for years that TV in particular will become much more of a direct response medium than it is today.
Are retailers aware of all of this? Ignore what they say and watch what they are doing! I have poured through a number of annual reports of publicly traded retailers and all are devoting a great deal of R&D funds to online business development.
Finally, whenever you look at the issue, remember to do fair comparisons. Total volumes of retail dollars can be deceiving. People who buy cars do not (yet) buy them online nor do they buy the gasoline that they put in them via their laptop or phone. Yet, figures for those two items are often included in retail sales. We will likely sell 16.5 million cars and light trucks in the U.S. this year. That is great but they are not competing with online as malls and specialty shops are. So, be very careful when doing comparisons.
Retail has always been a tough game. It is about to get a lot rougher.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Recently, Forrester Research, the new media watchdog, has forecast that by 2018, online sales will be 11% of all retail sales. This would mean that over the next three years online would grow by 9-10% each year compounded. That is slower than in previous years for sure but keep in mind that online now starts each year at a significantly higher base than it did several years ago. Also, few are forecasting very strong growth in our GDP. Most analysts would be happy with 3% in 2015 and 2016 and right now it looks as if we might not get that.
Online sales have grown in amazing ways. For years many thought that Amazon would thrive selling only books and music. Well, many of us had it completely wrong. Sales keep soaring as increasingly people are using online as their new mall.
Speaking of malls, I have seen talking heads on both CNBC and Bloomberg say that all malls will disappear in the next 15-20 years. Cooler heads say that many are in trouble but about half will survive. A long time ad agency executive who has covered the retail beat for a generation said this about mall closings: “Yes, many will not survive. Those that will are the malls that cater to the upscale. Here is my acid test for the probability of a mall’s survival--if a mall has a Neiman Marcus, Sak’s or Nordstrom as their anchor store(s), the odds are good they will survive. Some will even get stronger.” He went on to quote a statistic that many of us have heard repeated a great many times recently--”The top 10% of American households in terms of household income are responsible for 45% of total consumer spending. Malls that cater to them have solid prospects for the long haul.”
I asked another outspoken analyst about Wal-Mart and its struggles of late. He said simply “About 50% of Americans are REALLY struggling financially right now. They are what people call the Wal-Mart nation. About 20% of Wal-Mart’s base in currently on food stamps. Sadly, these people just do not have any money. So, amazingly, Wal-Mart has gotten too expensive for them. That is why I believe the “Dollar Stores” have seen a big uptick in growth. They are the default option for the bottom portion of the bottom 50%".
Besides the high end stores, another source told me that Home Depot and Lowe’s should do well as some people no longer “underwater” on their homes will begin to put some money in to them. He also said TJ Maxx has a bright intermediate future in apparel.
One issue that I have observed of late is that analysts often are not totally in tune with the habits of the young adults. A young lady told me that she loves shoes. She literally visits Zappos (the online shoe store owned by Amazon) daily and every two weeks has them send her 6-7 pairs of shoes with a free return policy. When I asked if she thought they might be annoyed with her she smiled and said, “I buy at least two pairs per month. I am a great customer.” Showing my age I asked her if her boyfriend/fiance is comparing her to Imelda Marcos. She scrunched up her face and said, “Who is that, sir” (If you are over 50, you probably get it).
Another young adult told me that she orders all household cleaning products, toothpaste, even soap online. Every couple of months a case of Dove soap arrives at her doorstep. When I asked why she just did not go to Target or another big box retailer she said, “Why should I waste the time? They deliver right to my door and often I beat the sales tax.”
These young adults grew up on the web. Yes, some people like to shop and some do not. Getting basic items like soap or detergent online can certainly save you time. Younger people who are addicted to apps now often order coffee on Starbucks Mobile in several cities. Delivery men on scooters often take a fresh cup of java or cappacino right to you. Uber is now experimenting with delivering restaurant meals in a few cities. Very few of these millennials will ramp up their mall or store visits once they have completed most of their early purchases online. So, the brick and mortar base is aging.
All this has several implications for the retail landscape:
1) Many thousands of service jobs can be eliminated as online buying gains more traction. You also do not have to pay people as much in a warehouse fulfilling an order at 2:30 am as you do someone working on the floor of your brick and mortar store. No commissions to pay either.
2) Entrenched brands have to benefit from the online trend. Unilever must be thrilled with the young lady who buys her Dove by the case. She never does comparison shopping. Her lifetime value to them has to be huge. If they do line extensions, they can send her an online coupon in with her bi-monthly Dove order. So, as online grows, it may be harder for new products to enter many categories. The big will likely only get bigger.
3) Conventional media especially local TV and radio stations have to lose here. If speciality stores in malls (who pay most of the rent) continue to go under and retail continues to stumble, where will their revenue come from going forward? I think and have said for years that TV in particular will become much more of a direct response medium than it is today.
Are retailers aware of all of this? Ignore what they say and watch what they are doing! I have poured through a number of annual reports of publicly traded retailers and all are devoting a great deal of R&D funds to online business development.
Finally, whenever you look at the issue, remember to do fair comparisons. Total volumes of retail dollars can be deceiving. People who buy cars do not (yet) buy them online nor do they buy the gasoline that they put in them via their laptop or phone. Yet, figures for those two items are often included in retail sales. We will likely sell 16.5 million cars and light trucks in the U.S. this year. That is great but they are not competing with online as malls and specialty shops are. So, be very careful when doing comparisons.
Retail has always been a tough game. It is about to get a lot rougher.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Saturday, May 9, 2015
Demographics and The Global Economy
As many regulars readers of Media Realism know, I have spent a good part of the past few decades keeping an eye on demographic trends. To me, demographics are an unstoppable tidal wave that determines a great deal of future events. In this post, I will address an issue regarding the global economy that I have hesitated to discuss until now. Essentially, it is that due to demography, there will be a glut of workers globally going forward.
How did this happen? Way back in 1980, there were approximately 1.7 billion people around the world getting paychecks. Most of the rest of the world lived as subsistence farmers. They were living lives similar to medieval peasants. Some 48% of the global population had never had so much as an aspirin. And, forget about cell phone penetration.
With the fall of socialism particularly in Russia and China, there was an economic liberalization. By 2010, there were 2.9 billion workers drawing paychecks. Urbanization grew like wildfire especially in Asia and 900 million new non-farm workers entered the labor force (see Media Realism “Urbanization, Globalization, and Media, 5/22/12). Some 400 million were in Russia and China alone. As people streamed to the cities, many millions were lifted out of poverty and many joined the global middle class.
Many companies did very well with this new urbanization. Personal care product companies had an especially strong run as the amazing lifestyle changes for individuals who went from farm laborer to factory or office worker allowed them to use heavy quantities of soaps, toothpastes, and cosmetics. Yet, consumption of goods never seemed to match the forecasts of many economists.
Why? Here is my theory. In all of these countries that have exploded in worker growth--China, Russia, India, Indonesia, Philippines, Malaysia, Vietnam and others, there is no government safety net that most western nations have had for decades. Unemployment insurance, welfare, food stamps and other transfer payments largely do not exist in the emerging world. So, when a young person moves from the rural farm to the big city, they are very conservative with their spending. They know that they could lose their job and would then be on their own. In some recent years, China has experienced a savings rate of over 20% and Chinese companies have retained earnings that are much, much higher. This reality of a high savings rate is not without precedent. If you look at savings rates in the United States going back to 1789 and all through the 19th century, rates were often in the 10% plus range. Americans knew that employment was tenuous and they saved as a hedge against bad times. Also, in the late 19th century, when earnings went down, factories or industrial companies often cut wages of their workforce on a temporary basis.
Today, with globalization continuing to march (see Media Realism “Globalization and Advertising”, 9/9/2011), more workers are entering the work force daily. As these millions of largely unskilled workers enter the workforce, they are a real drag on global wages. Long term, this has to exacerbate income inequality even more as business owners can move plants to markets with a friendly wage climate. By 2030, THE ECONOMIST magazine has projected that 3.5 billion workers will be seeking weekly paychecks. This fierce competition among laborers for a slot in the middle class world has to put a damper on wages.
Adding fuel to the fire is the robot revolution. Increasingly, companies are using robots to do jobs that have previously been handled by unskilled labor. In mining, an industry will some skilled workers, big players are experimenting with robots which will lower costs and add to safety. It will also eliminate hundreds of thousands of good paying blue collar jobs.
In the U.S. and other parts of the western world, we have faced a dilemma since the Great Recession of 2008. Politicians rail about how education needs to be upgraded so our youth will have skills that will prepare them for the future. A lot is said but little has been done.
With regard to the economy, governments including ours in the U.S., seem to be relying on monetary policy to correct problems. Most of this is with interest rates near zero along with some money printing by the Federal Reserve. To me, this is a lot like fighting the last war. We are in a tight spot. The world has changed and globalization is very real. For example, if the Federal Reserve starts to ratchet up interest rates and make them more realistic (not at near zero), what may happen? Europeans, who now have negative interest rates, will flock to the dollar and bid the price of it up. That is fine for those of us who like to vacation in Europe. American multinationals will get hurt as American products will become more expensive across the world and they will not be able to compete as effectively as in the past.
What to do? That is way above my pay grade. Here is one idea that is discussed but little has been done. We need to make America and Americans more competitive. One thing that is clear is that the U.S. infrastructure is in very bad shape. Roads, bridges and airports are in disrepair (my last several trips overseas were telling as virtually every airport I have used was in better shape than any American counterpart). Municipal water facilities are in terrible condition and need an upgrade.
Interestingly, China spends about 9% of Gross Domestic Product on infrastructure while the U.S. spends approximately 3%. Admittedly, the Chinese are starting from zero in some provinces yet the gap in alarming.
I have never been a fan of deficit spending but it is going to happen anyway. So, why not upgrade our American infrastructure? Candidly, despite comments from some of my libertarian friends, this has to be done by government at all levels with the exception of an occasional for profit toll road. A massive effort such as winning World War II or putting a man on the moon in 10 years is needed. America would be much more competitive with a total infrastructure overhaul. Additionally, millions of jobs could be created and many young people could learn marketable new skills. And, being fiscal rather than monetary policy, it would not have a detrimental effect in global markets.
The global workforce glut is not coming. It is already upon us. If we do not acknowledge it, things will get even worse over the next 15 years.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
How did this happen? Way back in 1980, there were approximately 1.7 billion people around the world getting paychecks. Most of the rest of the world lived as subsistence farmers. They were living lives similar to medieval peasants. Some 48% of the global population had never had so much as an aspirin. And, forget about cell phone penetration.
With the fall of socialism particularly in Russia and China, there was an economic liberalization. By 2010, there were 2.9 billion workers drawing paychecks. Urbanization grew like wildfire especially in Asia and 900 million new non-farm workers entered the labor force (see Media Realism “Urbanization, Globalization, and Media, 5/22/12). Some 400 million were in Russia and China alone. As people streamed to the cities, many millions were lifted out of poverty and many joined the global middle class.
Many companies did very well with this new urbanization. Personal care product companies had an especially strong run as the amazing lifestyle changes for individuals who went from farm laborer to factory or office worker allowed them to use heavy quantities of soaps, toothpastes, and cosmetics. Yet, consumption of goods never seemed to match the forecasts of many economists.
Why? Here is my theory. In all of these countries that have exploded in worker growth--China, Russia, India, Indonesia, Philippines, Malaysia, Vietnam and others, there is no government safety net that most western nations have had for decades. Unemployment insurance, welfare, food stamps and other transfer payments largely do not exist in the emerging world. So, when a young person moves from the rural farm to the big city, they are very conservative with their spending. They know that they could lose their job and would then be on their own. In some recent years, China has experienced a savings rate of over 20% and Chinese companies have retained earnings that are much, much higher. This reality of a high savings rate is not without precedent. If you look at savings rates in the United States going back to 1789 and all through the 19th century, rates were often in the 10% plus range. Americans knew that employment was tenuous and they saved as a hedge against bad times. Also, in the late 19th century, when earnings went down, factories or industrial companies often cut wages of their workforce on a temporary basis.
Today, with globalization continuing to march (see Media Realism “Globalization and Advertising”, 9/9/2011), more workers are entering the work force daily. As these millions of largely unskilled workers enter the workforce, they are a real drag on global wages. Long term, this has to exacerbate income inequality even more as business owners can move plants to markets with a friendly wage climate. By 2030, THE ECONOMIST magazine has projected that 3.5 billion workers will be seeking weekly paychecks. This fierce competition among laborers for a slot in the middle class world has to put a damper on wages.
Adding fuel to the fire is the robot revolution. Increasingly, companies are using robots to do jobs that have previously been handled by unskilled labor. In mining, an industry will some skilled workers, big players are experimenting with robots which will lower costs and add to safety. It will also eliminate hundreds of thousands of good paying blue collar jobs.
In the U.S. and other parts of the western world, we have faced a dilemma since the Great Recession of 2008. Politicians rail about how education needs to be upgraded so our youth will have skills that will prepare them for the future. A lot is said but little has been done.
With regard to the economy, governments including ours in the U.S., seem to be relying on monetary policy to correct problems. Most of this is with interest rates near zero along with some money printing by the Federal Reserve. To me, this is a lot like fighting the last war. We are in a tight spot. The world has changed and globalization is very real. For example, if the Federal Reserve starts to ratchet up interest rates and make them more realistic (not at near zero), what may happen? Europeans, who now have negative interest rates, will flock to the dollar and bid the price of it up. That is fine for those of us who like to vacation in Europe. American multinationals will get hurt as American products will become more expensive across the world and they will not be able to compete as effectively as in the past.
What to do? That is way above my pay grade. Here is one idea that is discussed but little has been done. We need to make America and Americans more competitive. One thing that is clear is that the U.S. infrastructure is in very bad shape. Roads, bridges and airports are in disrepair (my last several trips overseas were telling as virtually every airport I have used was in better shape than any American counterpart). Municipal water facilities are in terrible condition and need an upgrade.
Interestingly, China spends about 9% of Gross Domestic Product on infrastructure while the U.S. spends approximately 3%. Admittedly, the Chinese are starting from zero in some provinces yet the gap in alarming.
I have never been a fan of deficit spending but it is going to happen anyway. So, why not upgrade our American infrastructure? Candidly, despite comments from some of my libertarian friends, this has to be done by government at all levels with the exception of an occasional for profit toll road. A massive effort such as winning World War II or putting a man on the moon in 10 years is needed. America would be much more competitive with a total infrastructure overhaul. Additionally, millions of jobs could be created and many young people could learn marketable new skills. And, being fiscal rather than monetary policy, it would not have a detrimental effect in global markets.
The global workforce glut is not coming. It is already upon us. If we do not acknowledge it, things will get even worse over the next 15 years.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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