Is Retail Dying in the U.S?

In recent weeks, I seem to be reading a surprising number of Cassandra style forecasts of the impending death of retail in the United States. Also, a few Media Realism readers have written to me echoing the same sentiment. All seemed to be using the same basic factoids to come to their gloomy conclusion. The list usually includes some combination of the following:

1) There are 100,000 shopping centers and strip malls in America.
2) They contain approximately 1 million stores.
3) The one million stores comprise 15 billion square feet of retail space.
4) The retail space works out to 47 square feet for every person living in the U.S.
5) Our per capita square footage devoted to retail is up to eight times that of other industrialized countries.
6) Over the last 20+ years the median household income has dropped from $56k to 51k but retail space per capita has jumped from 19 to 47 square feet.

I have checked and doubled checked the above numbers and most seem quite close to sources that I respect.

Most analysts that I read plus all of my readers who contacted me are forecasting a big shakeout in retail and a rough patch for the next few years for commercial real estate as more shopping centers have empty space and tenants negotiate harder on their leases.

Interestingly, no one seems to be mentioning on line shopping which would strike me as the biggest threat to brick and mortar retail. When I talk with local broadcasters (not local cable players who often deal in portions of markets), they are having a hard time getting long time retail spenders to maintain budgets consistently.  Some blame it on the struggles of suburban, middle class families while others say that online shopping is largely to blame.

There is no question that retail has always been a tough game and it will get even more difficult. The square footage figures cited above indicate that in certain parts of the country there is definitely some over-saturation of retail outlets.

When people dismiss problems and talk of Whole Foods, Michael Kors, Tiffany and Nordstrom they forget that upscale retailers take up only about 1% of total retail square footage in the country. And, their yield per square foot has to be much higher than the vast majority of players.

So, we have a glut of retail space. And, players in retail need to do even more careful risk assessment than ever. Will these issues disappear if the economy starts to consistently deliver 4%+ growth quarter after quarter?

Probably not as the shopping experience is shifting. Some people think that retail will dry up and blow away as on line shopping gets stronger (on line consistently has grown at double digits in recent years regardless of the strength of the economy). Many, however, still love to “touch and feel” items before they buy them. While on line players facilitate returns, it still remains a time consuming nuisance.

And, customization is morphing in to new shopping experiences. Do not be surprised if within a decade, you can visit a retail outlet and pick out or design attributes of a running shoe, for example. Exact measurements will be taken and, in a few days, you will have shoes exactly as you wanted them and they will fit PERFECTLY. Due to tech gains, the price differential may not be significantly higher than off the shelf entries.

As I am fond of saying, markets always go to extremes. So, it appears that retail was overbuilt. Retail like media will evolve a lot in the next 20 years. And, it is a sure bet that retail will use less conventional media than ever to support their locations.

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

Starting Salaries in Advertising

Around this time of year, you invariably see articles in the media about starting salaries for recent college graduates across a wide variety of disciplines. Also, without fail, I hear from people saying that actual entry level salaries in advertising appear to be much lower than the reported figures. This year has been no exception.

Historically, advertising agencies paid starvation wages to newcomers. How come? An old acquaintance who serves as Chief Administrative Officer (not her real title) at her shop put it bluntly: “You know as well as I that most people are not suited to the advertising business. It always seems that roughly one-third hate it and quit in the first year, another third cannot do it so we ask them to leave, and finally, the remainder tend to be keepers. So why invest much money in a recruit when the odds are one in three or less that he or she will have staying power? It may seem harsh but with rising costs of benefits, particularly healthcare, we do not pay well at first.”

Another straight talker put it this way: “When the recession hit us in 2008-2009, we got clobbered. We laid off a ton of staffers and I vowed never to be exposed that badly again. So, when we began to staff up in 2009, I made sure that we paid each new employee $5,000 less than we did in 2007. There are no shortages of people applying here and we have not raised the starting salary yet. Honestly, the only problem is that we occasionally get spoiled brats who are heavily subsidized by upper middle class parents. One young lady drives a luxury car in each day and our creative director thinks that she earns far more than she really does. So, we do not have much diversity in terms of backgrounds, but we never pay too much and do not feel bad if someone does not work out. Are we exploiting them? I don’t worry about it as we give these kids a chance when others do not."

A small market CEO writes, “I have not had a raise since 2007. A young kid was here four months and told me he needed a raise to buy a new car. I tried to explain that his means of transportation was not my responsibility. He did not get it and left a few weeks later for a job outside of advertising paying $1500 more. Good riddance!”

In some markets, the cost of living requires better starting pay although New York and other major city rents force newcomers to live with two or three others to make ends meet. Also, many say that real stars go to Silicon Valley or Wall Street and the quality of advertising newcomers is not nearly as strong as it was several decades ago.

Virtually, everyone whom I spoke to or e-mailed admitted that stars do get paid well once they have proven themselves. A few confessed that they wait several years before they loosen their purse strings especially if they are in a small to mid-sized market where changing jobs and staying in advertising inevitably requires a move to another city.

I see both sides of this issue. With many shops facing financial challenges, it does not seem as if we will get a big change soon.

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

Earthquake or Blip on the Screen?

This past week, two of the world’s largest advertisers, made announcements regarding their digital efforts:

1) Procter & Gamble, arguably the world’s largest advertiser, disclosed that going forward 70-75% of their U.S. digital activity will be done programatically and in-house.

 2) Separately, fast food giant, McDonald’s announced that it is opening a digital office on Market Street in San Francisco so that they will be better able to recruit digital talent. Their digital chief described the move as “a way for us to be more plugged in to the flow of ideas.”

To me, this is heady stuff. Of the agency people whom I canvassed, many seemed to be  yawning. Yet, what is happening? It seems clear that both huge players in the ad world are bypassing their agencies and going direct to the source to optimize activity in the burgeoning digital space.

One agency chief dismissed that echoing his long held sentiment that his small team at a mid-sized shop “was cutting edge and on top of all changes in the digital world. My folks also have a great relationship with Google.” I gently responded that they may have a great relationship with the Google SALES TEAM. The McDonald’s initiative sounds as if they will raid, Google, Yahoo, Facebook, Oracle and fellow travelers and get people who know where the bodies are buried in key companies and have a handle on what they may be coming up in the near future. Also, they can push the envelope better than any agency team can of what might be done that has never been tried before. These companies will also  have an edge over competitors in our new era of Big Data.

Am I overreacting? What do you think?

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

Pricing Digital Creative Services

Joseph Alois Schumpeter was an economist who studied in Vienna and London. I would put him in the top five of all economists in history along with Adam Smith, Karl Marx, John Maynard Keynes and Friedrich Hayek. He popularized the term “creative destruction” in economic and political circles. After a failed early marriage and living beyond his means in London, a friend wangled a job for him managing the estate of an Egyptian princess living in Cairo. He jumped at the lucrative position and was quite successful. It turns out that the prior trustees had been stealing the princess blind. By simply taking his precise contractual fee, Schumpeter was able to lower rents for the tenants of the princess to their great delight yet still managed to double her annual income. Once things were set up his time was largely his own and he drafted his first book, THE THEORY OF ECONOMIC DEVELOPMENT. His reputation spread and soon he was called back to Vienna as a professor.

Why tell this story? Well, it reminds me a bit of what has been happening over the last 15 years in the digital advertising arena. Some years back, when the internet was just getting rolling as an advertising medium, a new player showed up at a large client that I handled. He was not too smooth and people said that he was not the sharpest tool in the shed regarding marketing or media. I tried to be a bit kinder than that as he seemed to simply use different terms for certain items than we did and when any one used a standard term he would often blurt out “what’s that” which had some people stifling laughs. After a while I noticed how he seemed to have an inordinate interest on the cost of all creative jobs, copying and anything that could be remotely defined as “digital.” When he asked what a job cost he would write it down and sometimes smile and other times frown but he would not comment.

I bumped in to him once by accident at a social gathering two weeks before we were to begin negotiations for a multi-year contract renewal. He told me that we had better lower fees for certain jobs or we would be on very thin ice. I got him a drink and he opened up to me. He essentially said, “You have always treated me with respect but your associates do not. Yes, I have had five jobs in the last eight years. In that time, I have dealt with seven agencies and I monitor fees closely. You guys charge way too much on certain items. I am not the marketing director but you are not going to rip us off any longer.”

The next day I reported back to the CEO and we did some digging. Yes, we were overcharging for some items but, after checking with other shops around the country, we were virtually giving other tasks away. We slashed prices on the sensitive items and obtained the contract renewal. The client moved on a year or so later and I doubt his boss had a clue about how much his lieutenant had saved the company.

Were we really price gouging? I talked to some people recently and a common thread ran through their comments. One CEO who retired in the last few years weighed in as follows: “Don, when digital began we were clueless. We did not know what to charge. So, we took some guesses and found we were high in some places and low in others. When new young designers came on board, we got a handle on what others were charging. Still, we got stung by boutiques who could do a job overnight for a third of what we charged. As young talent moved client side, we had to adjust quickly as they had contacts all over. My successor is a great guy and ethical. He asked me how to bill attempts at viral videos.  Charging by the number of hours would not work so he puts two young creatives on the job who work nights and weekends as they love the assignment. Their batting average stinks. They are way below the Mendoza line (this is a baseball term attributed to George Brett describing a hitter in a slump with a batting average below .200 which was the normal average of infielder Mario Mendoza). Now, there appears to be some niche shops who know how to make them work with some consistency. How do we price something we know will likely not work?”

Another mid-sized CEO takes a different approach. “While no two compensation agreements are alike, we try to do a flat fee for all agency services allowing us to make what we think is a fair profit. We may lose our shirt on some tasks but, overall, the clients know we are playing things straight with them. By doing this, we are learning a lot about new platforms. If we charged a la carte, I am sure that we would be bushwhacked by some boutiques. We are not that big, but we cannot respond as a three person shop can that is truly cutting edge”.

So, the young lions at the boutiques who work quickly and know shortcuts and tricks are beating the small and medium sized shops badly and charging way less. They are the Schumpeters of our new century in terms of providing better service for less money. With scores more changes coming on board on scads of new platforms, traditional agencies who claim to be digitally savvy are in a tight spot.

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

My Media "North Star" Indicator

I receive a great deal of mail from Media Realism readers. Almost all write to me directly at doncolemedia@gmail.com as most do not want the world to know their comments. Some say they do not want their boss to know that they agree with me and bosses say that often they do not want their staff to know the same. Also, my subscription list generally has personal rather than business e-mails on it.

Recently, I received an e-mail from someone whom I have never met but he has written to me with some regularity over the last five years. His question to me was “How do you stay focused on what is going on in the business? Is there one thing that you go by as a gold standard? I would appreciate an answer but I realize that my question is very, very hard?”

Actually, it is not difficult at all! A week does not go by when I do not refer to my Media North Star. Early navigators had a hard time determining which way was north as the first compasses were not always accurate. Often, they would hug the coastline as they explored, which was safe but prohibited the discovery of new islands and even continents. If there were no cloud cover, they would look for the North Star knowing that it was always located directly above the North Pole. Such simplicity saved many an explorer until technology improved the game.

Well, I have a North Star which helps me through the noise surrounding today’s media and advertising world. It is not brain surgery. I simply monitor COMMERCIAL AVOIDANCE every chance that I get.

A recent report from Experian suggested a firm link between using some streaming service and cutting the cable cord. In 2013, they reported that 18.1% of households with either a Netflix or Hulu account had cut the cord from a mainstream provider. Three years earlier in 2010, the percentage was merely 12.7%. So, total cord-cutting households now stand at a level of at least 6.6% while three years earlier it was 4.5% of the total household frame. And Aereo (facing a big court case soon), allows you to watch TV without a cable or satellite subscription.

The second screen has really taken hold. Some say that 40% of viewers to TV programming use either a laptop, Smartphone or tablet while they are “watching” programming. Among young adults, various studies peg it as much, much higher. Allow me a rare personal example. This past Sunday I was catching part of the telecast for the Players Golf Championship. As I often do, I had my laptop handy and looked up various statistics on several golfers in the competition. Suddenly, I had four e-mails and one text message from four mature gentlemen in four different states. One even suggested that I toggle back and forth between the NBC telecast and The Golf Channel to catch non-stop action and avoid commercials! Something is happening out there when old men are becoming commercial avoiders instead of coach potatoes who simply pop open another beer and obediently watch the tube.

For years, I have told people that you need more media weight (rating points) than you have in previous days to move the sales needle for a brand. I still get e-mails from marketers saying I am merely a shill for agencies wanting more money. And, a few creative directors blast me by saying that if you make a great spot people will stop and watch it. Well, if 47% have DVR’s, 6.6% have cut the cord, and the second screen distracts only God knows how many from commercial breaks, even the greatest commercial has a difficult time breaking through.

TV is in a very disruptive phase. Why do you think Comcast formed an alliance recently with Netflix and is trying to be the dominant player in broadband with the Time Warner deal? It is very simple. They are smart. Things are changing and faster than ever.

So, may I suggest that you do what I do? Read and discuss all that is happening across the many new media platforms. Yet, remember that TV still gets a huge share of the advertising revenue pie even though their sales results are weakening. You cannot simply “hug the coastline” and hope for the best. Find a North Star as I have and you can avoid being overwhelmed by all the noise going on around us.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or post a comment on the blog.

Word of Mouth Still Reigns

If you ask people with experience in advertising what the most effective medium is you will often find the graybeards smiling and answering “word of mouth.” Some do not say it in the presence of clients but most of us know both intuitively and through experience that nothing tops naturally occuring word of mouth. Why is it so strong? Well, word of mouth essentially means that you have hundreds or thousands and, in a few cases, millions of natural advocates for your brand. The message is perceived by many as both honest and natural. A great example to me is Vanguard Investments. They spend very little in terms of conventional advertising relative to their mutual fund peers. Yet, their rock bottom costs have over time made many of their index fund customers quite well off and they are enthusiastic ambassadors for the company.

Today, people often use word of mouth, viral and buzz marketing interchangeably. This is understandable given online and mobile activity but technically they are distinct avenues. Viral is a message that spreads quickly. It is quasi word of mouth augmented by technology. If it works it is great; if not, it is one more interruption in our busy days. Buzz marketing is something that garners publicity. It can be exciting but often lacks authenticity as companies often hire others to represent them with consumers without disclosing the relationship.

So, what separates word of mouth from viral, buzz and conventional advertising. Here are a few things to keep in mind:

1) Strong word of mouth carries something of value (i.e., Vanguard great long term performance and ultra low costs) that has social or cultural significance.
2) The messages that do the best are ones that consumers create themselves. Vanguard has a hard core group of aficionados who meet regularly who call them themselves “Bogleheads” after Vanguard founder Jack Bogle.
3) All interests are disclosed upfront. There is no deception as there sometimes is with buzz marketing. Things are upfront and aboveboard.
4) In word of mouth the reach of a message is always overshadowed by the impact of results. So, if someone has a You Tube video that goes viral and reaches millions, companies often get very excited. The question to ask is what happened to sales or the companies image. Millions of people watching a consumer made or company crafted video are only good if there was some benefit. As David Ogilvy wrote some 55 years ago, “If it does not sell, it is not creative.”

Word of mouth was not front and center for many years. An occasional retailer might have said, “We do not have to advertise. We have great word of mouth.” Agencies did not discuss it much as you received no commission on it nor did it bubble up from creative departments. Sadly, few people baked it in to the evaluation mix let alone the media mix.

Today, with the explosive growth of social media, word of mouth may finally begin to be getting the recognition that it has long deserved. Young adults may be suspicious of conventional advertising but value their friends' opinions on movies, restaurants, clothing  stores and automobile models. Facebook has only accelerated this trend.

Capturing the effect of word of mouth is not easy but is well worth the effort. A research study, even a modest one, may tell you that your word of mouth is carrying you much farther than the millions that you spend on advertising. As it is often free or usually low cost, this is an avenue well worth pursuing for many marketers. And, of course, word of mouth marketing is now taking a form where it is not spontaneous as in the past. It is emanating from companies blurring the lines between word of mouth, viral and buzz.

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

Two New Saints Among Many

This past week, Pope Francis oversaw a very special event--the canonization of Pope John XXIII and Pope John Paul II. Adding to the unique event was that retired Pope Benedict XVI attended the service as well. Popes are rarely named saints. The last one canonized was Pope St. Pius X (1903-1914). A number of critics applauded Francis’ action as a shrewd political move as he appealed to the liberal wing of the church with the elevation of Pope John XXIII and the conservative wing with John Paul II.  As a Vaticanophile and a crusty curmudgeon, I felt he moved too quickly. Eyebrows were raised in 1954, when Pius X was named a saint a mere 40 years after his death. John XXIII was 50 years (quick by Vatican standards) and John Paul II was a lightning fast nine years.

With all the buzz about saints, I thought it might be a good time to devote a post to the many living saints I that I track as a demographer. I am talking, of course, about single moms struggling in the marketplace.

Today, there are 10 million single mothers in the U.S. living with at least one child under 18. Their lives are difficult, but if you look at it closely, many are remarkable women whom I would categorize as, well, saints. They work a job, sometimes two, rarely get child support payments, and despite exhaustion and a precarious financial existence, try to bring up decent children and often succeed.

Many of the readers of Media Realism are at ad agencies, TV and Radio stations, or cable providers. There are not a huge number of single moms at these companies for two reasons: 1) to survive, you often have to work overtime and weekends which interferes with day care pickups and 2) many 9 to 5 jobs have been totally eliminated at many places as they are incompatible with working mom imperatives.

So, I polled a few people whom I have known for years, sometime decades, who are owners in multi-unit retail. The results were surprising, and at times, uplifting and moving.

A fellow whom I have known for 25 years owns several franchises in three different concepts. He runs them all with ferocious energy and unfailing good humor. He wrote: “I love single Moms. They are great employees. You do need to be flexible, though. Children get sick and poor children get ill more than most. Once someone has proven themselves as an employee, my wife and I tend to “adopt” them and their children. I have three assistant managers who never miss a PTA meeting or school play or teacher’s conference. My wife drives their kids to the doctor along with Mom. If the bill is stiff, she picks up the difference. These women have earned our trust and I will be damned if they are going to suffer.”

Another fellow at a large company says that he looks the other way and breaks the rules for good employees. “We have strict rules from headquarters about attendance and I have busted them all. Our single Moms tend to be the better employees so I let them go to teacher conferences on company time (illegally) and I spend many lunchtime hours ferrying little ones to and from the doctor’s which my boss, 1200 miles away, would never allow. Once someone has shown themselves to be reliable, I throw much of the rule book out the window. If you want to build loyalty, be human. Corporate guidelines have no heart.”

Single Moms struggle. They are not great targets for many upscale brands. Yet, they live hard lives and try to do the right thing. They deserve our admiration and respect.

I am not suggesting that all 10 million single Moms are saints but more than a few are. If you can, cut them a little slack here and there and you may find that productivity will actually increase in your firm.

If you would like to pursue this topic, consider reading NICKEL AND DIMED by Barbara Ehrenreich, THE WORKNG POOR by David Shipler or THE MORAL UNDERGROUND by Boston College professor Lisa Dodson.

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