postage increase
Target Says It’s Poised to Raise Second-Half Marketing Spending
CFO Says First-Half Savings Will Be Rolled Into Pre-Holiday Efforts
By Natalie Zmuda
Published: August 18, 2009
NEW YORK (AdAge.com) — Target plans to come out swinging in the second half.
Executives today said marketing spending, as a percent of sales, would be up compared with a year ago as the retailer looks ahead to the all-important holiday period. Executives are still feeling cautious about whether consumers will be spending in the second half, but as Target and other retailers begin lapping weaker sales results from last fall, same-store sales are likely to improve.
Douglas Scovanner, Target’s chief financial officer, said that the third quarter, leading into the holidays, is typically a seasonal peak in Target’s marketing and advertising efforts. This year, he said, the retailer has “elected to exaggerate that trend.”
Money to spend
“We expect to spend more as a percent of sales in Q3 and Q4 this year than we did last year,” Mr. Scovanner said during an earnings call. “For the year, our marketing plan is right on. But we have saved some money here in the front half for the expressed purpose of being able to invest it in the back half.”
In the second half of last year, Target spent $451 million on measured media, according to TNS Media Intelligence. In the first quarter of this year, the retailer’s ad spending was down 3% compared with the same period a year ago.
The move comes as execs say the retailer is finally gaining traction in its fight to convince consumers that it’s just as cheap as rival Walmart. Part of that strategy has included the introduction of a “low-price promise.” In March, Target began testing the program in Denver and Orlando, matching competitors’ prices on identical items in local markets. Target took the program nationwide July 12 and has promoted the effort in its circulars and in-store signage.
“We have been confident our prices are right, and we’re seeing our prices are right, because there are very few adjustments being made,” said Gregg Steinhafel, president-CEO, of the low-price program. “It might be one per store every couple of days. So it’s relatively modest. But we think this will be a terrific credibility builder and marketing umbrella to reinforce that we have strong values both every day and on sale.”
Same-store sales down
Same-store sales during the second period continued to lag, however, down 6%. Overall sales fell 3% to $14.6 billion.
When asked directly by an analyst why Target’s sales performance hasn’t been on par with fellow discounters such as Walmart and T.J. Maxx, Mr. Steinhafel said that it was due to consumer perception that Target’s value proposition is not as strong as those rivals. But, he added, the retailer’s research shows that its advertising and in-store signage is starting to “slightly” shift those perceptions.
“We’re starting to see slight basis points improvement in our price perception vis-a-vis where we were in prior periods,” he said. “So, we believe that we’re on the right track. We have made the right adjustments. [We] believe that over time we’ll continue to narrow that perception gap.”
In the second half, Target plans to focus on its pharmacy and grocery areas, both areas that have been outperforming the more discretionary home and apparel categories. A campaign to promote the pharmacy business, including Target’s first TV spot to highlight the category, is planned for the second half. The retailer also plans to sharpen its focus on Halloween, which falls on a Saturday this year. Plans to promote party favors and accessories under $3 are in the works.
Reader’s Digest Plans Bankruptcy Filing
From the New York Times
August 17, 2009, 2:00 pm
By Stephanie Clifford
UPDATE Aug. 17, 3:52 p.m. With comments from the Reader’s Digest Association chief financial officer, Tom Williams, and on the banks’ involvement.
The Reader’s Digest Association announced on Monday that it would file for Chapter 11 bankruptcy protection for its United States businesses within 30 days.
As part of the reorganization, Ripplewood Holdings, the private equity firm that owned Reader’s Digest and installed Mary Berner as its chief executive, will shed its shares and board seats, and existing debt holders will become the company’s owners. Ms. Berner will continue to run the company, and Tom Williams will remain as chief financial officer. The company does not expect to lay off any employees or close any of its publications, Mr. Williams said in an interview.
The value of the company will be much lower under the overhaul. Its debt of $2.2 billion will be reduced to $550 million, according to the agreement it has already struck with the majority of the banks. Ripplewood had bought Reader’s Digest for $2.8 billion in 2007 in a leveraged buyout.
“The bank lenders are taking a fairly significant haircut,†said John Puchalla, a senior analyst at Moody’s. While it was common for junior creditors to take a loss, for the senior creditors to take such a loss is “notable,†he said. “It’s certainly a lot less than the value the lenders viewed at the time of the L.B.O.,†he said.
Mr. Williams said a majority of its lenders had agreed to the terms of the restructuring, and the company expected to speed through bankruptcy, completing proceedings 45 to 90 days after it files, he said.
The filing does not cover its businesses outside the United States; it sells publications and products in 78 countries.
The company has lined up $150 million from lenders, through a debtor-in-possession loan, to help finance it through the restructuring, and will get $400 million more upon exiting bankruptcy, for the
total new debt of $550 million.
“Our banks are 100 percent aligned on the vendors that we choose and serve, so there’s no issue associated with paying any vendors,†Mr. Williams said.
That money comes from its new owners: J.P. Morgan, the company’s agent, G.E. Capital, Merrill Lynch, Eaton Vance, Regiment Capital Advisors, Ares Management, and Davidson Kempner. Although Ripplewood made an offer, “the offer from the lender group looks more compelling,†Mr. Williams said.
The company has an additional $100 million in cash on hand, Mr. Williams said.
The overhaul will save Reader’s Digest $65 million a year in cash-interest expense payments, reducing its annual payments from $145 million to $80 million, Mr. Williams said.
The company will continue to operate as usual once it comes out of bankruptcy, but with significantly less debt, Mr. Williams said. “No employees are going to be affected by this, there’s no-to-little
effect on our vendors, our operational performance remains very sound,†he said.
In the company’s most recent fiscal year, ended in June, its revenues, excluding the effects of foreign exchange, declined 1.4 percent, and gross margins and operating profit were flat with last year, Mr. Williams said. Additionally, ad revenue, which makes up about 9 percent of the company’s sales, were down only 3 percent from last year.
The magazine was founded in 1922, summarizing articles published elsewhere, and grew quickly. The company developed other titles, and, in 1990, went public.
The Reader’s Digest Association has been through a turbulent time in the last several years. In 2007, a consortium led by Ripplewood bought the company for $2.8 billion. Ms. Berner, a publishing executive, was installed as chief executive; her brother, Robert Berner, was then a managing director at Ripplewood.
But the company has lost money every year since 2005. The high debt load of the company had led analysts including Mr. Puchalla to downgrade its debt at the beginning of this year. In June, the company announced it was cutting the guaranteed circulation of the flagship magazine to 5.5 million, from 8 million, and decreasing the frequency to 10 times a year, from 12, along with focusing the magazine on socially conservative values.
Plunge in Credit-Card Mailings Slows
Could this be some good news for a change!From Brandweek
Aug 14, 2009
- Mark Dolliver
When the credit crunch took hold last year, it stanched the usual flood of direct-mail credit-card mailings to U.S. consumers. The subsequent meltdown of the financial system had its own restraining effect on such offerings. But now, a report from Synovate says the research firm’s Mail Monitor operation has detected a bottoming out in the volume of such solicitations.
In the second quarter of this year, says the report, households received 349.1 million credit-car offers in the mail. That’s 67 percent lower than the level of mailings in the same quarter of 2008. But it’s down just 6 percent from the level of first-quarter 2009. Some of the big mailers even increased their volume during the second quarter. Bank of America’s mailings were up 77 percent from the first-quarter-2009 level, and Citibank’s were up 65 percent. Noting that credit-card issuers have been growing less risk-averse than they were earlier in the recession, Synovate goes so far as to predict an “uptick” in card offers next year.
An earlier report from Mintel Comperemedia noted a stabilization (after two years of declines) in the number of mailings sent to households promoting mortgages and home-equity loans. But the nature of the offers has shifted, given lessons consumers have learned the hard way in the past year. Notably, direct-mail offers of adjustable-rate mortgages have “fallen out of favor,” according to Mintel’s analysis.
Of course, the fact that companies are making offers of credit cards and loans doesn’t necessarily mean people are taking them up on it. Polls during the past year have consistently found consumers professing their aversion to taking on more debt of any sort. Typical of the genre was a Gallup poll released last month (based on fieldwork in June) in which 46 percent of respondents said it’s “a bad time to borrow money,” vs. 17 percent saying it’s a “good time” to do so.
Communication Is Best Policy
From Brandweek
Aug 3, 2009
Andrew McMains
From credit card companies increasing penalties for late payments to banks raising interest rates on credit cards, the recession’s bad news knows no bounds. But how consumers learn about such developments can determine how they feel about the companies that dictate them.
Often, people learn about such changes via direct mail. But the good news is, bad news doesn’t have to taint the messenger, according to a recent study from Omnicom Group’s Siegel+Gale. Rather, institutions can actually gain the trust of consumers if they communicate clearly and offer a contextual explanation for such moves, said Lee Rafkin, global director of simplification at strategic branding company Siegel+Gale in New York.
“What we found is, if you can go to the effort of actually explaining why you’re in the situation and what you’re going to do about it in a comprehensive and relevant way, people actually respect you for that,” said Rafkin.
Siegel+Gale’s The Simplicity Survey asked an online panel of 400 consumers to evaluate the effectiveness of four pieces of mail. One, from a credit card company, announced an increase in late fees on a charge card; another, from a bank, an interest-rate increase on a credit card; a third, a need for donations at a not-for-profit that cut its budget; and the fourth, the terms of a mortgage. Half of the panelists looked at two of the letters and the other half, the other two. Each answered questions that probed criteria such as clarity, credibility, relevance and usefulness, according to Rafkin. The mail was real, but company names were redacted.
The bank and credit card company scored poorly in the realm of trust and loyalty because the former’s explanation for raising interest rates was cold and off-putting (“market conditions and maintaining profitability on your account”) and the latter offered no explanation at all. “They’re not interested in me as a loyal customer,” wrote one panelist. “I’m just a number to them.”
Conversely, the not-for-profit’s 2 1/2-page explanation of how and why it cut its budget made it seem “honest” and “forthcoming” to one panelist, and a simple, one-page summary of the mortgage lender’s terms came across as “straightforward” and “inviting” to another.
‘Junk mail’ deliveries drop off: Recession has reduced amount of advertising
From: Business Matters
LAURA RUANE
lruane@news-press.com
• August 3, 2009
If your mailbox is empty more often these days, you’re not alone: Last year saw the biggest decline in U.S. mail since the Depression.
Leslie Alvarez has noticed. “There doesn’t seem to be quite as much junk mail,†said the 47-year-old North Fort Myers resident.
So has the U.S. Postal Service, which doesn’t call anything “junk†mail. Nationally, mail volume fell by 4.5 percent or about 9 billion pieces, year-over-year, in 2008.
The drop-off is steeper in Southwest Florida, said Anne Murray, postmaster for the cities of Fort Myers and Cape Coral. Year-to-date, volume is down about 18 percent. “Southwest Florida is hurting more than some other parts of the country. That’s impacted all of the businesses.â€
Lisa Hixson, a U.S. Postal Service letter carrier for 21 years, delivers mail to downtown Fort Myers’ River District.
On her route, mail volume “has been steadily dropping,†Hixson said. “On one of my streets, I used to have two white tubs (of mail) for two buildings. Now I have one tub for the whole street.â€
To be sure, mailings typically decline when tourists and snowbirds depart for the summer. This is more severe, Hixson and Murray said: It’s the economy cutting into direct mail advertising — fliers, postcards and catalogs.
There’s no single answer as to why. Some businesses — seeking to cut costs and try new media — are redirecting some of their advertising to Web sites, e-mail, and social media tools such as Twitter and Facebook.
Others make direct mailings but are more closely defining their target areas. Some businesses just hope to keep their doors open. Some have closed.
At Central Garage in downtown Fort Myers, “we’re still doing direct-mail advertising, but due to the economy, we’ve probably cut back,†said D.J. Hutton, general manager.
Over the past year, Hutton has supplemented print advertising with e-mailed sales pitches; however, he believes no form of advertising is very successful lately.
“Electronic media is cheap and trackable. You save postage, save paper, save a tree,†said Ludmilla Wells, associate professor of marketing at Florida Gulf Coast University. She noted Southwest Florida still has consumers, however, “who like to hold something in their hands to read, rather than peer into a computer.â€
Postal Service health is still a concern
By Juliana Gruenwald CongressDaily July 30, 2009 While there is little disagreement that the U.S. Postal Service is facing a severe financial crisis, lawmakers voiced concerns on Thursday over the proposed solutions, which include closing some branches and possibly reducing deliveries to five days a week.
GAO this week said it was adding the Postal Service to its list of “high-risk areas” needing attention by Congress.
It said the USPS is facing a “deteriorating financial situation” and is on track to end the year with a net loss of $7 billion. Its financial woes are due to the ailing economy and declining mail volumes as more people and businesses bypass snail mail for e-mail, text messaging and other forms of electronic communications.
At a House Oversight and Government Reform Federal Workforce and Postal Service Subcommittee hearing, lawmakers pressed the USPS for details on what criteria would be used in determining which of the proposed 3,200 suburban and urban branches under consideration would be closed.
USPS acting Vice President Jordan Small said fewer than 1,000 post offices out of the list of 3,200 are likely to be closed. The criteria USPS will use in determining whether to close a facility is a branch’s proximity to other branches and the consuming habits of postal customers in that area.
He declined to give an estimate of how much would be saved by the closures and by eliminating Saturday deliveries. Small said USPS would have a better sense of the estimated cost savings in October when a study on such moves is complete.
But some lawmakers voiced concern about the potential impacts on their communities. “While I admit, the finances here are very grave … there is a need to conduct ourselves with, I think, a thoughtful approach … and do it in a way that causes the least amount of disruption,” Federal Workforce and Postal Service Subcommittee Chairman Stephen Lynch, D-Mass., said. Rep. Gerry Connolly, D-Va., said many of his constituents who have long commutes to work would be unable to visit a post office if they are not open in the evening.
Del. Eleanor Holmes Norton, D-D.C., chastised the postal service for taking too long to implement the necessary reforms but then quizzed Small on whether any post offices in Washington are on the list of possible closures. For the most part, business groups dependent on the postal service said they support the proposed changes if they will help ensure USPS’s viability.
But they voiced strong opposition to raising postal rates. Noting that the bad economy has hurt their industry as well, “mailers cannot shoulder another rate increase,” the Direct Marketing Association’s Jerry Cerasale said. Federal Workforce and Postal Service Subcommittee ranking member Jason Chaffetz, R-Utah, said lawmakers should consider providing USPS with economic stimulus funds and urged USPS to do more to make itself more relevant, perhaps through assisting in conducting the 2010 census.
Quick Action Expected On Senate Bill to Ease USPS Financial Crisis
APWU Web News Article #083-09, July 27, 2009
Quick action is expected on a Senate bill that would provide the Postal Service emergency, short-term financial relief, and APWU President William Burrus is urging union members to ask their Senators to support the legislation.
The Postal Service Retiree Health Benefits Funding Reform Act of 2009 (S. 1507), which was introduced by Sen. Tom Carper (D-DE) on July 23, would restructure the USPS obligation to pay retiree healthcare benefits, and would generate savings of billions of dollars over the next several years. The USPS is projecting a loss of $7.1 billion in Fiscal Year 2009, despite predictions that it will cut costs by $6.1 billion this year.
A Senate panel could act on the legislation within a matter of days. The Senate Committee on Homeland Security and Governmental Affairs is expected to “mark up†the bill at its next business session, on July 29. Amendments to the legislation could be offered and considered at that time, or by the full Senate at a later date.
Like its counterpart in the House of Representatives (H.R. 22), the Senate bill would help the Postal Service remain afloat for the next several years, although the methods for achieving that goal differ.
White House to Support Efforts
The Obama administration supports the restructuring plan, White House Deputy Chief of Staff Jim Messina told postal union presidents at a meeting July 24. The Senate bill reflects the approach the Office of Management and Budget (OMB) favors to resolve the crisis, he said.
The presidents of the four major postal unions had asked the White House to address the deepening crisis facing the Postal Service. Attending the meeting were APWU President William Burrus, National Association of Letter Carriers President Fredric V. Rolando, National Rural Letter Carriers Association President Don Cantriel and National Postal Mail Handlers Union President John F. Hegarty.
S. 1507 would reduce postal contributions to the Retiree Trust Fund for a five-year period, by:
$2.4 billion in FY 2009;
$2.5 billion in FY 2010;
$1 billion in FY 2011;
$300 million in FY 2012, and
$100 million in FY 2013.
However, in Fiscal Years 2015 through 2019 the agency would pay more than is scheduled under current law, with the increase intended to offset the reductions of FY 2009-2013. The Senate bill also would increase the Postal Service’s borrowing authority by $2 billion in Fiscal Year 2009 and Fiscal Year 2010.
In a statement, Sen. Carper said he hopes the bill will be enacted before Congress adjourns for its August recess.
Postal Officials Ponder Emergency Rate Increases
From the Dead Tree EditionThursday, July 23, 2009
Postal officials are spreading the word that they may seek emergency rate increases next year.
Various scenarios have been bandied about, including one that would raise the price of the 44-cent First Class stamp to 50 cents and other rates by similar amounts. But after several meetings with postal officials, the Direct Marketing Association is telling some members that the Postal Service is more likely to seek an “exigent increase” of only 2% to 3%, including only one cent for the First Class stamp, to help shrink its multi-billion-dollar losses.
Annual increases in most postage rates are generally capped by changes in inflation. Postal officials are realizing that deflation, especially the drop in energy prices since last summer, will probably mean no such rate increases next year, according to accounts coming out of meetings with postal officials. As Dead Tree Edition pointed out recently, USPS will not be able to institute normal rate increases in May 2011 unless the Consumer Price Index rises at an annualized rate of nearly 5% for the rest of this year.
That’s why postal officials are pondering an unprecedented “exigency-based” rate adjustment, which postal regulations allow “only when justified by exceptional or extraordinary circumstances.” Postal Regulatory Commission rules would also require USPS to discuss the circumstances leading to the proposed increases and “whether the circumstances were foreseeable or could have been avoided by reasonable prior action.”
The PRC would hold a public hearing on an exigent rate request and by law would have 90 days to decide whether “such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain” appropriate service levels.
The Postal Service, which is supposed to break even, is projecting a loss of about $6 billion this fiscal year. To close that gap, which USPS says will grow unless it takes drastic action, postal officials are also discussing plans with mailer groups and postal unions to transition to five-day delivery in the fiscal year that starts in October 2010. That would require Congressional approval.
The closing of thousands of post offices is a possibility, the consolidation of processing and distribution centers has recently accelerated, and USPS continues to shrink its workforce — all in response to declining mail volume that is causing the budget shortfall.
The meetings have also been an attempt by postal officials to shore up union and customer support for legislation that would reduce USPS’ unusually high pre-payments for retiree health care. The Congressional Budget Office estimates H.R. 22 would save USPS about $2.5 billion annually for the next three years.
Advertising Will Change Forever
From Advertising Age July 20, 2009
By Josh Bernoff
Digital Spending Will Nearly Double in 5 Years, But Ad Budgets Won’t
Here’s one of the things we do at Forrester Research: we interview as many marketers as we can about their plans, identify trends and project future likely conditions, and then we put together some numbers to make a projection. If you’ve ever seen a Forrester projection, it comes from a process like this.
This means that inside every projection is an idea or ten about the future. Those ideas can be powerful, and they come from research with marketers and consumers.
My colleague at Forrester, Shar Van Boskirk, just published our five-year interactive marketing forecast. The idea inside it is the real kicker.
In this recession, marketers have learned that interactive marketing is more effective, and advertising less effective, per dollar spent. While budgets for online have decreased, they decreased less than other budgets. Six out of ten marketers we surveyed agreed with the statement “we will increase budget for interactive by shifting money away from traditional marketing.” Only 7% said “we have no plans to increase our marketing budget.”
Unlike the last recession, digital marketing is no longer experimental. Now it looks more like advertising is inefficient, relative to digital. More than half of the marketers we surveyed said that effectiveness of direct mail, TV, magazines, outdoor, newspapers, and radio would stay the same or decrease within three years. In contrast, well over 70% expected the effectiveness of channels like created social media, online video, and mobile marketing to increase.
The result is that digital, which will be about 12% of overall advertising spend in 2009, is likely to grow to about 21% in five years. Along the way overall advertising budgets won’t grow much.
This is huge.
It means we are all digital marketers now, since digital is at the center of many campaigns anyway.
It means media is in trouble, or at least in the middle of a transformation. For example, online video ads, which will be about $870 million this year, will grow to over $3 billion in 2014. What will this do to networks plans to put more of their shows online in places like Hulu. How will it accelerate some newspapers plans to become more and more centered around online?
And it means that social “media,” which will account for $716 million this year between social network campaigns and agency fees, will generate $3 billion in five years. And this doesn’t even count displays ads on social networks (which are in the display ads category.) Of all the parts of digital marketing, social network marketing one is poised for the most explosive growth.
Pundits have been declaring the end of mass media and advertising for years now. From my 14 years of experience analyzing this stuff, I’ve learned that things die very slowly, but there are real trends you can see. If you’re in advertising, you’d better learn to speak digital, because that’s the way the world is going.
Reporter learns what it’s like to be a letter carrier
You know you’ve always wanted to know what it’s like to be a mail carrier, well now you can find out, just click on the link below!
Reporter learns what it’s like to be a letter carrier
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