Media & Marketing

Department store consolidation likely means loss of major revenue source for newspapers:

March 14, 2005

Shoppers and mall owners aren't the only ones preparing for fallout from the planned merger of Federated Department Stores Inc. and May Department Stores Co.-the advertising world is bracing for the impact, too.

Newspapers will bear the brunt of it, experts predict. Observers need look no further for evidence than the Sunday circulars or the midweek pullout sections preceding a big sale.

Locally, Macy's, formerly known as Lazarus, and L.S. Ayres are both among the top 10 advertisers with The Indianapolis Star, said Peter Ricker, the Star's vice president of advertising.

He declined to release figures about how much the department stores spend. Nationally, the two companies spent $900 million on newspaper advertising in 2004. That's 4 percent of retail advertising dollars and 2 percent of advertising revenue overall, according to Editor & Publisher magazine.

Department stores have always advertised more in newspapers than in broadcast media, a trend that has intensified in recent years, said Bill Perkins, president of Indianapolis-based Perkins Nichols Media. Stores may buy short commercials for holiday or other big sales, he said, but generally advertise in newspapers 52 weeks a year, and they pony up for expensive multi-page ads and pullout sections.

Analysts expect Federated to close about 75 of its 950 stores after the merger. Federated and May have stores in the same malls in 93 locations, including Castleton Square Mall and Greenwood Park Mall locally.

Ricker is optimistic the merger will mean a brand switch rather than store closures for the local market-for instance, Federated's changing L.S. Ayres stores to Bloomingdale's or another nationally recognized brand.

That's a possibility, said Richard Feinberg, professor of retail studies at Purdue University. Federated may introduce another brand to capture a different market, he said.

Either way, the L.S. Ayres name likely will fade into history, analysts agreed. Any store closings wouldn't come until at least 2006, leaving Ricker and others in his position with a year or so to ponder the loss of one of their biggest clients.
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