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Dip in ad spending threatens papers

Federated, May deal likely to hurt

CINCINNATI -- Federated Department Stores Inc.'s takeover of May Department Stores looks like bad news for the newspaper industry, which already has been hurt by years of reduced department store advertising.

The operator of Macy's and Bloomingdale's says that its advertising plans for its former rival still are not complete and that it won't necessarily reduce newspaper advertising.

However, its conversion of stores under multiple names into the Macy's brand will allow nationwide ad campaigns, particularly on television, as Macy's will be in nearly all major TV markets with 850 stores.

Merrill Lynch analyst Lauren Rich Fine said this week that Federated already appears to be shifting spending from newspapers to television and direct mail.

She said in a research report that the shift might account for a downturn in newspaper retail advertising revenues last month.

Cincinnati-based Federated is one of the industry's largest advertisers with an estimated $900 million of newspaper ad spending -- about 2 percent of newspaper ad revenue.

''It's one advertiser, but it comes at a time when I would argue that every dollar counts, because it was a pretty weak ad environment overall," she said, adding that the post-merger consolidation presents ''a double whammy" because it could mean even more Federated newspaper advertising cuts.

Department store advertising has long been a newspaper mainstay with full-page and double-page ads.

''They're sort of like anchors at a shopping mall," John Morton, of Morton Research Inc., said. ''They tend to draw people to the newspaper."

Department stores have been struggling against increased competition from discount retailers such as Wal-Mart Stores Inc. With industry consolidation and a loss of stores, many are looking more to electronic media and direct mail.

Meanwhile, as advertising shifts, newspaper companies are also grappling with higher costs of newsprint and other factors as well as declining circulation. This week, The New York Times Co. and Philadelphia newspapers, owned by Knight Ridder Inc., disclosed job cuts.

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