Automotive, Financial Services And Clothing Lead The World’s Downward Ad Spend With More than 70% of Global Marketing Budgets Cut

Philip Stone July 9, 2009 Follow on Twitter

Two surveys tell traditional media executives what they really already know from their big revenue declines this year – the ad spend on traditional media is down and a greater proportion of the remaining budget is finding its way to digital.

A survey of global chief marketing officers by Forrester Research says that 71% of marketing budgets were reduced this year – at least half were cut by 20% or more – and a greater proportion of the remaining spend went to digital platforms.

Only 4% of the respondents said they increased their traditional media spend while a whopping 67% said they are spending less. Around 40% of the companies said they have increased their online spend but a significant 27% said their digital spend suffered, too.

So with that background it wasn’t too surprising when Nielsen announced that global advertising in Q1 for television, newspapers, magazines and radio dropped 7.2% but what may be a bit of a surprise is that it is actually Europe, not the US, taking the biggest percentage hits.

Spanish media is getting hit really hard with the Q1 ad spend down 28.2% from the same period last year,  but even G8 titans such as Italy (down 19.1%) and the UK (down 14.7%) have got nailed.  Makes the North American 12.3% downturn actually look not too bad in comparison, but the best performance, as usual, is in Asia, but even there the spend was negative -- down 2.3% instead of its normal up of double percentage figures.

And while newspapers get most of the press for the worst suffering, in actual fact its 9.1% drop looks ok when compared to the global magazine drop of 17.4%. In that respect broadcasters come out best with TV down just 4.7% and radio down 2.5%.

And with such automotives as GM and Chrysler going under Chapter 11 bankruptcy protection and such giants as Toyota and Ford also posting huge losses perhaps it is no surprise that it is automotive that has reduced its ad spend the most in percentage terms, down 19.9%. Also hit hard are financial services –not really a surprise – lowering its spend by 16.7% but clothing’s drop by 15.7% raises the eye brows because it shows more than ever how the recession is biting into every day home budgets.

The real world out there is that marketing bosses know they can strikes better deals today than they have been able to in years which is why the world’s largest advertiser, Procter & Gamble,  says its marketing spend is down but its exposure is up -- translation: it’s getting more bangs for each buck.

But perhaps the most startling figures announced this month deal with Macys that in the US  has some 800 department stores nationwide. Since 2005 Macys has cut its newspaper advertising spend in half, according to TNS Media Intelligence. Macys spent $583.3 million in newspaper ads last year which may sound pretty good until you compare it with the $1.2 billion that various department store entities that are now under the Macys banner spent in 2005.

Non-American readers need to understand that any fair-sized American city in the 1990s had at least two, usually several, huge department stores and these stores would take several pages of display ads each week announcing various sales for whatever reason they could think up. Promotion was the name of the game. When people talked about newspapers being a license to print money, one reason in addition to all that pre-Craigslist classifieds, were those multiple pages of department store ads.

When this writer lived in Dallas in the early 1980s, for instance, the Dallas Morning News seemingly every day carried multiple-page display spreads from the likes of Niemen Marcus, Dillards, Marshall Fields, Lord & Taylor, Saks Fifth Avenue, Bloomingdales, Macys and Foleys and others. No wonder that Belo newspaper was so thick each day; no wonder in those days its profit margins were so high.

And then came consolidation in the department store industry. Macys started buying up regional department stores en masse, some stores found they couldn’t compete – Bloomingdales, owned by Macys,  actually closed in Dallas just a few years after it opened (wrong shopping center and it entered the market too late) but for whatever reason  those gravy days ended for newspapers.  On a recent visit to Dallas what struck this writer was not only how thin the Morning News is these days, but there were several days when there were no department store ads.

And that is what happened across America. That massive Marshall Field’s flagship department Store on State Street in Chicago now carries the Macys name, Macys just plain closed the flagship Filene department store in Boston; those May Department Stores in California now carry the Macys name, those Burdines stores in Florida now carry the Macys name …the consolidation and closing list goes on. 

At first Macys kept those separate brand names going so it needed to continue to run ads for its own Macys outlets plus separate display ads for the newly bought stores – not very economical. Before long the strategy was in place – most everything would become Macys with most stores in a metropolitan area carrying  pretty much the same merchandise, and that meant that just one set of display ads would be necessary – not the multiple ads to advertise each store brand.

Indeed in Boston, the publisher there has blamed on more than one occasion that a major reason for the Globe’s hard economic times is the loss of department store revenue.

Even so, Macy’s remains the second highest US newspaper advertiser (the telecom Verizon is first)  but because Macys is now able to promote itself as a national brand it is spending more these  days on TV and magazines. The company now lavishes only some  59% of it of its marketing budget on newspapers whereas  four years ago that figure was around 71%.

The bottom line for newspapers is that Macy’s annual newspaper spend is now some $600 million less than it was in 2005 and that, coupled with the Craigslist classified debacle goes a long way to explain why US metropolitan newspapers are in such trouble with seemingly few solutions in sight.

Retail consolidation may have been the way forward for Macys but it was, and still is, hell for newspapers.