The direct marketing industry is poised to be on the receiving end of a shift of marketing dollars away from big-budget national brand campaigns to more targeted efforts.
As the retail sector’s woes continued last week, both Macy’s and Talbots announced plans to allocate more budget to direct and measurable tactics. While Talbots’ overall marketing budget will decline this year, it will increase prospecting for both Talbots and J. Jill.
“Talbots feels that it is important to preserve the right amount of marketing spend, even at times like this,” said Trudy Sullivan, president/CEO of the company, during a conference call with analysts. The company “feels that new customer acquisition via catalog and Web is the best use of that spending,” she continued.
Talbots said last week that it would eliminate national print and TV advertising and redirect approximately half of its budget for these strategies towards direct marketing initiatives.
“Talbots has substantial databases for both [the Talbots and J. Jill] brands,” said Sullivan.
Talbots also said it would close 22 stores in addition to the 78 Talbots Mens and Kids stores it said would close earlier this month, scale back store expansion plans and have leaner inventories in 2008. The goal of these and other initiatives announced last week is to reduce costs by $100 million over the next two years. More retailers may follow suit with similar cost cutting measures.
“If there is backing off from national advertising, it is because retailers are reallocating their spend to places where they feel it will be more successful,” said John Adams, SVP of strategy at Draftfcb.
Macy’s Inc. said last week that it is “reallocating resources” to place more emphasis at the local market level in order to ensure core customers find merchandise assortments, marketing programs and shopping experiences that are tailored to their needs.
This appears to be a shift in strategy from the big advertising and marketing push the company has put behind establishing the Macy’s name as a national brand. That strategy was implemented in September 2006, following Macy’s acquisition of May Company and the conversion of more than 400 regional stores to the Macy’s nameplate.
Last year, however, Macy’s admitted sales in many of its newer stores were lagging. The retailer said last week that same-store sales for the final four weeks of fiscal 2007, compared with the same period during the previous year, were down 7.1%.
Macy’s new strategy is also expected to reduce total costs. The new initiative is called “My Macy’s” and includes consolidating its Minneapolis-based Macy’s North organization into New York-based Macy’s East, its St. Louis-based Macy’s Midwest organization into Atlanta-based Macy’s South and its Seattle-based Macy’s Northwest organization into San Francisco-based Macy’s West. The consolidations will affect approximately 2,550 positions.
Macy’s locations in these markets will be grouped into 20 newly formed districts of about 10 stores, compared with the average of 16 to 18 stores currently overseen by each regional manger. District-based planners will provide market-specific intelligence to division planning offices. Additionally, more resources will be provided to local markets for special events and to enhance customer service.
In essence, Macy’s plans “to drive sales growth by improving its knowledge at the local level and then acting quickly on that knowledge,” said Terry J. Lundgren, chairman and president/CEO of Macy’s, in a statement. The company could not be reached for comment by press time.
Britt Beemer, chairman of America’s Research Group, said, “Direct marketing has now become a better opportunity [than national advertising] because retailers can market special deals to their customers that they maybe couldn’t afford to offer to the general public.”
In fact, Beemer continued, for retailers with a strong database of customer and prospect names, direct marketing may be “the most efficient place to go” at this point in time.
Shifting marketing dollars into direct marketing from national advertising “could become a trend because direct marketing dollars are very measurable,” said Michael Sherman, senior advisor at investment bank Peter J. Solomon. This is especially true now that more mainstream brands are moving into direct marketing, he continued.
Sears Holdings Corp., for example, made a major commitment to direct marketing last month by naming OgilvyOne its direct marketing and CRM agency of record, Sears’ first CRM agency appointment. Direct and e-mail were previously handled by multiple agencies.
The appointment is part of a long-term strategic effort on Sears’ part to deliver a higher return on investment from its marketing programs, according to a statement from OgilvyOne.
All of these developments can be traced to retailers looking for help both to drive sales and to save money wherever they can because of the current economic environment. Cutbacks were rampant this month in the retail sector following one of the worst holiday seasons in years.
Anew report from Forrester Research, titled The Connect Agency, highlights how agencies are falling short of helping marketers nurture consumer connections and creating pull interactions, strategies they will need to develop in order to survive.
According to the report, about 55% of marketers believe that their agency is well-equipped to help with Internet advertising. However, 95% of agency executives believe they are handling the area well.
