Growth of Wal-Mart bad news for papers

Posted by Bertrand Pecquerie on September 22, 2004 at 3:59 PM

It's a very challenging paper aimed at American editors and publishers... but Europe and Asia might be concerned. According to Chicago Tribune, "Newspaper advertising this year has been a major disappointment to both the papers and their investors. But while everything has been blamed, from the war in Iraq to a struggling economy, a study said the problem is deeper and will continue. Call it the "Wal-Mart effect." "Wal-Mart and stores like them don't simply advertise in newspapers the way traditional department stores do," said Paul Ginocchio, a Deutsche Bank Securities media analyst and the report's chief author. "Most troubling for newspapers is that this isn't going away. It's actually accelerating."

Since the early 1990s, as big-box stores expanded from small and midsize towns into the suburbs of major U.S. cities, they have changed the face of retailing. By extension, their success cut away at the advertising revenues of newspaper companies."

"Coming out of the 1991 recession, big-box retailers such as Wal-Mart Stores Inc. and Costco Wholesale Corp. accounted for about 16 percent of general merchandise sales nationwide; today the figure is nearly 50 percent. That jump in market share, Ginocchio said, is the main reason retail advertising growth at the nation's newspapers is expected to be less than half the 4 percent that the industry forecast at the beginning of 2004.

Newspaper executives have known that some big-box retailers prefer television and radio advertising over print publications. But the Deutsche Bank study quantifies the trend...

"The correlation between Wal-Mart exposure and local advertising revenue growth over the last two to three years has been extraordinary," he added.

Wal-Mart, said Deutsche Bank, spends 0.3 percent of its sales--$259 billion worldwide in 2003--on advertising and allocates 3 percent of that budget to newspapers. By comparison, traditional department stores spend 4.6 percent of their sales on advertising, and most significant, appropriate 85 percent of that to newspapers.

... For newspaper companies with large numbers of Wal-Mart stores in their markets, the drag on retail advertising has been greatest. Media General Inc., a newspaper chain based in Richmond, Va., and E.W. Scripps Co., based in Cincinnati, have been most affected, said the report. Conversely, newspaper companies that predominantly operate in large cities, such as Tribune Co., owner of the Chicago Tribune, and The New York Times Co., have experienced less of a jolt."

Source: Chicago Tribune

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