Whose ad budget is it, anyway?
By Scott Setrakian, [email protected]
Who should manage your company’s digital ad budget dollars? In an advertising world where digital advertising dollars have now been proven to impact in-store sales, who should own the digital ad budget — the dot.com division, or the stores team?
There has long been a simple split of advertising budgets within companies. The dot.com division gets digital advertising; the traditional business gets all the other media. Too easy right? Digital advertising works for online sales, traditional media for the brick and mortar stores business. No problem.
It turns out that there is a problem. Overall it’s a good problem, but it’s a problem. Study after study has shown that online advertising not only impacts online sales, but also improves sales and profits in the store network. And since, for most companies, over 90% of the sales are transacted through the store channel, the payback of online advertising can be even bigger for the traditional businesses than online.
This opens a can of worms.
The online division has been running the digital ad budget since the beginning of digital time. They have the relationships with the digital media, they know how it works, it’s their baby.
The stores division owns the lion’s share of the ad budget, and drives the lion’s share of value through its activities. It needs to control all of the key media to support its mission to maximize sales and profits, and to present a coherent message to customers.
The stage is set for an internal battle over management of the digital ad budget.
What’s the size of it? Current estimates are that digital advertising represents about 9% of total ad spend in the USA. While that’s big, it’s not huge, but two phenomena are worth noting:
It’s a growing piece of the pie. Online advertising as a percent of total has been growing rapidly, and some sources expect it to double to 20% of all ad spend by 2014;
The newspaper industry (especially) is being crushed by online media, in both readership and influence … and advertisers are moving their ad dollars elsewhere. The stores ad budget needs an alternative to this traditional channel, to maintain its presence in customers’ eyes.
So what happens now?
The legacy of separate dot.com and stores divisions seems to now be counterproductive, for one. The original rationale – that the requisite management skills were so different that they couldn’t co-exist (and the juicy possibility of taking the dot.com business public for a huge fortune) – no longer make sense. It’s time to rethink how these channels should be managed in a more integrated fashion.
Regarding ownership of the digital ad budget, the emotion of the turf fight could be modified by understanding some facts. How does digital advertising impact store sales? What is the relative effectiveness of different digital alternatives (banner, search, etc.) both against each other and more importantly against other media: TV, newspaper, radio, mobile, etc.? How do each of these media impact online sales and store sales? In the end it’s all about the integrated company, and making the ad dollars work best overall, not by division.
Scott Setrakian is managing director of Applied Predictive Technologies, a provider of market testing services (Predictivetechnologies.com). He can be reached at [email protected].
99 Cents Only sees slight 4Q comps growth
CITY OF COMMERCE, Calif. — 99 Cents Only Stores announced thatretail sales for the fourth quarter of fiscal 2011, a 14-week period, were $366.4 million, compared with $328.6 million for the fourth quarter of fiscal 2010, a 13-week period. The additional week included in the fourth quarter of fiscal 2011 contributed an additional $26.9 million of retail sales, the company reported. Same-store sales, calculated on a comparable 13-week period, increased 0.5%
The company reported that consolidated net income increased by $1.0 million to $17.9 million, or 25 cents per diluted share, versus $16.9 million in the prior year, or 24 cents per diluted share.
Eric Schiffer, CEO of 99 Cents Only Stores, stated, "We are pleased with the continued progress of our long-term operational improvement programs. Continuous improvement in all areas of our cost structure has enabled us to achieve a pre-tax profit margin of 7.4% for the fourth quarter of fiscal 2011 versus 7.3% for the same quarter in the prior year, and 8.3% for the full fiscal year versus 6.9% for the prior year. Despite continued improvement in our pre-tax profit margin, our net income as a percentage of sales declined for the fourth quarter to 4.7% versus 5.0% last year. This percentage decline was primarily due to an increase in the effective tax rate from 31.9% of pre-tax income to 36.3% of pre-tax income, primarily due to one-time tax benefits in the fourth quarter of fiscal 2010."
The company believes that revenue growth in fiscal 2012 will primarily result from new store openings and increases in same-store sales. For fiscal 2012, the company expects same-store sales to be positive in low single digits and plans to open at least 16 stores with most of its new stores expected to be opened in California. The first new stores should open in July and the majority of the store openings will be in the second half of fiscal 2012.
A&P completes auction of 25 Superfresh stores
MONTVALE,.N.J.— The Great Atlantic & Pacific Tea Company announced that it recently completed the previously announced auction of 25 southern Superfresh locations, as it continues to fully implement its comprehensive financial and operational restructuring. The winning bids, which are subject to approval from the bankruptcy court before the sales would be completed, will be listed in motions of the company to be filed with the court on May 27.
The winning bids are as follows:
Ten stores – Two in Baltimore (Charles Plaza and 41st Street & Hickory) and one each in Parkville, Arnold, White Oak, Lutherville, Cambridge, Chestertown and Brunswick, MD and Washington, DC – to a joint venture between Mrs. Greens Management Corp. and Village Supermarkets. The White Oak and Lutherville, MD stores will be operated by Village Supermarkets with the remaining stores to be operated by Mrs. Greens Management Corp.
The Ellicott City, Md. store – to Supervalu.
The Westminster, Md. store – to its landlord, Englar Center Limited Partnership.
In addition, the prescription customer lists of seven Superfresh stores were awarded to three different bidders (three to Walgreen’s; three to Safeway and one to CVS/pharmacy).
Based on these results, the company expects auction proceeds in excess of $40 million.
A&P president and CEO Sam Martin said, “We are pleased with the results of the store auction and want to thank our dedicated Associates for remaining focused on delivering great service to our customers throughout the sales and marketing process. We also want to thank our customers for their loyal patronage over the years.”
The company anticipates that the bankruptcy court will consider its motions on these proposed sales at a hearing on June 14. A&P expects to cease operating these 12 stores by mid-July.
The company anticipates closing the 13 remaining Superfresh locations that were not sold at auction. These locations are expected to be closed by mid-July, subject to approval by the court.