Public retailers look short term

You'd think access to capital would give a public firm more resources to develop a resonant, brand-focused marketing strategy. In reality, because many of them are motivated by quarterly results and shareholder expectations, they are obsessed with short-term gain, say industry observers, a point driven home this month by The Hudson Bay Company's shift in agencies.

You’d think access to capital would give a public firm more resources to develop a resonant, brand-focused marketing strategy. In reality, because many of them are motivated by quarterly results and shareholder expectations, they are obsessed with short-term gain, say industry observers, a point driven home this month by The Hudson Bay Company’s shift in agencies.

In effect, these companies become intent on smaller marketing schemes to achieve incremental growth, as opposed to bolder, long-term programs, says David Fong, president of Toronto agency TBWA/Chiat/Day. ‘In a lot of public companies, you find the money squandered on the wrong things,’ he says. ‘[They focus on methods] that give them incremental volume, rather than a bold initiative that’s going to overturn the market completely.’

Indeed, Canada’s publicly owned department stores recently adjusted their marketing campaigns to invest in more small-scale efforts. In the case of The Bay, there are plans to swing ad dollars toward direct marketing tactics, which tend to deliver a quick hit in sales. This month the retailer abruptly broke off its one-year relationship with Toronto shop Wolf Group Canada, which had introduced the department store’s latest ‘Shopping is Good’ campaign. The Bay assigned Padulo Integrated to the task in its place, a decision driven by its need for a more fully integrated, full-service shop, according to Neil Fedun, the department store’s executive VP of marketing.

Fedun admits the parent company’s recent financial report was a factor in the decision. HBC recorded an operating profit of only $300,000 in the first quarter ended April 30, compared to $12.1-million in the same period last year. ‘The whole marketplace has changed a bit,’ he says. ‘We have to change our communication so it meets what’s going on out in the industry.’

Sears Canada, which lost $11.4-million in the quarter ended April 30, has also announced modifications to its marketing agenda for its Eatons banner. Gone are broadcast spots such as the chain’s outlandish ‘Aubergine’ spectacle, which touted the chain as a trendy fashion destination. Mark Cohen, Sears’ new CEO, recently announced it would trim marketing budgets, and concentrate on in-store promotional activity at Eatons. That means ‘creating incentive to visit [different] departments within the store,’ explains Arthur Fleischmann, departing president and COO of Ammirati Puris, the chain’s AOR.

Nonetheless, Fleischmann insists there isn’t any disparity between public and private businesses when it comes to the implementation of long-range strategies. ‘You’d like to think privately held companies are more patient and willing to take a short-term hit for a long-term gain. But I don’t think anybody is anymore. Everyone wants everything fast.’

However, while public companies have more cash in the coffers and, therefore, should be able to take greater risks, in reality, the reverse is true. ‘They become very protective of market share,’ says Fong. ‘They are averse to change, they are averse to boldness in general. They become what I call ‘incrementalists.’ Their whole benchmark initiative is to hit the analyst’s target.’

On the other hand, private companies, through their desire to stretch every dollar, often wind up developing bolder, more brand-focused, marketing blueprints. ‘[They] focus on more dramatic initiatives to get exponential rather than incremental growth.’

Fong comments on this topic with experience, as TBWA/Chiat/ Day has completed advertising work for Sears Canada in the past, and is also the AOR for Shopper’s Drug Mart. Still a private company, although expected to go public soon, the Toronto-based pharmacy chain launched its ‘Take Care of Yourself’ campaign this spring, signaling a return to image-building, as opposed to solely pushing its sub-brands as it has in the past.

Larry Rosen, CEO of Harry Rosen, the high-end menswear business started by his father in 1954, believes the retail chain’s private status has allowed it to stick with its marketing direction over the years. ‘We tend to be very patient and very long-term in our development and I think that’s definitely because we’re private,’ he says.

To prove it, Rosen points to Harry, the retailer’s magalogue, which just celebrated its 10th anniversary. While countless other chains have pulled their own custom publications off the shelves -The Bay’s B magazine among them – the Rosens persevered, even though it didn’t make sense financially at first. ‘Given the size of Harry compared to the size of our ad budget [Harry consumed one-third], I think a lot of people would have questioned it.’ Nonetheless, the two-times-a-year glossy, which is mailed to 100,000 patrons, provides a vital connection to customers. According to a telephone survey conducted in fall 1998 with 1,100 Canadian men, clients spent 30 minutes on average reading the magazine, and 98% indicated Harry was of value to them.

‘For anybody who thinks quarter to quarter and looks at the cost of producing this magazine, it would have been the first thing cut,’ says Rosen.

Another benefit of private life, according to Rosen, has been the ability to solidify a 30-year relationship with its ad agency Reid, Bell & Associates, which handled the account until the shop closed in 1996. (Harry Rosen now has its own creative team.) ‘You get to a point where you understand people so well, it’s almost like having your own in-house agency. In a public company, when you have people turning over all the time, you don’t have that.’

Indeed, the door has been revolving at Sears lately, where CEO Paul Walters’ departure caused stock to slip 16%. Richard Sorby, the chain’s SVP marketing, also walked out the door, after only four years in his position.

For his part, Ammirati’s Fleischmann stresses that Sears has several execs who have been on the payroll for more than 30 years, among them VP of retail advertising Nina MacLaverty. But Maureen Atkinson, a retail consultant with Toronto-based J.C. Williams Group, says public firms sometimes have trouble hanging on to employees and believes there was probably pressure for Sears when it came to Eatons. ‘I think the management change was precipitated to a certain extent by the reality that they weren’t going to produce at the rate they had been.’

One reason for the instability, adds Richard Talbot, president of Unionville, Ont.-based retail specialists Talbot Consultants, is that public firms are affected by a volatile market made even rockier by unsophisticated online traders. ‘How do you sell your long-term strategy to people like that? They’re not interested in long-term strategy, they’re interested in short-term gain.’

But, he adds, it is possible for management to sell a bold initiative to shareholders, even in an industry as tumultuous as retail. With Wal-Mart breathing down its neck, Canadian Tire’s shareholders agreed to switch from a small to big-box store format several years back, despite taking a hit in capital expenditure, he says. However, he points out that it was the advent of a new, powerful bastion that forced them to react. ‘It was the bogeyman of Wal-Mart that gave [management] an opportunity to do that. [Otherwise] the whole chain was likely to go the way of Dylex.’