January 27, 2021

Signs Multiply of a Serious Slump in Britain

The retailer, Tesco, warned that profit growth in the coming year would be “minimal” after a disappointing holiday season. The chain, which is the world’s third-largest retailer after Wal-Mart Stores and Carrefour, said it was caught by surprise by consumers’ reluctance to spend and by aggressive price cuts at rivals.

The profit warning shocked some investors used to stellar earnings reports from the company. Tesco shares fell 16 percent in London.

The warning also heightened concerns about profitability in the retail sector in Britain and across Europe as consumers, fearful of rising unemployment and government austerity measures, held back on purchases.

Home Retail, Britain’s largest household goods retailer, warned Thursday of a “significant” cut in its full-year dividend because of a sales slump. Mothercare, a baby clothing retailer; Thorntons, a chocolate maker; and Halfords, the car parts retailer, reported weaker sales figures Thursday and warned of a challenging business environment ahead.

“I’m quite worried about the retail sector and consumer spending,” said David Tinsley, an economist in London for BNP Paribas. He said Britain could already be in the middle of a recession or might be able to just avoid it. “It’s going to be pretty close,” he said.

The retail sector is not the only industry suffering. Royal Bank of Scotland announced a new round of job cuts on Thursday, saying 3,500 positions would be eliminated at its investment banking division over the next three years to reduce costs

Job vacancies in London’s financial industry fell 8 percent last year to less than half of what they were during 2007, according to recruitment firm Morgan McKinley. The firm said that job opportunities might never return to levels before the financial crisis.

Not all British retailers struggled during the holiday season. Tesco’s smaller rival J Sainsbury, which owns the supermarket chain Sainsbury’s, topped some analysts’ expectations with its sales during the holiday period as customers bought more luxury food and discounted goods. Tesco said its own price cuts helped to increase sales volume but failed to lift profit.

“This wasn’t the Christmas that I wanted,” Tesco’s chief executive, Philip Clarke, said in a conference call with analysts. He called the British consumer environment “challenging” and said there were early signs of more cautious behavior emerging in other markets.

David McCarthy, an analyst at Evolution Securities, said Tesco was “performing weakly in a weak industry” and that profitability would be squeezed across the entire sector.

Many retailers were hoping for a busy holiday sales period but instead had to cut prices early and to levels last seen in the aftermath of the 2008 collapse of Lehman Brothers, the British Retail Consortium said this month. About 36 percent of British consumers are spending less on clothing and footwear and 28 percent are spending less on furniture amid concerns about the crisis in the euro zone and rising unemployment, according to the group. About one in five households has had a recent reduction in disposable income as a result of unemployment, less overtime work and loss of bonuses, it said.

Bankruptcies among retailers in Britain rose 11 percent, to 183 companies, last year with 42 businesses running out of money in the final quarter, Deloitte reported Jan. 9. Among the casualties of 2011 were the shoe retailer Barratts, the wine and liquor retailer Oddbins and the women’s clothing chain Jane Norman.

The outdoor clothing chain Blacks Leisure and the lingerie firm La Senza almost collapsed before finding buyers.

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Discounts at Sears Holding Fail to Raise Sales

The Sears Holdings Corporation posted a quarterly loss on Thursday as it failed to stop a prolonged sales decline despite offering more discounts, which hurt profit margins.

Stock in the company, the parent of the Sears department stores and the Kmart discount chain, sank to its lowest level in two years. The company’s shares closed down 8.2 percent, at $55.23.

Separately, Gap reported quarterly profit on Thursday that beat analyst forecasts even as sales fell at stores open at least a year, known as same-store sales.

Sales at Sears Holdings have fallen every year since 2005, when the investor Edward S. Lampert formed the company by merging the two chains.

Gary Balter, an analyst at Credit Suisse, said that essentially, the message from consumers to Sears was “we will shop there, but not at the prices you wish to charge as we won’t pay full price for substandard service and unwelcoming physical facilities.”

Analysts have criticized Sears for relying too heavily on cost-cutting to raise profit, rather than upgrading stores and improving customer service.

It faces tough competition from retailers including Home Depot, Lowes, Wal-Mart Stores, Target and Best Buy, and it has been losing market share in appliances and apparel.

Higher costs also hurt Sears Holdings, which said it would lay off about 250 employees in support and field roles. Two months ago, the retailer laid off 700 employees who worked in the appliance sections of its Kmart stores.

It is also closing 29 stores and seven product repair centers, while converting 14 Sears Grand stores to Kmarts. The company said there could be more job cuts from those actions.

In the second quarter, Sears sales fell 1.2 percent to $10.3 billion; analysts had expected $10.5 billion. Sales at stores in the United States open at least a year fell 0.7 percent, with those at the namesake stores down 1.2 percent and Kmart flat.

The company blamed the lackluster sales numbers on weak demand for consumer electronics at both Sears and Kmart.

It took bigger discounts to increase the sales of appliances, apparel and home goods. Sears will add exclusive apparel brands with TV celebrities like the Kardashians and Sophia Vergara.

The net loss at Sears Holdings widened to $146 million, or $1.37 a share, from $39 million, or 35 cents a share, a year earlier. Excluding one-time items, the loss was $1.13 a share. Three analysts expected an average loss of 64 cents, according to Thomson Reuters.

Gap, meanwhile, said its fiscal second-quarter net income was $189 million, or 35 cents a share, versus $234 million, or 36 cents a share, a year earlier. Net sales rose 2 percent to $3.39 billion. Same-store sales fell 2 percent.

Gap was expected to make 33 cents a share on revenue of $3.34 billion, according to Thomson Reuters. The company recently forecast fiscal second-quarter profit of 33 to 34 cents a share and already disclosed the 2 percent decline in same-store sales.

The company has lost about a quarter of its market value this year as investors have questioned its ability to increase sales after several quarters of losing market share.

Some of the company’s merchandise has missed fashion trends, forcing markdowns to move inventory, especially in the main Gap brand stores.

Same-store sales at Gap North America fell 3 percent in the quarter, while international same-store sales fell 4 percent. That compares to a 3 percent increase a year ago.

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Advertising: Celebrating ‘South Park’ by Bringing It to Life

As part of an extensive promotional campaign, Year of the Fan, to observe the 15th season of the show, Comedy Central, which has been presenting “South Park” since August 1997, is teaming up with the Frito-Lay division of PepsiCo to produce 1.5 million packages of Cheesy Poofs to be sold in Wal-Mart stores beginning next month.

Anyone reluctant to pay $2.99 for a 2 3/8-ounce bag of Cheesy Poofs can get a free bag at an exhibit, called the Ultimate “South Park” Fan Experience, that Comedy Central is sponsoring in conjunction with Comic-Con International in San Diego July 21 to 24. The real version of the imaginary snack will be available at a replica of the school cafeteria from “South Park,” which will be near a replica of South Park Avenue, another major feature of the make-believe South Park, Colo.

The exhibit, running 15,000 square feet, will also offer artwork, memorabilia, photo and tattoo booths, trivia contests and a station to create “South Park” avatars that can be uploaded to profile pages in social media like Facebook.

Anne Garefino, who is an executive producer of “South Park” along with its creators, Trey Parker and Matt Stone, likened the exhibit to the street fairs she attended as a child growing up in New Jersey.

She said she hoped the attractions would offer “silly fun, playful things” as a way to thank viewers.

“To be honest, Matt and Trey said, ‘We don’t want to be celebrated,’ ” Ms. Garefino said. Rather, she added, the concept became “let’s do it” but “let’s make it about the fans.”

It is unusual, but not unprecedented, for fans of a television series to tour the set on which their favorite show is filmed. It is more difficult to do so when the series is animated and the set does not exist, much less the location the set represents.


But bringing elements of “South Park” to life, in what is known as experiential marketing, is a way for Comedy Central to strengthen connections with viewers. That is increasingly important when competition among entertainment properties for hearts, minds and eyeballs is fiercer than ever.

“Right now is ‘South Park’s’ moment in the sun,” said Michele Ganeless, president of Comedy Central in New York, part of the MTV Networks unit of Viacom. “Fifteen years of a success on television, let alone on cable, is an achievement.”

“Making it about the fans” is a way to counter possible perceptions that the campaign is self-congratulatory, Ms. Ganeless said, and it is appropriate because “South Park” has “such a devoted fan base.”

The budget for the campaign is being estimated at $3 million to $5 million. The equivalent media value of the air time and online inventory being devoted to the campaign — on other MTV Networks properties in addition to Comedy Central — is being estimated at $10 million.

There will also be an hourlong documentary about “South Park” in the fall, on Comedy Central and “some of the other networks as well,” Ms. Ganeless said.

As befits a campaign about a series with a passionate following among men ages 18 to 34, the campaign will have a considerable presence in new media, among them Facebook, at facebook.com/southpark; Twitter, at twitter.com/SouthPark; the “South Park” Web site, southparkstudios.com; and the Comedy Central Web site, comedycentral.com.

Bringing a fictional snack to life also makes sense given the dietary proclivities of that audience.

“It’s fair to say the viewers of programs on Comedy Central overlap well with consumers of our products,” said Chris Kuechenmeister, a spokesman at Frito-Lay in Plano, Tex.

“This is the first time we’ve moved into something like this,” he added. “It seemed like a nice thing to try.”

This is, however, not the first time that cartoon brands have been turned into actual products for flesh-and-blood people. For instance, to promote “The Simpsons Movie” in 2007, products like Frosted KrustyO’s cereal and Buzz Cola were sold in 7-Eleven stores; some stores were even temporarily converted to Kwik-E-Marts, after the inconvenient convenience store in “The Simpsons.”

Being able “to step into an animated world is awesome,” said Eric Murphy, president, chief executive and creative director at Pop2Life in New York, a marketing promotion agency that is building the exhibit for Comedy Central.

“Giving ‘South Park’ fans a chance to physically be part of ‘South Park’ is priceless,” he added.

Comedy Central is presenting the 15th season of “South Park” in two parts. The first part ran from April 27 to June 8 and the second is scheduled from Oct. 15 to Nov. 16. The series is renewed for a 17th season through 2013, Ms. Ganeless said.


It is coincidental, Ms. Ganeless and Ms. Garefino said, that the campaign will be taking place as Mr. Stone and Mr. Parker bask in the success of their hit Broadway musical, “The Book of Mormon,” on which Ms. Garefino is a lead producer.

“Year of the Fan has been in development for the last 24 months, before we knew when ‘The Book of Mormon’ would launch,” Ms. Ganeless said.

When Ms. Garefino was asked whether the people behind “South Park” had considered a musical version, she replied: “After the third season, someone asked us to consider it. But we couldn’t think of a way to put the characters on Broadway because of their big, blinky eyes.”

Ms. Garefino, who lives in Los Angeles, is in New York “casting for vacation swings,” or replacements, for “The Book of Mormon.”

“It’s a big eye-opener for me,” Ms. Garefino said. “Cartman never takes a day off.”

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Wal-Mart Earnings Rise 3 Percent; U.S. Stores Still Slumping

NEW YORK (AP) — Growing overseas business and strict cost controls helped Wal-Mart Stores Inc.’s net income rise 3 percent in the first quarter, beating Wall Street expectations.

But business at home is still soft for the world’s largest retailer. U.S. Walmart stores posted their eighth straight quarter of revenue declines at stores open at least a year.

That figure compares revenue with the same quarter a year earlier and excludes stores that opened or closed during the year. It is an important measure of a retailer’s health.

The company also offered a cautious second-quarter earnings outlook because of worries that higher prices for gasoline and groceries could put more strain on its low-income customers. Wal-Mart has said they are having a harder time stretching their dollars to the next payday than last year.

“We are monitoring the economic environment carefully, as significant changes in gas prices and inflation during the quarter will influence our actual performance,” Bill Simon, Walmart U.S. president and CEO, said in a statement.

Wal-Mart reported net income of $3.39 billion, or 97 cents per share, in the three months ended April 30. That compares with $3.3 billion, or 87 cents per share, in the same period last year.

Revenue, excluding membership fees from Sam’s Club warehouse stores, rose 4.4 percent to $103.41 billion.

Analysts expected earnings of 95 cents on revenue of $102.76 billion, according to FactSet.

Wal-Mart’s US division posted a 0.3 percent drop in revenue at stores open at least a year, dragged down by a 1.1 percent drop at its namesake stores. That measure rose 4.2 percent at Sam’s Clubs, which has drawn more customers because of its push to remodel stores and carry better-quality food and other merchandise.

Wal-Mart’s U.S. business is hurting because of mistakes the company made on price and selection. Wal-Mart also faces increasing price competition from dollar chains, Amazon.com and other online retailers.

Wal-Mart is trying several strategies to revive U.S. growth, bring back disaffected customers and draw new ones. It is restoring thousands of items it had stopped carrying in an overzealous bid to streamline its stores.

It started with groceries and now is bringing back general merchandise items like restocking fishing supplies in Dallas and snow blowers in Minneapolis. The company is highlighting the returning items with flags on store shelves trumpeting “It’s Back.”

Wal-Mart also is hammering its return to the “Every Day Low Price” message of founder Sam Walton with a new ad campaign. And it plans to open smaller stores under the name Walmart Express.

In a prerecorded conference call, company officials said the U.S. business is “gaining traction” because of the measures it has taken to fix its business. During the latest quarter, groceries and health and wellness items were the star performers.

Simon said Walmart is seeing business in basic household items like paper goods and shampoo, recovering as it adds back popular products and brands it had cut.

The company’s entertainment category saw declines, hurt by falling prices on electronics. However, the company did enjoy strong sales of TVs as customers used tax refunds during the quarter.

Higher gas and food prices are putting more strain on its shoppers, Wal-Mart officials said. Customers are consolidating their trips to save money on gas. Wal-Mart is also seeing more pronounced drops in buying in the few days before the end of the month when money is tight and then a big spike in spending during the first few days of the month when many shoppers get paychecks or government assistance.

“During the quarter, we saw continued pressure from ongoing macro-economic conditions as customers continued to trade down to opening price points and some private label products,” said Simon, during the pre-recorded call.

Wal-Mart’s international business, which produces 26 percent of company revenue, has been a bright spot.

The international division’s revenue rose 11.5 percent to $27.9 billion in the first quarter, led by the biggest gains in Mexico, China and Chile. Revenue grew strongly in all international marets except Japan, which was hurt by the earthquake and tsunami.

Sam’s Club revenue rose 9.4 percent. It accounts for about 12 percent of company revenue. Wal-Mart’s U.S. division eked out a 0.6 percent increase in total revenue because it opened more stores.

For the second quarter, Wal-Mart expects earnings per share between $1.05 per share and $1.10 per share. The estimates assume that currency exchange rates remain at current levels. Analysts forecast $1.08 per share.

Wal-Mart also predicted that revenue at stores open at least a year at its Walmart U.S. stores would be anywhere from down 1 percent to up 1 percent for the second quarter.

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