Nike Changes Strategy on Women's Apparel

By FARA WARNER

Published: May 16, 2005 (NY Times)

For Ruth Blatt, there's nothing better than having clothes that can do double duty. "I like doing yoga, training with my personal trainer and spinning," said Ms. Blatt, a mother, doctoral candidate and fitness buff, in a recent visit to a fitness studio, Vie Fitness and Spa, in Ann Arbor, Mich.

But Ms. Blatt, 31, likes to combine those workouts with seeing her friends or working at her local coffee shop. And she doesn't always want to change her clothes. "I don't want to be seen wearing an old torn sweatshirt that should be out of circulation. I want to look nice."

For Nike Inc., consumers like Ms. Blatt are at the core of a new organizational, product and marketing strategy aimed at finding ways to capture the women's sports market after years of failures. The company has started mailing catalogs for its female apparel line, called Nikewomen, to some 600,000 residences. It has also begun to overhaul the nikewomen.com Web site to feature the apparel as well as highlight new workout trends.

On Thursday, the company will open a Nikewomen store in Westchester County, its eighth in the United States, and is planning to start four more in the United States by the middle of 2006. International stores are planned as well.

Darcy Winslow, a longtime company executive who was recently named general manager for women's fitness sports at Nike, said the new strategy acknowledged that fitness classes have as much appeal as, say, basketball, and that many women want to wear athletic clothing outside the gym, as men have for years.

"Few people today, especially women, look at fitness and sports as this regimented portion of their life. Women see working out as melding into the rest of their lives," she said, adding "We used to look at the gym through one lens."

Nike had perfected that lens over the last three decades, in which sales of athletic footwear and apparel has been driven by tying sports stars to brands. But while men may want to "Be Like Mike," women consumers say they are less drawn to sales pitches built around hero worship, despite the growth of women's sports and expensive contracts to athletes like Mia Hamm and Serena Williams.

Nike is not alone in this venture. Adidas Salomon recently signed up the fashion designer Stella McCartney to create a line of workout wear that includes running singlets that would work as streetwear. Reebok International has signed the actress Christina Ricci to be a model for them as many companies merge sports, fashion and entertainment.

John J. Shanley, senior athletic and footwear industry analyst at Susquehanna Financial Group, which does not own Nike shares, said that smaller competitors have long outdone Nike by selling better-fitting and more fashionable workout clothes to women.

"Nike has a tougher time than Reebok or Adidas because of their heritage," he said. "The perception of most consumers and retailers is that Nike is all about performance and sports."

But in the last five years, Nike has slowly overhauled the way it looks at the women's market. For example, it wasn't until 2000 that the company made women's shoes using molds made from women's feet. Previously, it had simply used a small man's foot mold, which is shaped differently in the heel and the ball of the foot.

Then it began adding more fashionable colors and designs to its apparel, tracking fashion trends to determine what colors and styles are going to be popular. A few years ago, for example, it followed the trend in hip-hugging jeans by creating low-rise workout pants.

"Certainly, it has to look fabulous, but it also has to have a performance capability," said Mindy F. Grossman, vice president of global apparel, who joined the company several years ago from Polo Ralph Lauren to help overhaul the company's clothing strategy.

The Nikewomen line also arises from the growing importance of apparel to Nike's business.
For the fiscal year that ended May 31, 2004, sales of apparel - for both men and women - increased 6 percent in the United States, to $1.4 billion, while footwear sales rose only 2 percent, to $3.07 billion, according to company reports.

The introduction is enthusiastically supported by the company's new president and chief executive, William D. Perez, who was previously the head of S. C. Johnson. According to Ms. Grossman, Mr. Perez "certainly understands the importance of women consumers from a financial perspective."

Nike is now stretching the traditional boundaries of what it considers sports and fitness. Earlier this year, Nike teamed up with Jamie King, a choreographer who has worked with Madonna, Britney Spears and Jennifer Lopez, and the gym Crunch Fitness to offer a new workout called the Rockstar.

"I was flattered that they were taking dance seriously, that they see it as just as physical and demanding as any sport," Mr. King said. The workout features dance moves that Mr. King says you could easily take from the gym to the nightclub.

The same goes for the clothes that Nike created to go along with the workouts. There are variations of low-rise workout pants that have become popular from yoga classes, but with a tie on the side that adds flair while dancing. Others include brightly colored tank tops in purple and orange that can be worn full-length, to the waist, before the workout or can be turned into a halter during dance class by pulling a bottom loop around one arm.

The spring collection also included T-shirts sporting the Nike swoosh - outlined in Swarovski crystals but made with fibers that wick sweat away - that would not be out of place at a nightclub, or at the very least in certain workplaces.

In Ann Arbor, one of Ms. Blatt's fitness colleagues says she thinks some workout clothes are too good for the gym.

"I'd rather wear them out than for working out," said Anne Cabot, 29. "I'm happy to sweat in a T-shirt and shorts, but for being out I like the comfort of my workout clothes."

They had 'em, then lost 'em...

It's the customer, stupid

They had 'em, then lost 'em. Can Krispy Kreme, Pier 1, Sharper Image, Hot Topic get 'em back

NEW YORK (CNN/Money) - Krispy Kreme's warm glazed doughnuts. Pier One's wicker furniture. Sharper Image's ionic Breeze air purifier. Hot Topic's Goth-inspired paraphernalia.

What's the common thread?

"These four companies all had good solid strings of success for a while," said Craig Johnson, with retail consulting firm Customer Growth Partners. "They even had Wall Street paralyzed by their success."

That would've been the ideal time for each of them to prepare for the next chapter, Johnson said. "Instead, they took their eye off the ball and worse, off the customer," Johnson said.
So how do they get their eye back on the customer?

Krispy Kreme-d: It single-handedly turned the doughnut into a food phenomenon. Investors went nuts over doughnuts when the Winston-Salem, N.C. -based chain hit Wall Street in 2000. Krispy Kreme shares shot up over 70 percent on their debut.

Problem: The company grew too fast; profits took a hit; it ousted its CEO and now the government is probing its accounting. And one other thing -- calorie-conscious consumers dumped the doughnuts when the "low-carb fad" gripped the nation last year.

Solution? Expand into other types of breakfast foods like rival Dunkin' Donuts. Said Johnson, "This company bet the baby's booty on a fatty snack and it's hard to convince people that a sugary doughnut is good for you."

But Morningstar analyst Carl Sibiliski, disagreed. "Krispy Kreme's built an entire franchise around the doughnut. The company shouldn't move away from that. The brand's not going away. They just need to run the business more efficiently."

Getting 'wick'-ed: Once upon a time, Pier 1's consumers couldn't get enough of its unique wicker and bamboo chairs, aromatic candles, decorative lamps and damask pillows.

Problem: Almost every major discount and department store chain now offers similar home products, in some instances cheaper than Pier 1 .

Even though Warren Buffett -- the legendary value investor -- owns a nine percent stake in the Fort Worth, Texas-based furniture chain -- its sales have fallen off the pier and the stock languishes at its 52-week low.

"The biggest problem has been increased competition from retailers like Target. In my opinion, Target's home furnishing offerings are as good if not better than Pier 1's and more competitively priced," said Morningstar analyst Anthony Chukumba.

Solution? Find the new "wicker." In other words, the retailer has to give customers something to be excited about instead of simply opening more stores selling the same stuff that everyone else now has.

"Pier 1 needs to fix the problem with its merchandise. Fewer people are going into their stores because they're not selling anything different," said Chukumba. Once you get the product line set, he added, find a marketing message and stick with it -- no Kirstie Alley and "Queer Eye" flips.

Airing out Sharper Image: A year and a half ago the San Francisco-based company hit a home run with its ionic air purifiers and quickly captured market leadership with the product. The air gadget suddenly became responsible for 35 percent (analysts guess) of the company's revenue.

Problem: Competitors got in on the act and stole market share away from Sharper Image with cheaper copycat versions of the purifier.

As sales eroded, so did its stock price, losing more than half of its value over the past year. "If you become a one-trick pony and investors are in love with you, there's a tendency to keep riding that pony until it gets tired," said Custom Growth Partner's Johnson. "That's fine until someone else's pony starts to run a little faster."

Solution? Needs to rebuild is product pipeline with more wacky and innovative gadgets.
Harris Nesbitt analyst Richard Weinhart thinks digital music products is a good growth vehicle.

"Sharper Image didn't do enough to capitalize on the digital music craze over the holidays. They could do a lot with digital music accessories and win back customers."

Pink ... the new black: Rebellious teens fell in love with Hot Topic, whose clothing glorified Goth, punk and rock-and-roll. Wall Street fell in love with its sizzling sales and profits.

Problem: Teens are notoriously fickle and fashion trends are equally wishy washy. Sales fell after kids decided to pick "preppy" over "punk." Hot Topic slashed prices to avoid getting stuck with excess inventory. That dented profits.

Solution? Company executives are willing to gamble that Hot Topic's customers will eventually return since it still dominates the niche it created.

But the wait-it-out strategy might not be enough. You could argue that the store should develop new concepts that appeal to different types of customers. Hot Topic's second brand -- Torrid -- is a good example of that, selling trendy clothes mostly in larger sizes.

"Hot Topic is dealing with a customer with the loyalty of a flea. Catering to teens is already a huge challenge," said Johnson. "If you're selling to teens, you have to be both innovative, nimble and ready to shake things up."

(CNN.com - Money : May 12, 2005)

Cell phones as a substitute for MP3 players...

Bill Gates: Cellphone will beat iPod

FRANKFURT (Reuters) - Microsoft founder Bill Gates sees mobile phones overtaking MP3s as the top choice of portable music players, and views the raging popularity of Apple's iPod player as unsustainable, he told a German newspaper.

"As good as Apple may be, I don't believe the success of the iPod is sustainable in the long run," he said in an interview published in Thursday's Frankfurter Allgemeine Zeitung.

"You can make parallels with computers: Apple was very strong in this field before, with its Macintosh and its graphics user interface -- like the iPod today -- and then lost its position," Gates said.

Apple has around two thirds of the global market for MP3 music players, which store thousands of songs on pocket-sized disk drives or smaller flash memory chips, and sold more than 5 million iPods in the last quarter.

But it faces increasing competition not only from the likes of Sony, whose iconic Walkman dominated the personal audio market for two decades, but also from mobile-phone companies integrating MP3 players into handsets.

Partly in response to pressure from Apple, Microsoft is now positioning itself to be a key player in the growing market for digital movies, pictures and music and grow beyond its core Windows operating system business.

It is working with partners such as Samsung to provide its Windows Mobile smartphone software to 40 handset makers.

"If you were to ask me which mobile device will take top place for listening to music, I'd bet on the mobile phone for sure," Gates told the newspaper.

In the United States, however, Microsoft smartphones have been overshadowed by Research In Motion's BlackBerry wireless e-mail device, which has sold 3 million so far.

Gates said that Microsoft's rival Windows Mobile 5.0 -- which will let e-mails pop up on a user's phone as soon as they arrive, and which is expected to be running phones on the market in the next few months -- would be cheaper.

"The BlackBerry is great but we're bringing a new approach," he said. "With BlackBerry you need to link to a separate server, and that costs extra. With us, the e-mail function will already be part of the server software."

"Therefore I'd venture the prediction that Microsoft will make wireless e-mail ubiquitous."
He admitted, however, that Microsoft had made mistakes in the past, for example with the first version of its XBox games console.

"The consumer is always unpredictable. In principle, you can only throw products onto the market and then learn from your mistakes," he said.

And the 49-year-old Microsoft chairman said he would not remain with the company for ever.
"I think that when someone is 60 years old he should better leave it to someone else to follow trends in technology. But until then there's still a lot to do," he said.

(CNN.com)

The Ex-Wife: Fiat posts first profitable quarter in 3 years thanks to GM

Big Payment From G.M. Helps Fiat Post Its First Profitable Quarter in 3 Years

By ERIC SYLVERS

Published: May 11, 2005 (NY TIMES)

MILAN, May 10 - The Italian carmaker Fiat posted its first quarterly profit in more than three years, helped into the black by one billion euros paid by General Motors to dissolve their partnership.

The company said Tuesday that its net profit was 295 million euros ($379 million) in the first quarter, a turnaround from a 390 million euro loss in the year-earlier period. Fiat booked a gain of 715 million euros from the G.M. payout in February.

Fiat last posted a net profit in the third quarter of 2001.

Excluding taxes, extraordinary items and some other costs, Fiat posted a trading profit of 47 million euros, almost double the amount in the year-earlier period. Trading profit, a new indicator, measures regular company operations. Revenue declined 2.4 percent, to 10.8 billion euros, as the company's car unit continued to struggle. Sales at Fiat Auto, which accounts for 46 percent of the company's revenue, fell 9.3 percent. The car unit's loss narrowed to 129 million euros from a loss of 146 million euros a year earlier.

Excluding the auto division, the company's sales rose 3.2 percent.

Though results have improved under Sergio Marchionne, who took over as chief executive almost a year ago, he has been unable to turn around the car unit. Fiat's auto business has been on the decline for more than a decade, falling from Europe's No. 1 spot at the end of the 1980's to sixth-largest today.

"Everybody is looking at Fiat Auto because it is the driver of the entire company and it is still not clear they will turn it around," said Gaëtan Toulemonde, an analyst with Deutsche Bank in Paris. "There is very little concern for the short term. The debate is on the long term and whether they will make it work."

G.M. will pay Fiat 550 million euros this month, on top of its previous payment, to conclude their partnership, which they established five years ago. As part of the original agreement, Fiat had the right to force G.M. to buy the money-losing Fiat Auto; G.M. chose instead to pay its way out of the agreement.

The 550 million euro payment will help Fiat's second-quarter earnings.

Fiat also warned Tuesday that Italy's car market - which has been shrinking because of the country's weak economic growth, the rise in the gas prices and the disappearance of incentives - is unlikely to change in the near future. Fiat also painted a gloomy picture in the near term of the European market, which shrank 3 percent in the first quarter.

Toyota: Market share is up but profits are down...

Profit Plunges at Toyota as It Vies for Market Share

By TODD ZAUN Published: May 11, 2005 (NY Times)

TOKYO, May 10 - Quarterly profits at Toyota Motor plummeted 17 percent as the company plowed more money into an ambitious plan to increase its global market share. Toyota's net profit fell to 290.7 billion yen ($2.75 billion) for the quarter that ended March 31, the company said Tuesday. Revenue, however, rose 4.2 percent to 4.88 trillion yen ($46.2 billion), as the company sold more of its cars and trucks.

In an attempt to gain a larger share of the world's auto market, Toyota has been sacrificing part of the profit margins it has posted in the last several years. Toyota has set a goal to capture 15 percent of the global car market in the next decade, compared with the 10 percent it has now, and has spent heavily on new factories in the United States, China and elsewhere.

"There's bound to be a pause as we invest more for expansion and R.& D. to secure future growth," Toyota's president, Fujio Cho, said on Tuesday, according to Reuters.

Toyota's profit was below analysts' forecasts, though still far better than the results posted by its top global rivals. General Motors, the world's largest car maker, reported a $1.1 billion loss for the same quarter, while Ford Motor saw its profit slip by a third.

In particular, Toyota has been on a roll in the United States, thanks in part to an effort in the last several years to expand its lineup with a series of small and inexpensive cars sold under the Scion brand. Demand has also been strong for Toyota's gasoline-electric hybrid sedan, the Prius.

Toyota's sales in the United States increased 14 percent for the first four months of the year from the same period a year earlier, raising the company's market share in the United States by more than one percentage point, to 13.3 percent, for the period. Toyota's sales performance in the United States is the exact reverse of the performances of G.M. and Ford, which have each seen their market share fall by more than a percentage point so far this year.

But Toyota has failed to transfer the strong growth in sales volume into improved profits. Toyota's operating profit fell 23 percent in the most recent quarter, to 383 billion yen ($3.63 billion), from 497.5 billion yen a year earlier.

One reason for the sinking profit was a decline in the dollar against the yen, which erodes the value of revenue earned in North America, Toyota's largest and most profitable market. Analysts figure Toyota loses about 20 billion yen ($189 million) in operating profit for every one-yen increase in the value of the Japanese currency against the dollar.

Near-record prices for steel have also weighed on Toyota and other automakers much of this year. At the same time, high gasoline prices have curbed demand for big trucks and sport utility vehicles, one of the most profitable segments. High gas prices have helped Toyota sell more small cars, like the Corolla sedan and the compact cars in the Scion line. And sales of the gas-sipping Prius hybrid sedan have more than doubled in recent months compared with last year.

But analysts say the added sales have not helped Toyota's bottom line as those vehicles tend to be less profitable than S.U.V.'s and big sedans. "Even though Toyota's market share is growing fantastically, Toyota's profitability is actually in somewhat of a stagnant period," said Takaki Nakanishi, an auto analyst at UBS Securities Japan.

Toyota also continues to spend heavily to develop new models for foreign markets and expand production abroad. Toyota plans to open a pickup truck factory in Texas next year, its sixth North American assembly plant, and recently announced plans to build a factory in Russia. The investment is aimed at expanding sales abroad and helping Toyota better withstand adverse shifts in foreign exchange rates by reducing the need to export vehicles from factories in Japan.

Over all, Toyota's capital expenditures were 12 percent higher in the quarter just ended, at 379 billion yen ($3.6 billion), while spending on research and development rose by 9 percent, to 222 billion yen ($2.1 billion). The company plans to increase capital spending 15 percent for the financial year ending March 31, 2006, from the year just ended.

But Toyota's heavy investment outlays and its focus on smaller, less profitable vehicles raise questions about whether Toyota managers are more concerned with gaining market share than with increasing profits, said Mr. Nakanishi of UBS, who noted that Toyota's profit margin had fallen for each of the last three quarters.

Toyota does not make public profit forecasts, but Mr. Cho said the company expected profit for the fiscal year ending next March to be about the same as for the year just ended. For the year ended March 31, Toyota's net profit crept up 0.8 percent, to 1.17 trillion yen, while revenue increased 7.3 percent to 18.55 trillion yen.

Advertising agencies conference - Adaptability

Warnings Galore That Madison Avenue Needs to Be Nimble About Changing

By STUART ELLIOTT (Published: May 6, 2005 - NY Times)

SOUTHAMPTON, Bermuda

MADISON AVENUE was warned yesterday that it risked being marginalized by profound changes in technology and demographics that are fundamentally changing the ways products are sold to consumers.

The warning came from speakers at the opening session here of the 2005 management conference of the American Association of Advertising Agencies.

"In a world where the only constant is change, the only way to stay in business is to recognize when the lessons you have learned no longer apply," said Ron Berger, the 2004-6 chairman of the Four A's, as the association is known.

"Throwing out a business model that has worked in the past takes just as much guts, just as much courage, perhaps even more so, than starting a business from scratch," said Mr. Berger, who is also chief executive and chief creative officer of the New York and San Francisco offices of Euro RSCG Worldwide, part of Havas.

Tough decisions have to be made by agency senior executives, he added, because "we, as leaders of the industry, have a responsibility - and part of that responsibility is to lead, not to follow."

There are 379 attendees at the conference, which continues through today at the Fairmont Southampton hotel here.

Another challenge to the industry, identified by the leader of a large media services agency, will be for those at advertising agencies to reimagine how they produce campaigns to reflect how consumers are, as he put it, "ignoring messages with increasing frequency."

"Get past the notion the advertising process is an assembly line," said Jack Klues, chief executive of the Starcom MediaVest Group in Chicago, part of the Publicis Groupe, which handles media planning and buying for marketers like Procter & Gamble.

Mr. Klues suggested the process instead be considered a team effort, with media and advertising agencies collaborating more frequently to find the best solutions to client problems.

"We have to stop arguing about who owns the process," Mr. Klues said. "The consumer is boss, and there is plenty of room for anyone who can get us closer to the boss.

"Our failure to move now, and aggressively, will lead us to be held back," he warned, "perhaps forever."

An advertiser who also addressed the opening session echoed Mr. Klues's frank assessment.
What clients want most from their agencies is "the power of the big idea," said Anne E. Bélec, president and chief executive at the Volvo Cars North America division of the Ford Motor Company.

Yet "that is probably a phrase that makes every agency cringe," she added, because "there's no clear path to get to it."

For instance, although Volvo for many years successfully used safety as a differentiator in the crowded automotive marketplace, a decade ago "we allowed ourselves to be distracted," Ms. Bélec said, when "our competitors increasingly started to focus on safety."

That brought an ill-suited, and therefore ill-fated, detour into using performance as a selling strategy, she added, which "strayed too far" from the Volvo brand identity.

Volvo and its agency, Euro RSCG Worldwide, got back on track with the big idea of refocusing on safety, Ms. Bélec said, but expressing it in a more emotional way as evidenced by a change in campaign themes, from "Drive safely" to "Volvo for life."

Now safety means "protection for life," she added, as well as "for everything our consumer wants to do and enjoy."

Generating bigger, better ideas was also on the mind of another speaker, Miles S. Nadal, chairman and chief executive at MDC Partners in Toronto, which has become known for acquiring majority and minority stakes in creatively focused advertising agencies that include Crispin Porter & Bogusky, Cliff Freeman & Partners, Kirshenbaum Bond and Mono.

"The challenge for our industry is to make advertising a business of ideas," Mr. Nadal said, "instead of a business of ads and their distribution."

"What clients want most are ideas, innovation, creativity," he added, while all too often agency leaders have a "focus on money rather than on results for clients."

"The most successful people in this industry are not motivated to come to work every day to make the most profits," Mr. Nadal said, but rather to come up with the best ideas.

Mr. Berger also urged his colleagues to "make a concerted effort to hire and nurture young, diverse talent."

"It takes guts to have faith in qualities that are not yet visible," he added, "to act on the belief that the new recruit can, if given the opportunity, do the job as well as - or even better than - you."

O. Burtch Drake, president and chief executive of the association, reminded those attending of another reason to strive to diversify their work forces.

"Several New York agencies have been under investigation by the New York City Commission on Human Rights regarding minority employment, especially at the middle-management and executive levels," Mr. Drake said.

"Recognizing the business case for diversity is crucial to the future of our industry," Mr. Drake said, adding: "The Four A's is here to provide guidance and support for the industry's diversity goals, and the board has approved allocating major resources. That said, the commitment and work toward achieving these goals must occur at the individual agency level. You're going to have to make it happen at your agencies, or it's not going to happen at all. And the C.E.O. has to sign on."

More problems for Ford and GM...

Junk Ratings Make a Big Splash, Ripples to Follow

By JONATHAN FUERBRINGER (Published: May 6, 2005 - NY Times)

Many investors knew it was coming, but they did not expect that two of the nation's biggest issuers of bonds would be reduced to junk status so soon.

As a result, Standard & Poor's announcement at midday yesterday that it was cutting its credit ratings for both General Motors and the Ford Motor Company set off a selling spree in the corporate bond market. The rating cut to below investment grade begins a process of adjustment that could ripple through, and roil, the fixed-income markets for weeks.

"It was a Richter-scale event," said Edward B. Marrinan, head investment-grade strategist at J. P. Morgan. "The market is selling off violently," he said from the trading floor, soon after the announcement. "The downgrade was no surprise, but the timing of it was and has caught the market on the hop."

Some investors - like pension funds that prefer investment-grade bonds or are restricted to only such securities - will now sell their G.M. and Ford bonds to those that invest in high-yield or junk bonds and to other investors, including hedge funds, that favor so-called distressed securities.

With some $292 billion in outstanding G.M. bonds and $161 billion in Ford bonds, the potential redistribution is titanic. How disruptive the process is for the corporate bond and high-yield bond markets will not be known immediately. But there certainly will be some indigestion.
Mark Howard, head of credit research at Barclays Capital, said he expected that this "indigestion effect" would leave a lot of G.M. and Ford bonds looking for a home in the high-yield market, especially because many junk bond investors have limits on how much of one company they can own.

He also said that there still was a lot of adjustment to come in the derivative market, which shadows the so-called cash bond market and where many of the bets are leveraged with considerable borrowing. "Our sense is that a lot of the adjustment is over in the cash market," said Mr. Howard. "But there are going to be tremors in the derivatives market."

G.M. and Ford bonds plunged after the announcement yesterday. The 8.38 percent G.M. bond maturing in 2033 dropped 6 points, or 7.6 percent, to 73 cents on the dollar, as the yield shot up to 11.7 percent. The 7.45 percent Ford bond maturing in 2031 fell almost 9 points, or 10.5 percent, to 75 cents on the dollar, as the yield jumped to 10.2 percent.

S.& P. cut its credit rating on Ford to BB+ - the highest junk bond rating - and on G.M. to BB. But after yesterday's sell-off, they were trading at the weaker credit level of B- or triple C rated bonds, traders said.

The downgrades dragged stocks lower, with G.M.'s stock dropping 5.9 percent and Ford's 4.5 percent. But the corporate bond sell-off sent enough investors into the safe harbor of the Treasury market to send prices higher and yields, which move in the opposite direction, lower.
For fixed-income traders, it was the third consecutive day of big surprises that suddenly moved the market, meaning that millions of dollars changed hands quickly. On Tuesday, the Federal Reserve amended the statement from the Federal Open Market Committee about an hour and 40 minutes after it was released, after inadvertently omitting a sentence indicating it believed that inflation was still "well contained." On Wednesday, the Treasury unexpectedly announced that it was considering reissuing the government's 30-year bond.

But while yesterday's announcement may have cut some into Wall Street profits, the credit rating cuts were something that the Street had been happily anticipating, because it is another moneymaking opportunity.

"The potential for it to be profitable because of added trading volume and volatility is huge," said one top trader at a big investment bank just weeks ago as he prepared his troops to profit.
Much of the redistribution of G.M. and Ford bonds will be forced as the two are dropped out the various investment-grade bond indexes, including the Lehman U.S. Credit index, a benchmark for the corporate bond market, into high-yield indexes. Lehman will make the shift at the end of May.

G.M. and Ford now are the No. 2 and No. 3 in Lehman's credit index, at 2.02 percent and 1.97 percent, respectively, of the total. (General Electric is No. 1)

In the Lehman High Yield Index, G.M., with a 6 percent share, and Ford, with a 5.9 percent share, will dwarf the other members, which are 2 percent or less of the index.

One factor that could mitigate the bond market fallout, Mr. Howard of Barclays said, is that much selling of G.M. and Ford had already been done in anticipation of the credit downgrading.
One institutional investor that had already begun selling G.M. was the TIAA-CREF pension fund. At the end of last year, its G.M. holdings had dropped about 50 percent in two years to $200 million and have fallen further this year.

The T. Rowe Price New Income Fund, which has $3.2 billion in assets, is not allowed to own junk bonds. But a spokesman said that it was not forced to sell bonds that become junk.
Analysts also noted that insurance companies that own G.M. might decide not to sell at all, as long as they think the company will not go bankrupt.

Still, there are billions of dollars being added to the junk bond market all at once and that is not going to help a market whose performance is already lagging.

"I think the high-yield market is in a tough situation without this, and this doesn't help," said Martin S. Fridson, publisher of Leverage World, an independent research service in the high-yield market.

And there is a timing glitch that could stall - and then maybe intens ify - the adjustment process.
As of now, if S.& P. or Moody's Investors Service downgrades a bond to junk status, it is dropped out of the Lehman credit index. But as of July 1, it will take a downgrade from two of three credit rating agencies when Fitch Ratings joins the mix.

This means that if neither Fitch nor Moody's downgrades G.M. and Ford before July, the bonds will shift from the high-yield index back to the investment-grade index. Because of this possibility, many holders of G.M. and Ford might wait for another shoe to drop.

Brand Management? : Nike Decides Not to Do Business With Sears

Nike Decides Not to Do Business With Sears

Daniel Acker/Bloomberg News

Nike, which controls more than a third of all sales of athletic shoes, is taking its swoosh out of Sears even as it spends heavily on advertising.

By NAT IVES

Published: May 5, 2005

NIKE'S decision to stop selling its sneakers and clothes at Sears is shining a spotlight on the impact retail environments have on marketers' brands.

Though the companies themselves have said little about the move, retail analysts quickly pronounced it a result of the Kmart Holding Corporation's $12 billion acquisition of Sears, Roebuck & Company in March.

Nike may have feared that its products would wind up for sale at Kmart, a discount chain, analysts said. If not, Nike may still have worried that Sears Holdings, the company that resulted from the Kmart-Sears combination, would undermine Nike's image.

When Sears Holdings was formed, its chief executive, Alan J. Lacy, said that the new company would offer a complete shopping solution. "Shoppers will have greater access to the leading proprietary brands of both Kmart and Sears," Mr. Lacy said. Kmart stores, for example, would be able to sell products once exclusive to Sears, like Craftsman tools and Kenmore appliances.

The cross-pollination, however, has yet to significantly improve the image of either chain.

At the same time, Nike has continued to pursue high-gloss ad campaigns. It is spending an estimated $20 million to $30 million, for example, on its warriors campaign that shows professional athletes donning masks.

In sum, Nike spent an estimated $220 million last year to advertise in major United States media, according to TNS Media Intelligence. It is also the runaway sales leader in its chief category. With about $3.2 billion in wholesale footwear sales last year, Nike represented 36.3 percent of the nation's $8.9 billion branded athletic shoe market, according to Sporting Goods Intelligence. Its next closest competitor, Reebok, had 12.2 percent of that market.

Sears, which sold Nike shoes primarily aimed at women and children, will suffer the loss of the swoosh more than Nike will miss the department store, said John J. Shanley, senior athletic and footwear industry analyst at the Susquehanna Investment Group.

Joani Komlos, a spokeswoman at Nike in Beaverton, Ore., called the company's decision a brand management matter. "The decision was made based on what we felt was best for the brand," she said, declining to elaborate.

Lee Antonio, a spokeswoman at Sears Holdings in Hoffman Estates, Ill., declined to address outsiders' explanations for the Nike pullout. "We were surprised and, although we are disappointed, we respect their brand decision," she said. "We plan to continue talking to Nike, as our customers feel strongly about the Nike brand."

Ms. Antonio noted that Sears continues to carry shoes from companies including Reebok, New Balance, Adidas and Skechers.

"Advertisers are learning that where they sell their products has tremendous effects," said Robert K. Passikoff, president at Brand Keys in New York, a brand and customer-loyalty consultant. "Where your product values are reinforced by the venue, you will see higher levels of consideration."

In a Brand Keys index that tracks retailer characteristics like merchandise selections, shopping experiences and store reputations, Sears stores score above average but have lost ground over the last five years, Mr. Passikoff said.

Not every branding expert found wisdom in the Nike withdrawal.

"It is surprising and incredibly short-sighted of Nike to pull their sneakers from Sears," said Debbie Millman, president of the New York office of the Sterling Group. "This would have been the perfect opportunity to leverage the idea of a 'specially designed' sneaker for the retailer in an effort to capitalize on the current design-led economy we are living in, which is a good part of what is currently differentiating Target."

Nike has happily sold its sneakers to Wal-Mart since March, but only a swoosh-free brand called Starter. It plans to monitor the results of its Wal-Mart deal for a while before deciding whether to expand the strategy to other chains. The company expects to stop shipping to Sears in October, meaning that the products will stay on Sears shelves through the end of the year.

Sears has survived without Nike before; the shoemaker cut Sears out for much of the 1990's before relenting and signing a new sales agreement in 1999. That agreement expired this year.
And even without Nike, Sears will still sell an abundance of nationally advertised products supplied by outside companies, like Compaq computers, Bosch appliances and Russell Athletic clothes.

But Nike is unlikely to relent in the near term, said John G. Horan, publisher at Sporting Goods Intelligence. "Nike has always had a very keen understanding of its brand image," he said. "It has been very uncompromising about that for years. This is the same thing all over again."

Marketing Elvis...

Falling in Love With Elvis

By STUART ELLIOTT Published: May 2, 2005
ELVIS may have left the building, but for Madison Avenue, it is as if he were still inside, helping woo consumers more ardently than ever.

A multimedia marketing blitz with a budget estimated at $10 million to $20 million is under way to promote a new round of entertainment programming about Elvis Presley. The CBS division of Viacom has declared next week "Elvis Week," in hopes of luring viewers to watch two biographical shows, one fictionalized, the other factual, that run a total of six hours.

CBS has a lengthy list of marketing partners to pitch the shows, "Elvis," a mini-series starting this Sunday, and "Elvis by the Presleys," a documentary, on May 13. Among the partners are American Airlines, part of the AMR Corporation, which will run a Presley program during its in-flight entertainment and distribute Presley CD samplers to passengers; Crown Publishers, part of the Random House division of Bertelsmann, which will release a book, also titled "Elvis by the Presleys"; and People magazine, part of the Time Inc. unit of Time Warner, which will run in its May 9 issue an insert carrying the headline "The King is Hear." When opened, the insert plays a snippet of "Blue Suede Shoes" and a commercial for the TV shows.

Other partners are Presley's music label, Sony BMG, owned by Bertelsmann and the Sony Corporation of America; the quiz show "Jeopardy," owned by Sony, which will feature an "Elvis" category during its show Friday; TV Guide, part of Gemstar-TV Guide International; and Web sites like citysearch.com, with a promotion called "Elvis Was Here," as well as elvis.com and yahoo.com.

There will also be copious cross-promotion by Viacom siblings including CMT, Infinity billboards and radio stations, MTV, Spike, TV Land and VH1.

"It's the biggest thing we've got going for the May sweeps," said George F. Schweitzer, president of the CBS Marketing Group unit of CBS in New York. His reference was to a month in which the broadcast networks typically stuff their schedules full of special programs to stimulate ratings gains as the TV season concludes.

Indeed, almost 28 years after his death, interest in Presley seems bigger among advertisers, agencies and media companies than it was during his life. His growing appeal is emblematic of the increasing interest in deceased celebrities as endorsers because their fame often outshines that of today's stars - and it typically costs less to use their images than their contemporary counterparts'.

Presley, in fact, topped the fourth annual list of top-earning dead celebrities released last October by Forbes magazine, with annual revenue of $40 million, compared with $35 million for No. 2, Charles M. Schulz, the creator of "Peanuts," and $23 million for J. R. R. Tolkien, author of "Lord of the Rings." Here are some additional examples of current Presley projects:

• A musical inspired by Presley, "All Shook Up," opened March 24 on Broadway, featuring live performances of 25 tunes he originally sang. The cast recording, on Sony BMG, is due in stores on May 31.
• A 24-hour Presley music channel, called Elvis Radio, is among the choices offered by Sirius Satellite Radio.
• Presley will be a character in a biographical film about Johnny Cash, "Walk the Line," scheduled to be released on Nov. 18 by the 20th Century Fox division of the News Corporation. Presley will be played by a young singer, Tyler Hilton, who warmed up by performing two Presley songs last month at the wedding of his cast mates Chad Michael Murray and Sophia Bush from the WB series "One Tree Hill."
• Presley is a central part of a musical celebration of the 100th anniversary of Las Vegas, with "Elvis: Live from Las Vegas" to be released May 10 on a new label, Las Vegas Centennial Records, by EMI Music Marketing, part of the EMI Group. The same day, Sony BMG is to release a two-CD set of music from "Elvis by the Presleys," which features his wife, Priscilla, and his daughter, Lisa Marie.
• The first commercials to encourage tourists to visit Presley's Graceland home in Memphis began appearing last month on national television. The spots, created by Thompson & Company in Memphis, carry the theme "Graceland. Where Elvis lives." Note the present tense.

"It's a perfect storm of Elvis," said Jennifer Burgess, marketing director for Elvis Presley Enterprises in Memphis. An 85 percent stake in the company, which controls the rights to the Presley image, likeness and name, was recently acquired from the Presley heirs by the entrepreneur Robert F. X. Sillerman; he is making it a centerpiece of his new entertainment firm, CKX.

Some elements of this most recent Presley blitz were timed to appear all at once, Ms. Burgess said, while others are turning up around the same time by coincidence. The CBS shows were once scheduled for last November, Mr. Schweitzer said, and Jonathan Pollard, the lead producer of "All Shook Up," said his musical had been in development for five years.

But Presley's return to prominence at this time is no accident, many executives say. It has been building for the last three years, as shown by the success of the compilation CD "30 No. 1 Hits," as well as by commercials for brands like Nike and movies like "Lilo and Stitch," which used original or remixed versions of Presley songs.

"It's the re-emergence of Elvis Presley as a brand," Mr. Pollard said. "He has always been popular, but there has been a resurgence in attention to his music and his place in cultural history."

Presley "resonates today because he was a forerunner, a catalyst for change and larger than life," Mr. Pollard said. "And when you look for icons, you expect them to be larger than life."
The renewed interest in Presley is partly due to assiduous efforts by Elvis Presley Enterprises to introduce him to consumers who grew up after the 1960's and 1970's. The goal is to help ensure a continuous revenue stream as older fans lose interest or, um, are returned to sender.
"We've worked hard to present him as contemporary and timeless and it's paying off," Ms. Burgess said. "Our demographics show 80 percent of the visitors to Graceland are under 49."
Others report similar examples of youthful appeal.

"There's a whole generation of new fans," said Chuck Cordray, senior vice president for consumer marketing at TV Guide in New York. "Three of the four times we ran Elvis on the cover in the last five years, those were the best-selling covers of the year."

As part of the CBS promotion, mini-CD's of a previously unreleased version of a Presley tune, "Young and Beautiful," will be attached to millions of covers of the May 8 issue of TV Guide, which goes on sale Thursday. There are four covers, each bearing a Presley likeness from a different year from 1955 to 1968, and a "Discover Elvis" sweepstakes online (tvguide.com/elviscbs), co-sponsored by "The Early Show" on CBS.

There are those who would perceive all this as commercial exploitation, said Joe DiMuro, executive vice president for Sony BMG Strategic Marketing in New York, who acknowledged that "there is a business here, a solid business."

"But we are the home of Elvis Presley," he added, "and it's up to us to find new and innovative ways to keep the legacy going."

What is next for the hardest-working deceased man in show business?

"We're planning another major network event in 2007," Mr. DiMuro said, to mark the 30th anniversary of Presley's death.

PSP as a new marketing media...

Latest Promotion Vehicle Is a Hand-Held Media Device. Will Anyone Watch?

A clip from heavy.com on the PlayStation Portable media player, which will deliver ads to distracted consumers like men 18 to 24 years old.

By NAT IVES Published: May 3, 2005 (NY Times)

As advertisers struggle to reach increasingly distracted and jaded American consumers, they have sought nontraditional vehicles for their ads, from elevators to cellphone screens.

Now Sony has given advertisers another venue to try: its PlayStation Portable, or PSP, a sleek hand-held game system that also plays movies and music.

Heavy.com, a large Web host of short films and animation, has started making many of its clips available as free content specially formatted for the game system. The company hopes advertisers will support the free content by paying for quick commercials before or after the downloads, or by providing content in the form of branded entertainment.

Whether audiences of large enough mass will watch videos and ads on the devices, however, is far from clear.

Unilever, the first advertiser to take Heavy up on its offer, will test the potential with a series of branded shorts about two guys roaming the country and filming their efforts to meet women, all to promote Axe body spray. People can watch them at www.evanandgareth.com, on Heavy.com or on PSP's after a download from Heavy.

The typical Axe customer, a man between 18 and 24 years old, has such fractured media habits that 30-second commercials and magazine ads are not enough, said David Rubin, development manager for Axe at Unilever. "He is still watching television, but even when he's doing that, he's online or might have his PSP on in front of him," Mr. Rubin said. "The more pieces you can reach, the better."

Web advertising also allows more interactivity and measurement than traditional ads, Mr. Rubin said. "If you were to just do television or print, which do play a very important role, you miss the opportunities that other media allow."

Other companies are exploring the marketing potential of the PSP and other new hand-helds. ABC News has converted reports on topics like cybersecurity and hybrid cars for the PSP. Sony Pictures has also made available previews for movies like "Lords of Dogtown," about surfing and skateboarding during the 1970's.

Even with Sony claiming sales of 500,000 PlayStation Portables during its first two days on sale in North America, the potential for advertisers may depend heavily on how much people like watching the clips.

Even the appeal of full-length Hollywood movies has not been proved. Brian D. Crecente, editor of the Kotaku gaming site (www.kotaku.com), has shown some ambivalence about movies in the portable format.

Mr. Crecente wrote on Kotaku one Monday in April about buying the movie "House of Flying Daggers" in the PSP format over the weekend. "I haven't watched it yet," he wrote, "because I would feel weird sitting in my house, which has DVD players, VCR's and countless TV's, watching a movie on my PSP. I was going to go out in the hammock and watch, but it's too bright."

Mr. Crecente said yesterday that he still had not watched the movie but was hoping to find an excuse. "If I'm in a car on a road trip, I can pull it out and watch," he said, "or if I'm stuck at an airport."
Short clips from Heavy.com, which can be watched online anyway, do not necessarily make more sense, Mr. Crecente said. "Why take the extra step of downloading it and taking it somewhere?" he said.

On the other hand, the brevity of Heavy.com's clips might help attract viewers, said David Carson, co-chief executive at Heavy, the New York parent of Heavy.com and an ad agency called TeamHeavy. "Someone doesn't want to spend two hours watching something on the PSP," he said. "But they want something kind of short and kind of funny that they can show to their friends."

Ads and branded entertainment on the PSP will find fewer viewers than most broadcast television programs, but they may be more efficient than most television commercials, said Simon Assaad, Heavy's other co-chief executive.

"The most interesting thing from an advertiser's point of view is the amount of engagement that the audience has with this device," Mr. Assaad said. "The difference between that and television, which is completely passive, is enormous."

Marketers will monitor who buys the PSP and devices like it. If the universe of owners stays relatively confined to young male fans of video games, the PSP's appeal to many advertisers will probably be limited.

Entertainment and retail marketers may be the most intrigued for now, said Wendi Dunlap, interactive strategist at Horizon Interactive, part of Horizon Media in New York. But the place of powerful portable entertainment devices in a fragmented media world will be defined by the ways consumers use them over time, she said. "As consumers adapt, we'll find new ways to support and distribute content."

8 million bloggers can't be wrong

By Frank Barnako, MarketWatchLast


This is only the beginning, if you believe investment analyst Mary Meeker at Morgan Stanley, who last touted blogs as a huge business opportunity late last year. Meeker forecast Yahoo would get into the blogging business big time, and last week, it did.

A more academic boost for blogs is at the heart of a new report by Outsell Inc., a California-based technology market research firm. Chuck Richard, vice president and lead analyst, is a fan of blogs even though he agrees they have "a horrible name and are virtually unknown, but they are going to be big." Behind the sizzle stirs the essential ingredients of the next tipping point in the information industry, he wrote.

Much of the heat and chatter about blogs has been generated from millions of personal online diaries. There's even a new word to describe the fuel of such self-promotional publishing: blego. "A combination of the nouns blog and ego," according to Wiktionary (an open-participation dictionary at http://en.wiktionary.org). "Blogs have become the 'on-steroids' Internet version of enthusiast magazines, fan clubs, and birds-of-a-feather groups," Richard added. "Clearly, there is a huge element of vanity press, but that's not important. What is important is the business-to-business applications," he said in an interview.

Richard urges companies to "quickly embrace" the opportunity to engage customer's interests and attention. "The long-term odds are heavy to the upside," he wrote. "You're betting with house money and can only lose by not playing."

Many large companies have already recognized the value of connecting with employees, customers, critics, a product's users, or prospective buyers. Microsoft Corp. encourages its employees to write Web logs. It hosts about 1,450 of them on a company site at blogs.msdn.com. An executive at IBM Belgium reports there are more than 2,800 internal blogs at the company. The blog of Sun Microsystems' president, Jonathan Schwartz is hosted on a company site, open to anyone who wants to use it.

The value of blogs to businesses is their ability to enable and facilitate communication. "The result is a living, always-on example of the potential wisdom of crowds," the Outsell analyst said. Blogs offer "full transparency and instant dialogue on authenticity and accuracy."

Blogs already are being mined for early intelligence warnings. At least four firms track the online conversations as market research for clients: Intelliseek BlogPulse, Techdirt, Factiva Insight, and Bacon's Information. Paid subscription Web logs are not far away.

Many personal blogs are stuffed with links to news articles. For publishers, this creates a good news-bad-news situation. Their stories are being read and drawing comments, and drawing readers to their Web sites.

But for publishers, trying to protect their content, through subscriptions or putting old articles behind paid-archives, this can be a problem. Richard's counsel is to get over it. At a minimum, he says online publishers should make their news headlines with brief summaries available.
At the other end, they should post others' blogs commenting on coverage, and invite rebuttals and responses. "Readers are attracted to the dynamic and spirited exploration of the topic," Richard said.

Seizing a moment...

Patrick Spain, CEO of HighBeam Inc., responded to Congressman Tom DeLay's comment that Justice Anthony Kennedy "said in session that he does his own research on the Internet? That is just incredibly outrageous." Spain later said, "There's nothing at all outrageous about doing your own research on the Internet," and to back up his assertion, offered free access to HighBeam resources to the Justices, U.S. Senators, U.S. Representatives, Cabinet members, and qualifying journalists.

In Outsell analyst Chuck Richard's view, Spain has pulled off a marketing coup by getting free publicity about the difference between open Web content and HighBeam's authoritative sources, an association with the highest court in the land, and visibility to journalists. Spain continues to prove that high-visibility marketing doesn't have to cost megabucks.

West Side Stadium Media Blitz

Jets launch all-out blitz for stadium

BY MICHAEL SAUL - DAILY NEWS CITY HALL BUREAU

The Jets will launch a major campaign today in a bid to convince key state officials that the proposed $1.9 billion West Side stadium is a jobs touchdown, the Daily News has learned.
Called "vote yes for jobs," the campaign is aimed at getting a three-member state panel to back the stadium in an upcoming vote.

"The Jets and their coalition of supporters are launching this campaign because a vote yes on May 18 means thousands of permanent jobs as early as 2009 and millions in new economic revenue from a 2010 Super Bowl, neither of which can happen without swift approval of the project," a source familiar with the effort told The News.

The Public Authorities Control Board - an obscure state panel controlled by Gov. Pataki, Assembly Speaker Sheldon Silver and Senate Majority Leader Joe Bruno - is slated to vote on the stadium May 18. The three-member panel must approve the project unanimously.

Today, Jets President Jay Cross will join a broad coalition of elected officials and labor leaders at City Hall to unveil the campaign, featuring a Web site, www.voteforjobs.com, and a letter-writing campaign.

In addition to being the NFL team's home turf, the stadium would be the centerpiece of the city bid for the 2012 Olympic Games.

Silver (D-Manhattan) and Bruno (R-Rensselaer) have repeatedly voiced concerns about the project, and both have questioned the need to vote on it before the International Olympic Committee selects the 2012 host city July 6.

Still, Silver and Bruno are officially neutral. Either could postpone the May 18 vote.
As part of the campaign, the Jets will add the following tag line to their TV ads: "Urge Gov. Pataki, Speaker Silver and Majority Leader Bruno to vote YES on May 18th."

In addition, Ed Malloy, president of the Building Trades Construction Council, will launch a radio ad urging workers to turn out for a rally on the steps of the state Capitol on May 17.

Originally published on May 2, 2005 (NY Daily News)