Comparison Shopping

How the Kmart/Sears merger will impact TV and its ad agencies
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The merger of Kmart and Sears, Roebuck & Co. has enormous ramifications for television.

First, it marries two powerful TV retail advertisers into a single entity that will dwarf Wal-Mart, its nearest competitor in the home-retailing category, in ad spending. With a combined ad budget of more than $1 billion, the new company, destined to operate under the Sears corporate banner, already spends about three-quarters of its ad dollars on TV outlets, especially national ones.

Second, while Wal-Mart still dominates local ad spending in the category by a two-to-one margin, a newly consolidated Sears corporate media department may be a huge concern for TV stations and national telecasters alike.

Both Kmart and Sears, like most players in the home-retailing category, are among the most TV-centric advertisers. The combination of two big buying organizations will afford the new Sears marketing team and its agencies a rare opportunity: to compare notes on TV ad prices.

That move is likely to spark a wave of negotiations between Sears’ media agencies and local and national TV outlets, especially major players like the broadcast networks.

“From a TV point of view, the most interesting part of this is that they get to compare rates,” says a Sears media insider, who speculates the combined entity would likely seek to reset all its ad agreements based on the company with the better deal.

“Let’s say Sears has the higher base and Kmart is paying 10% less. That’s 10% that’s coming out of the networks’ pockets,” he says.

It will take some time for the merger to settle and for the impact on both retailers’ marketing organizations and ad agencies to shake out. But the initial expectation is clear.

Even though Kmart is the acquirer, Sears, armed with sharper marketing and media teams, is the stronger brand. Perianne Grignon, Sears vice president, media services and also chair of the Association of National Advertisers’ influential Television Advertising Committee, is widely credited with helping to turn Sears into a media powerhouse.

Big ripples will be felt on Madison Avenue, although it is not immediately apparent what this means for each company’s respective ad agencies.

Sears is handled by long-time media agency MindShare, while Kmart is serviced by MediaCom, which is being acquired by MindShare’s parent company, WPP Group. WPP is expected to continue operating Media­Com as a separate media-buying network from MindShare following the merger, though it’s less certain how either would address the consolidated Sears business.

Whatever the outcome, the result is likely to have a more profound impact on national TV outlets than on local stations. Sears and Kmart prefer national brand-building strategies to the local traffic-building ones championed by Wal-Mart and Home Depot. And both use a higher percentage of local TV ad time to attract customers.

Before the merger, Sears was outspending its bigger retail rivals Wal-Mart and Home Depot by considerable margins, in terms of overall ad expenditure and TV ad budgets.

For example, in 2003, Sears’ all-TV spending, which includes broadcast, cable syndication and Hispanic TV, totaled $556 million. Wal-Mart’s tab was $456 million and Home Depot’s was $343 million.

And while Sears still trails other retailers in terms of total sales, its problems are considered retail-related rather than marketing-related.

Kmart has also stepped up its ad spending since emerging from Chapter 11 bankruptcy protection in 2003, although it is the smaller marketing force coming into the merger. The combination of the two is expected to lead to some shakeout within the marketing departments, resulting in an even stronger consolidated team.

One thing that may not change as a result of the merger is Kmart’s and Sears’ success in utilizing big names to fuel their ad campaigns. Sears has a tie-in with home-improvement guru Bob Vila; Kmart has enjoyed a long association with domestic diva Martha Stewart.

In addition, Sears has emerged as a leader in the arena dubbed “branded entertainment,” which consists of product-placement deals that tie advertisers and brands into the inception of TV programs.

One of the most visible examples is Sears’ successful partnership with ABC in the creation of Extreme Makeover: Home Edition, in which the Sears brand has become an integral part of the series and the retailer’s off-air advertising is used to reinforce and promote it. The spots, featuring host Ty Pennington and carrying the “Good Life” tagline, have connected with viewers.

That effort, which spotlights Sears’ focus on both image and lifestyle, may serve as a blueprint for the future of the new company’s advertising.

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