Here’s what radio expected—that Q1 revenues, the year after a presidential election, would be a bit soft. Advertising has a habit of working that way. The challenge going forward: How do you make 2017 numbers rise through the year, in a market that keeps shifting?
An Inside Radio analysis of year-over-year advertising trends shows a number of consistencies and as many shifts. In the former category, there’s this: Among top national advertisers at radio, no less than six shared ranking in the top 10 of both first quarter 2017 and 2016. That demonstrates a profound belief in the airwaves from the likes of GEICO, Home Depot, McDonald’s, JC Penney, AutoZone and Walgreens.
On the other hand, as consumer buying—and thus brand revenues—evolve, so then are top spending categories. Two red flags radio is watching closely: brick & mortar retailers are feeling bruised by online competition; and auto sales are trending downward after a record 2016. Those categories have been so impacted that they are grabbing headlines in the mainstream press. And it will be up to radio to evolve with the times and offer itself as the right place to foundationally keep stable and even grow.
That said, some hits have most definitely come. Data from the Compass unit of Borrell & Associates shows a decline in national radio advertising of 7.4% across all markets: from $2.7 billion last year trending toward $2.5 billion in 2017. “While some of that is because of the general exodus of political, we also see some ugly declines in health and automotive,” says Gordon Borrell, founder and CEO. “They’re migrating toward TV, and particularly cable because of its targetability and relatively comparable price point with radio.”
That said, Thom Callahan, president of the Southern California Broadcasters Association (SCBA), anticipates an eventual uptick. “There are concerns. The marketplace is slowing a bit,” he begins, “but overall in 2017, from where we’re sitting right now, the industry should finish in halfway decent shape. I can’t say that it will finish as well as 2016; a lot of factors can change overnight.”
What hasn’t changed is the range of top radio advertisers. The top 5 all represent diverse categories, with GEICO finishing both first quarters as the No. 1 national advertiser at radio, according to figures provided by Media Monitors. The insurance carrier has upped its stake this year: 613,657 spots vs. 583,781. Promos for iHeartMedia’s digital and events arm iHeartRadio is again No. 2, with 612,105 mentions in 2017 vs. 432,947 last year. Home improvement retailer Home Depot is No. 3, vs. No. 4 last year; quick service restaurant McDonald’s is No. 4 again; and department store JC Penney is No. 5, up from No. 8.
But comparing Q1 year-over-year, the Radio Advertising Bureau—like the SBCA—points to a sluggish January-March. “ has been a slow start overall for all media, based on reports we’ve seen from various financial firms,” says Erica Farber, RAB president and CEO. However, while “radio experienced some shortfalls,” she notes ad category gains in financial services, TV/networks and cable, home improvement, specialty retail and hotels/motels.
All the same, a primary concern is that among national retail trends that could have a fundamental impact on radio advertising is the continual decline of brick & mortar retail. Borrell says, “We’ve tracked about 3,600 announced retail closings so far this year, surpassing what we saw in all of 2016. Some are saying it’ll break the record of about 6,600 closings, seen amid the Great Recession in 2008.” In fact, brokerage firm Credit Suisse offers the bleak estimate that more than 8,600 local stores will close in 2017, compared with 2,056 last year.
While Borrell’s research show that this is impacting all advertising media, print media seems to be hurting the most—because such retail chains as hh gregg, Payless, GameStop, Sears and JC Penney rely heavily on print coupons for marketing, he says.
“I think it will certainly affect radio, but more so for stations that don’t realize an equal number of retailers are opening stores this year,” Borrell adds, including Dollar Tree, which says it will open 1,000 stores. “You’ll also see Nordstrom Rack, TJ Maxx, Target and beauty supply store Ulta come into markets.” The latter plans to double its stores to about 1,700 over the next few years.
SCBA’s Callahan points out that while online shopping is obviously on the rise, “If you go to any shopping mall in Southern California, on any given Saturday, the parking lots are jammed. They may not be walking out of the stores with as many packages as they were last year at this time, but they are definitely using brick & mortar to taste and sample and touch the merchandise.”
During its Q1 2017 earnings call, Townsquare CEO Steven Price said that despite valid brick & mortar woes, retail was up in the quarter for its radio stations: “It was one of our better categories.” With the company’s focus on smaller markets like Boise, ID, Lubbock, TX and Abbeville, LA, he believes that “given where we are, that could have to do with store openings in our markets. Maybe national advertisers or local advertisers and retailers are realizing that they want to invest in marketing in the heartland. There are lots of people out in Middle America and maybe that’s starting to take hold.”
In the quick service and pizza restaurant side of foot traffic, 2016 as a whole also saw erosion, “due to ongoing consumer trends towards healthier eating habits, plus declining commodity prices, which held down the cost of eat-at-home meals,” notes Jon Swallen, chief revenue officer with Kantar Media.
That actually turns out to be good news for radio—as QSR and pizza joints boosted advertising to counter the declines. Data provided to Inside Radio by Kantar Media shows that last year, their radio spend was up 32%—compared to a 5% increase in total media budgets. Burger King alone increased radio spending by more than $50 million, and remains among the top 20 national advertisers at radio in Q1 2017. Says Swallen, “Radio’s targeting capabilities and short lead time to air helped bring in more QSR/pizza money.”
Callahan offers retailers a bit of constructive advice. Understanding that the marketplace is shifting, they must “use both ends of the spectrum: a fully developed digital presence to track the consumer on the internet, but also a brick & mortar location to let people see and understand the products they’re about to buy,” he says.
Business and financial publication Kiplinger also acknowledged this conundrum, and a hoped-for reversal by radio. It reported May 12 that sales at general merchandise stores—excluding department stores—dropped each month in first quarter 2017, “leading to speculation that e-commerce is starting to take a deeper bite of this sector as well.” It reports that e-commerce sales will grow 14% this year, compared to 13.1% in 2016.
And yet, Kiplinger also predicts that retail sales in 2017, excluding gasoline, will rise 3.8%, the same growth rate as 2016. “A pick-up in merchandise sales this year will balance out expected slower growth for motor vehicles and restaurant meals,” the forecaster’s website says. As well, in-store sales will rise 1.5%, the same as 2016.
Data provided to Inside Radio from SCBA indicates similar positive signs. In Los Angeles, 293 new advertisers were tracked at AM/FM Radio in the first two months of 2017; in San Diego, 94 new advertisers joined the airwaves. “That is an impressive $12.5 million in new advertisers through February 2017,” the association notes.
The RAB’s Farber points specifically to a bevy of national brands that have committed to the airwaves in Q1 2017. Among them are several products and services that are purchased in person, in-store: Pep Boys, Bacardi, LetGo, National Pork Board and Upside Travel Co. Additionally, she points to high-profile companies such as BJs, MillerCoors and Staples “re-entering the radio space with significant spending” this year.
Borrell says, “Smart stations that remain alert and have very strong digital offerings will see increases this year. The weaker stations will spend a lot of time bemoaning all the mall closings.”