Manufacturers, Retailers Facing Rising Coupon Fraud

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Coupon fraud is on the rise and some major manufacturers and retailers are crying foul.

From 1986 to 2001, the Coupon Information Corp., a nonprofit watchdog for the coupon industry, reported only two cases of investigated or prosecuted coupon fraud. In 2007, there were only nine. However, in the last year and a half, there have been 93 such cases and the numbers are expected to continue to rise as the recession drags on and the Internet offers new tools for coupon fraud.

CIC says the cost of these counterfeits has easily been in the tens of millions of dollars, according to a survey of 24 major consumer-products manufacturers. One consumer-product manufacturer estimates its losses to counterfeit coupons now exceed $3 million a year.

“People are desperate to steal now,” said CIC Executive Director Bud Miller. “And it’s going to get worse before it gets better.”

Manufacturers and CIC held a meeting in Washington, D.C., last week to update their joint efforts to fight coupon fraud. Techniques used in coupon fraud include reprinting in-store coupons and even smudging bar codes to extend expiration dates.

According to Inmar Inc., a coupon processing agent, coupon redemption in the fourth quarter of 2008 rose nearly 10% from the year before, the first jump in redemption since the early 1990s.

“Consumer response remained strong for the year with 2.6 billion coupons redeemed, the third year in a row at that level,” Inmar said in a press release on its Web site. “The weak economy was a major factor in stopping the steady decline that coupon redemption had seen in the years prior to 2006. The peak year for coupon redemption was 1992, at the end of the last major recession, when 7.9 billion coupons were redeemed.”

Inmar director of marketing, Matthew Tilley, said coupon redemption has surged nearly 17% in the first quarter of 2009 compared with a year ago, and Inmar expects double-digit growth for the second quarter.

Larry Joseloff, vice president of National Retail Federation, said retailers have few options to control coupon usage. They can either set a certain number of times a customer can use a coupon or make each code unique and never issue randomly generated, transferable coupons.

In January 2008, Nestle Purina Petcare Co. issued 250 coupons for a free bag of its adult dry dog food. As of May 5, the company said, 2,754 coupons for the product have been redeemed, but declined to comment further on coupon fraud.

This month, Coca-Cola Co. (KO) had to withdraw a free 12-pack coupon from its “My Coke Rewards” program due to “widespread counterfeiting,” warning consumers in a statement that “attempts to submit counterfeit coupons may result in civil action or criminal prosecution.”

“Coca-Cola recognizes the potential for coupon fraud and we continually work to increase the security and integrity of our coupons,” said Coke spokeswoman Susan Stribling, adding that it’s an industrywide issue and that Coke works with other manufacturers and retailers to address the problem.

Drugstore chains have also been targeted, with Web sites specifically created to trade or discuss coupon use from the chains.

CVS Caremark Corp. (CVS) said the Web sites infringe on it intellectual copyrights and said any “links to any printable in-store redeemable CVS coupons are unlawful.”

CVS spokesman Michael DeAngelis says the company’s ExtraCare program, which gives loyal customers exclusive savings from the retailer and its manufacturing partners, such as Unilever PLC (UL) and Coke, helps thwart some coupon misuse and online coupon abuse by linking the coupons with customer loyalty cards.

However, Walgreen Co. (WAG) spokeswoman Tiffani Washington notes the use of “Internet coupons is difficult to control.”

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Wage Hike Set To Squeeze Fast-Food Restaurants

Wage Hike Set To Squeeze Fast-Food Restaurants

DOW JONES NEWSWIRES

   By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Fast-food chains will see another round of margin pressure as the latest minimum wage increase sets in next month – and this round may be more difficult to absorb.

While job cuts may be on the table, some analysts said lean operating models will make it difficult for fast-food companies to slash their work forces without affecting customer service. They’re likely to look elsewhere – training and employee retention programs – to cut costs, according to the National Restaurant Federation.

“Mostcompanies are very careful of balancing the relationship with customers,” said David Tarantino, an analyst from Robert W. Baird & Co.

On July 24 the federal minimum wage is set to rise 11% to $7.25 an hour, the last in a three-step increase. While employees may see a paycheck boost – some states’ minimum wage exceeds the federal mandated wage – companies like Burger King Holdings Inc. (BKC) and McDonald’s Corp. (MCD) will find it more difficult to absorb the hit or even pass it along to customers.

“You cannot run restaurants with fewer people,” said Nicole Miller Regan, a restaurant analyst at Piper Jaffray & Co. “Beyond that, it’s not about cutting the cost, it’s about how can you have more revenue.”

Matthew DiFrisco, an analyst at Oppenheimer & Co., agreed, saying: “They are going to sacrifice some margin in order to hold on the top line.”

That margin is already slim in the fast-food world. In normal economic times, profit margins for an average fast-food company stand around 4% before tax, according to Hudson Riehle, chief economist at the National Restaurant Association.

“It isn’t an extremely high-margin industry,” said Riehle. “In an economically tough time, it’s even harder to maintain the level.”

Some companies are utilizing new marketing efforts and improving efficiencies to offset cost increases.

McDonald’s is expanding its drive-through lines and using new, more efficient drink dispensers, said Oppenheimer’s DiFrisco.

“They are always trying to get more efficient on their models,” he said.

For its part, Burger King is introducing higher-margin products like its miniature burgers, called Burger Shots, said Piper Jaffray’s Regan.

While food prices have abated in recent months, analysts expect commodity inflation to return, putting additional pressure on margins.

Until then, the fast-food industry is competing heavily on value, with Burger King notably running more ads touting its $1 Whopper Jr. sandwich to woo the cost-conscious consumer. The fierce value wars could limit fast-food chains from raising prices in response to higher costs.

Representatives from McDonald’s and Burger King declined to comment on how the companies would address the wage hike.

“Minimum wage is an industry issue, not only McDonald’s,” said McDonald’s spokeswoman Danya Proud.

Some fast-food chains may weather the wage increase better than others due to the franchise-base operating model, which shifts the cost burden to franchisees.

Baird’s Tarantino said Yum Brands Inc. (YUM), operator of Taco Bell, KFC and other chains, is particularly insulated from the cost increases due to its highly franchised operating model. Yum franchises 82% of its fast-food restaurants in the U.S.

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

Copyright (c) 2009 Dow Jones & Company, Inc.

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Limelight Shrs Up Amid Speculation It May Be Takeover Target

By Kate Zhao

Of DOW JONES NEWSWIRES

http://online.wsj.com/article/BT-CO-20090611-714656.html

NEW YORK (Dow Jones)–Shares of Limelight Networks Inc. (LLNW) shot up as much as 16% Thursday amid speculation that the content-delivery network services provider may be a takeover target.

“Every couple of months, there are rumors that Limelight is going to be acquired by anyone among a number of acquirers,” said Michael Olson, an analyst with Piper Jaffray & Co.

Although there was no indication the buyout chatter was anything more than speculation, shares of the company closed up 11% at $5.55 after earlier rising as high as $5.78.

“We didn’t announce any major news today, and from our perspective, I don’t see any news that triggered the market rally,” said Paul Alfieri, Limelight’s spokesman. “It’s just simply supply and demand.”

Competition among media content-delivery companies, such as Limelight, Akamai Technologies Inc. (AKAM) and others has intensified as Akamai bought a number of challengers over the last decade. Limelight has managed to grab market share and push down prices for commodity video-streaming services.

“Limelight’s international expansion is a positive, outpacing domestic growth,” Olson said in a research report.

He also said he anticipates that continuing international growth would drive performance in the second quarter.

-By Kate Zhao, Dow Jones Newswire; 201-938-5451; ying.zhao@dowjones.com

CDI Shrs Down; Analysts Say Staffing, Outsourcing Demand Weak

   By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of CDI Corp. (CDI) fell as much as 11% Monday as analysts said a broad decline in demand from Fortune 1000 companies for outsourcing services and staff hiring continued to weigh.

The unemployment rate jumped to 9.4% in May and job openings in the U.S. fell to 2.5 million on the last business day of April, the Labor Department has reported. The job openings level was at its lowest level since Labor began tracking the data in December 2000.

“Nothing dramatically changed since Friday,” said James Janesky, an analyst with Stifel Nicolaus & Company, Inc. “The staffing group as a whole – certainly CDI included – has had a significant run to their bottom.”

Shares of CDI, a technology-outsourcing and staff-hiring service company, were recently off 4.3% to $11.45 on a down day after earlier dipping as low as $10.61. Shares of CDI rivals Kforce Inc. (KFRC) and Manpower Inc. (MAN) were down 6% and 3% respectively.

Vincent Webb, vice president of CDI, declined to comment on the share movement, citing a company policy.

In March, CDI reported it swung to a first-quarter loss of $900,000, or 5 cents a share, from a year-earlier profit of $7.9 million, or 39 cents a share. At the time, the company attributed the financial results to the weakness in hiring demand and forecasted further staffing reductions and project delays.

“My view is the services have stabilized at a very depressed level,” said Janesky. “The market is still very depressed, the hiring environment is still very depressed.”

Janesky added the temporary hiring demand is declining in line with the permanent hiring demand and the economic won’t bounce back until the mid of 2010.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

P&G Using Online Soap Opera To Market Beauty Products In China

By Kate Zhao
Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Procter & Gamble Co. (PG) has once again turned to the soap opera genre to market its products, only this time the soap is online and the characters are in China.

Max Factor, a beauty brand that P&G is discontinuing in the U.S., is playing a central role in the firm’s new marketing efforts in China. An online soap opera made by P&G’s beauty and grooming group and Beijing Hachette Advertising Co. tells the story of two young, energetic professional women, Max Factor’s target consumers in the country. And, of course, the show’s characters use only P&G beauty products.

Foreign companies are increasingly using the Internet to reach their Chinese consumers. Marketing tools such as corporate blogs and sponsorship on social Web sites have been widely adopted by manufacturers of consumer products and electronics. Sony Pictures Television, a unit of Sony Corp. (SNE), and Estee Lauder Cos.’s (EL) Clinique, for example, have worked together to broadcast an online show “Sufei’s Diary” to plug Sony Vaio laptops and Clinique cosmetics.

By tapping the Internet, P&G hopes to boost sales of Max Factor and other beauty brands like Olay and Pantene in China.

P&G wouldn’t give numbers on its sales or advertising expenses in China since the debut of its online shop at Taobao.com, a unit of Alibaba.com Ltd. (1688.HK), saying the program and the online shop are still in trial phases.

“New media means new lifestyle, so you are going to see more and more trials in the future,” said Feng Yan, an associate professor at Shanghai Jiao Tong University. “Big advertisers [are beginning to] take advantage of [new media] to reach their consumers.”

P&G has woven product placements for Max Factor into the online show and included interactive aspects and commercials for its other major brands, including Pantene, Vidal Sassoon, and Head & Shoulders. In addition to its online efforts, P&G has opened high-end Max Factor counters at department stores in major cities, including Beijing and Shanghai.

The general soap opera format isn’t new to P&G, which for years has used the genre to reach women consumers in the U.S. However, using the Internet gives the company the ability to allow its audience to interact and participate in the program’s development.

The 12-episode show is centered around the character of Xiang An, an editor at a fashion magazine, who uses Olay skin care products every day, and her best friend – Coco Bai, a makeup artist working at the same place. Viewers can argue with each other through an online forum about Bai and An’s opinions on love and life, send text messages to guess the next episode’s content to win free gifts, or directly buy products online on Taobao.com.

Before the show’s debut May 8, P&G primarily used TV commercials to target Chinese consumers, and was the top bidder at the China Central Television prime time slot auction from 2005 to 2007, according to Access Asia, an independent market research company. Access Asia said P&G remained among the top bidders in 2009, spending $75.3 million at this year’s auction, up 6% from 2008.

Young white-collar Chinese professionals between the ages of 25 to 35 – P&G’s target audience – typically spend only about an hour and a half each day watching TV. However, the same group typically spends four hours online every day and spent around $667 million for online shopping in the first quarter of 2009, according to iResearch Consulting Group.

The new show seems to have had some success. Between May 8 and June 5, each episode attracted an average of one million viewers, according to Hachette Advertising, adding that viewers sent in more than 50,000 text messages in less than three weeks and that the show was the target of 32 million searches from May 8 to May 31 on Baidu.com (BIDU), China’s No. 1 search engine.

Hachette is currently working on the second season, which will change the show into a more open-ended model, allowing audiences to change the plots of each episode, said Mier Ai, managing director at Hachette Advertising.

Milton Kotler, president of Kotler Marketing Group Inc., a marketing consultancy based in southern China’s Shenzhen, says the continued success of the new show will depend “on how creative they are,” adding that embedded commercials, if overused, could backfire and annoy the audience.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

(END) Dow Jones Newswires

06-17-09 1338ET

Copyright (c) 2009 Dow Jones & Company, Inc.

Jewelers Cutting Costs To Protect Margins

By Kate Zhao
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Retail sales are down, unemployment is up and gold is expensive, so for jewelers like Signet Jewelers Ltd. (SIG), the business is all about cost-cutting right now.

Signet’s first-quarter profit rose 2.3% largely because of cost-cutting. The company, the world’s largest specialty retail jeweler, wants to save $100 million in costs over the next fiscal year. Likewise, high-end jeweler Tiffany & Co. (TIF) and rival Zale Corp.’s (ZLC), both dealing with sales declines, want to reduce inventory and expenses by more than $300 million collectively this year.

To be sure, marketing to their core customers is still an important part of profitability for specialty jewelry retailers. Many get 80% of their profits from 20% of their customers. But cutting labor costs is also hugely important right now.

Lauren Thompson, communication manager of Jewelers of America, said jewelry retailers tend to be generational businesses that have learned to manage their inventory well: “Unlike other types of retail industries, jewelers still have a close connection to their community and this can be a benefit in challenging economic times,” Thompson said.

Also, jewelry retailers offset products which are classic – gold jewelry, hoops, simple chains – with those with good margins, like colored gemstone jewelry.

Signet, the owner of Kay jewelry and Jared the Galleria of Jewelry, said cost-cutting helped boost its operating margin 1.3 percentage points to 6.9%.

After the earnings report, C.L. King & Associates analyst William Armstrong raised his estimate for Signet’s annual profit by 1 cent a share to $1.22 and raised his price target to $23 per share from $16.50, saying Signet is also beginning to see “the benefit of the many competitive store closings in the U.S. over the past year.” Shares of Signet recently were up 4% at $20.94.

Ken Gassman, president of Jewelry Industry Research Institute, said, on a year-over-year basis, “we’ve lost about 500 jewelers – April 2009 vs. April 2008….We think about 1,200 jewelers will go out of business this year – just over 5% of the total in the U.S. market.”

Signet is aiming to cut $100 million in costs for the year ending February 2010. So far, in its first quarter, it has racked up $32 million in savings through layoffs, reducing its store refurbishments budget and curbing advertising. While its 1,957 stores saw lower traffic, cost-cutting helped offset the drop in revenue.

Signet also plans to close 70 to 75 stores in the U.S. market, where store sales account for 76% of its revenue, said Tim Jackson, the company’s investor relations director.

Precious metals are a major input into the jewelry-making business and raw material costs, for the most part, remain out of the retailers’ control. Gold futures traded on the Comex division of the New York Mercantile Exchange have risen more than 8% this year, while silver futures have jumped more than 30%. In April, U.S. jewelry consumer prices rose by 2.5%, according to the Bureau of Labor Statistics.

High-end jeweler Tiffany posted a 62% drop in quarterly profit and rival Zale’s loss widened as sales fell 20.5%. Zale is planning to reduce inventory and expenses by $175 million and $130 million, respectively, through this year.

“We are looking to re-align our rent structure with sales trends, close additional underperforming stores and renew leases that offer the best returns,” said David Sternblitz, vice president and treasurer at Zale.

Tiffany is targeting $100 million in cost cuts to selling, general and administrative expenses this fiscal year. Most of the savings, about $60 million, will come from cutting jobs. Mark Aaron, vice president of Tiffany, said the company laid off 90 people in the first quarter.

Tiffany also wants to curtail inventory, though it was up in April: “We maintain very high levels of product availability in our stores, which is a competitive advantage,” Aaron explained.

Aaron said the company saw $15 million in savings in the first quarter, leaving another $85 million for the following three quarters.

Having reported an upbeat first-quarter result, Signet is also facing a more difficult second quarter, which is often seen as an “off season” for jewelry purchases, and the company expects its costs savings to fall below the $32 million seen in the first quarter.

-By Kate Zhao, Dow Jones Newswires; 201-938-5451; ying.zhao@dowjones.com