REEL TIME SUPPLEMENTAL REPORT
November 14, 2001 

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	Retail Review:  October Retail Sales Up 7.1% To A New 8 -Year Low

The strength of retail sales impacts advertising expenditures and thus paper consumption. This supplemental report will review several items related to retail sales and advertising spending so the title is only partially descriptive - but I couldn't pass up the opportunity

The title story first. The October increase in national retail sales of 7.1% over September should be accompanied by a chorus of "Happy Days are Here Again" - but let's take a closer look. Auto sales were up 26.4% in October due to a 0% interest promotional program, which was obviously a great success, but is unrepeatable. Excluding auto sales, national retail sales were up only 1% over depressed September sales.

When comparing October of 2001 to October of 2000, retail sales, excluding autos, were up only 1.6%, which according to The Dismal Scientist, is the slowest year-over-year growth in at least 8 years. Furniture, home furnishings, and electronic retailers all had lower sales than in October 2000, while apparel sales were flat. Early anecdotal reports in November seem to point to modest improvement over October. There will be a Christmas season but it won't be robust and it's too early to break out into song.

Ad Pages and Survivorship Bias

The Magazine Publishers Association reported that year-to-date ad pages through August were down 11.2%. However, September ad pages were down 9.9% and that brought the year-to-date decline to 9.2%! How can ad pages be reduced from a negative 11.2% year-to-date to a negative 9.2% year-to-date by the inclusion of a one-month decline of 9.9%? It's not easy.

"Survivorship Bias" can be the manipulation of a reality TV show or, in this case, provide the answer to our ad page dilemma. MPA ad pages are calculated each month by comparing the year-over-year change of a specific list of magazines. New magazines are only added at the beginning of each year. However, when magazines cease publication during the year, both last year's ad pages and this year's ad pages are eliminated. Since magazines which cease publication during the year will almost always have ad page declines greater than average before closure (and a 100% decline after closure), the elimination of these magazines from the survey creates a positive bias - a survivorship bias. Only surviving magazines are considered.

It was the closure of The Industry Standard in August that was largely responsible for the ad page anomaly between the August and September year-to-date data. Ad pages in The Industry Standard were down 76% through August, but since there was no September publication, this magazine was no longer included in the survey and this huge drop in ad pages was no longer represented in the data.

This year has been an especially difficult year for magazine publishers. Through August, more than 60 titles were eliminated, and many were not new publications. Nineteen had been in business prior to 1990 and five had start-ups between 1928 and 1959. Mademoiselle ends a 66-year run in November.

Since all these closures will be purged from ad page data, the real ad page decline is significantly greater than that being reported.

October Ad Pages

Monthly reports of year-over-year ad page declines had bottomed in May and, while still negative, had improved for three consecutive months. Absent the events of September 11, October ad pages would have likely declined between 4 and 8%. October was, however, the first month of ad pages to be impacted by September 11 and was down 16.8% from October 2000.

Catalog Sales

Catalog Age tracks 17 publicly traded consumer catalogers and indicated that 8 out of 17 of these companies had reported a net loss in the second quarter.

September 11 events, the anthrax situation, and another postage increase sometime in the next 9 months are exacerbating what was already a very difficult economic environment for catalogs.

When Will The Economy Bottom?

Most economists are expecting a short, mild recession, which will bottom in Q1/02. We won't argue the point very hard but still expect the bottom a little later, hopefully by Q2/02. Since retail is about 2/3's of our economy, any turnaround will have to be accompanied by an improvement in retail sales. Until this turnaround takes place, print advertising and print consumption will remain under pressure.

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