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‘December to Forget’: Automakers, retailers cut TV ads amid supply chain woes

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November 11, 2021

By Joseph White, Sheila Dang and Arriana McLymore

DETROIT (Reuters) – For years, luxury vehicle brands have promoted holiday season sales with slogans like Lexus’s “A December to remember.”

But automakers and dealers are on track to spend less on advertising this holiday season, industry executives and analysts said, leaving behind the generous lease deals and discounts of seasons past. A year of supply chain and production disruptions have left auto dealerships with roughly one-third of the normal inventory levels, giving sellers little reason to shell out for splashy holiday ads.

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“We will not be promoting the holiday season as we have been,” said Rory Harvey, vice president of General Motors Co’s Cadillac brand. With the supply of vehicles at a third of normal levels, he said, “why would you?”

In 2019, General Motors spent an estimated $106 million on TV commercials for Cadillac and $16.4 million on digital ads for the brand, according to estimates from ad measurement and analytic firms EDO and Pathmatics.

Automakers are not alone. Global supply chain disruptions are prompting inventory issues across multiple categories including electronics, toys and apparel. Online shoppers saw more than 2 billion out-of-stock messages last month, more than three times the amount in October 2019, according to the Adobe Digital Economy Index.

Carmakers – usually big spenders during the fourth quarter – spent about $23 million or 10% less on digital advertising between late July to the end of October when compared to the same period in 2019, according to Pathmatics, which compiled data for Reuters. The 2019 data excludes Instagram ads.

The industry also spent $57 million or 5% less on broadcast television commercials during that time frame compared with 2019, according to estimates from EDO.

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“Winter sales events are such an institutionalized event, that it’s hard not to do them,” said Kevin Krim, chief executive of EDO. “But if they do their jobs really well, they could make people unhappy if the cars aren’t there. It is a December to forget for the automakers.”

Ford Motor Co has begun a holiday campaign called “Get Holiday Ready,” to promote its F-series pickup and certain SUVs. Lexus is also going ahead with its annual “December to Remember” advertising campaign, which popularized the idea of a luxury vehicle as a holiday gift.

“For us to change it dramatically, it’s too important to the brand. It’s part of our DNA,” said the brand’s U.S. vice president for marketing Vinay Shahani. Lexus’ spending will be “in the ballpark” of past years, he said.

However, Shahani said, “certainly you could expect the offers may not be as compelling” as two years ago.

At the largest U.S. auto retail chain, AutoNation Inc, the plan is to spend less on advertising than in the pre-pandemic year of 2019, said Executive Vice President Marc Cannon. Discount offers from automakers “will be light all around,” he said.

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Media companies that sell ad time for national television commercials could feel the brunt of the disruptions, said Michael Nathanson, an analyst with MoffettNathanson, in a research note last week.

Nathanson said he expects the total amount spent on national TV ads to decline by 1% year-over-year in the fourth quarter, as car manufacturers, which continue to struggle with chip shortages, could run fewer holiday commercials, he wrote.

That would also represent a 7% total decline in ads from 2019, in pre-COVID times, he added.

KEEPING THE ATTENTION

Looking ahead to the holidays, and beyond the car lot, some of shoppers’ favorite brands may have temporary marketing blackouts, due to inventory and labor shortages.

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Department stores, including Macy’s and Nordstrom’s, spent 8% less on TV commercials from July 30 to Oct. 30 compared to the same period in 2019, according to EDO estimates.

Casual dining restaurants have slashed TV commercial spending by 56% compared to pre-COVID levels, as dine-in restaurants have struggled with fewer wait staff.

However, the supply chain disruptions have not caused data analytic firms to lower projections for total ad spending this year because brands want to maintain a customer’s attention for when products are finally available, said advertising experts who spoke with Reuters.

Data from Pathmatics, which tracks internet display ads and digital ads on platforms like Facebook and Twitter, shows that the top 25 advertisers in four key sectors – packaged goods, retail, electronics and gaming – doubled their spending over the past three months compared with the same period in 2020. For instance, e-commerce giant Amazon spent $304 million during the three months this year versus $176 million during the same period in 2020. Target spent $89 million versus $46 million during the same period in 2020.

Some advertisers have simply switched their messages to market products they have in stock while others merely want to keep their brand names in the front of consumers, said Bret Sanford-Chung, managing director of marketing consulting at KPMG.

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(Reporting By Joe White in Detroit, Sheila Dang in Dallas and Arriana McLymore in New York; Editing by Vanessa O’Connell and Aurora Ellis)

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Investors brace for potential hit to earnings because of Omicron

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December 6, 2021

By Caroline Valetkevitch

NEW YORK (Reuters) – As details of a new COVID-19 variant emerge, investors are bracing for a potential hit to U.S. corporate earnings, particularly among retailers, restaurants and travel companies.

News of the Omicron variant comes in the middle of the holiday shopping period, and many businesses are already struggling with higher inflation and supply chain snags because of the pandemic.

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That is putting the focus again on these companies affected by the reopening of the economy, said Kristina Hooper, chief global market strategist at Invesco in New York.

“Are we still going to see traffic into restaurants and retailers, or at least retailers that derive most of their revenue from in-store traffic as opposed to online?” she said. “The other area of vulnerability of course is supply chain disruptions.”

She and other strategists said it’s too early to tell the extent to which the variant could affect earnings.

The Omicron variant that captured global attention in South Africa less than two weeks ago has spread to about one-third of U.S. states, but the Delta version accounts for the majority of COVID-19 infections as cases rise nationwide, U.S. health officials said on Sunday.

Goldman Sachs on Saturday cited risks and uncertainty around the emergence of the Omicron variant as it cut its outlook for U.S. economic growth to 3.8% for 2022. While the variant could slow economic reopening, the firm expects “only a modest drag” on service spending, it said in a note.

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U.S. companies have just wrapped up a much stronger-than-expected third-quarter earnings season, and the rate of fourth-quarter earnings year-over-year growth has been expected to be well below the previous quarter’s.

Analysts see fourth-quarter S&P 500 earnings up 21.6% from the year-ago quarter, while third-quarter earnings growth was at about 43%, according to IBES data from Refinitiv.

That fourth-quarter forecast has not changed since Nov. 26, just after the new variant became headline news.

Omicron may be affecting travel plans. Airline shares have already come under pressure, with the NYSE Arca airline index down 8.3% since the close of the session before Nov. 26.

For companies, “the significance of the impact will depend on how long the Omicron measures last,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There will be some short-term impact… It’ll surely cause some short-term disruption to travel.”

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Colin Scarola, a vice president of equity research at CFRA, wrote in a Dec. 2 note on the airline sector that while details of the variant are still emerging, trends in U.S. air travel over recent months with the Delta variant may give some insight into what could happen to travel under the Omicron variant.

“This recent history tells us that most people have already accepted the material risk of infection with a Covid-19 variant when fully vaccinated. But knowing that risk of severe illness remains very low, they’ve been comfortable flying on airplanes,” he wrote.

Compounding concerns about the 2022 earnings outlook are higher costs for companies, with Federal Reserve Chair Jerome Powell last week signaling that inflation risks are rising and numerous companies citing rising costs during the third-quarter earnings season.

Even before the Omicron news, Tuz said investors were reading “more and more about inflation and wages and other inputs,” and that was expected to continue into 2022.

“I don’t know if the ability to pass along these higher costs is going to exist as much,” he said.

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(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

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Bank investment chiefs signal China and emerging market caution

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December 6, 2021

LONDON (Reuters) -Market volatility and uncertainty over China’s indebted property sector is making bank investment chiefs cautious about its assets, amid more general nervousness about broader emerging markets.

“I would take a wait-and-see approach on emerging markets,” Credit Suisse global chief investment officer Michael Strobaek told the Reuters annual Investment Outlook Summit.

“I would take a day-by-day, week-by-week approach to China, to see what’s unfolding on the default side and the policy side,” he said, referring to problems in the country’s giant corporate debt sector.

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“Only if I see real deep opportunities, I’d go back in.”

Willem Sels, Global CIO, Private Banking & Wealth Management, HSBC, said clients needed to take a longer term view on emerging markets after many were hurt by recent volatility.

“We have a neutral view on China, we try to diversify,” he said.

“We try to get the confidence of investing in China. We try to align ourselves with what is clear in terms of government policy, and that’s the net zero transmission.”

Investors can still “find some winners” in China by digging down into areas like green tech and 5G-related businesses where the government was showing significant support, said Mark Haefele, CIO at UBS Global Wealth Management.

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(Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Alexander Smith)

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IMF says euro zone should keep supporting economy, high inflation is temporary

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December 6, 2021

BRUSSELS (Reuters) – Euro zone governments should continue to spend to support the COVID-19 economic recovery, though in an increasingly focused way, and consolidate public finances only when it is firmly under way, the International Monetary Fund said on Monday.

In a regular report on the euro zone economy presented to the group’s finance ministers, the IMF noted, however, that while consolidation itself could wait, a credible way of how it would be done in the future should be announced already now.

“Policies should remain accommodative but become increasingly targeted, with a focus on mitigating potential rises in inequality and poverty,” the IMF said.

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“Fiscal policy space should be rebuilt once the expansion is firmly underway, but credible medium-term consolidation plans should be announced now,” it said.

The Fund also noted that the rise in inflation, which hit a record high of 4.9% on a year-on-year basis in November, was temporary and, therefore, not a big threat because it did not translate into a spike in wages, called a second-round effect.

“Recent inflation readings have surprised on the upside, but much of the increase still appears transitory, with large second-round effects unlikely,” the report said, adding that the European Central Bank’s monetary policy should therefore continue to be accommodative.

“Structural reforms and high-impact investment, including in climate-friendly infrastructure and digitalization, remain crucial to enhancing resilience and boosting potential growth,” the IMF said.

(Reporting by Jan Strupczewski; Editing by Paul Simao)

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