Change with the times or get left behind
In 1971, I made my first sales call on a powerful retailer, Kmart. Walking into the retailer's massive, intimidating headquarters, I had my sales pitch down pat.
Once called into the buyer's office, I quickly learned how little I really knew. The buyer not only knew everything I was going to present, but also knew the true cost of my goods.
But he agreed to test the waters in a select number of stores. If the test was a success, a rollout plan would be made.
That buyer was a merchant, and that type of person no longer exists in most retail environments.
Today most retailers operate out of a rearview mirror. Buyers purchase the same merchandise the next year as they did the year before. Why do you think that is?
There is no incentive to gamble or innovate. If their program is successful, there is no reward. If their program is a failure, it could put their career in jeopardy.
Retail has been reduced to a dollar-per-square-foot return on investment not dissimilar to the real estate world — in fact, very much the same. In order for SKU "X" to find its way onto the shelves, SKU "Y" with proven sales has to be replaced. Retail as we once knew it is dying. Some might argue that this is not the case in supermarkets, but try succeeding without paying slotting fees.
And how does the changing retail landscape apply to retailers' store brands?
Understanding that today 25 percent to 28 percent of all purchases are store brand products, there has to be a total change in the retailers' approach. Traditionally, retailers looked at store brands as "value brands," national brand equivalents that competed strictly on price. Although retailers work on very slim margins for national brands, they look to sell store brands at substantially higher margins.
Today's conscious consumers are much more aware of what they are buying. They read labels, search the Internet and engage in social media platforms to consider their options before buying. Store brands need to be developed as if they are national brands that just happen to be available exclusively at a particular retail banner.
In addition, retailers need to use their store brands to make a statement. Marketing is key and needs to be facilitated by the retailer. They cannot always rely on vendor-funded promotions. Ask a retailer running a vendor-subsidized promotion if their profit is being generated through the cash register or through the marketing department. Surprise, surprise — it is most likely the latter.
Consumer packaged goods companies invest heavily buying promotions in retail outlets. I was told by an associate of a major retailer how successful they had been in selling $3 million of a product annually at an 8 percent gross margin. When the question "How did they make the money?" was posed, the answer was "The vendor!" It did not seem to matter to the retailer that its competitors might be getting more dollars as well to build this national brand.
Years ago, a former Kmart buyer at his own retirement luncheon voiced a concern about his new "bait and tackle" business. He was desperately searching for a vendor who would be paying for his new sign!
With Internet sales growing in leaps and bounds, brick and mortar retailers must change with the times as well. A 360-degree commitment needs to be made that includes all levels of management. Aligning strategic goals and objectives will help resolve the ongoing disconnect between category managers, marketing and private brand teams. With e-commerce rapidly gaining market space, it is more important than ever for various retailer teams to play on the same side.
Putting products on the shelf is easy. The battle has always been getting products off the shelf. True, some retailers have this figured out. The success of Kroger’s Simple Truth, Ahold’s Nature’s Promise and Target's up & up brands is due to the companies' investment in developing relevant brands that meet the needs of today's consumer. They dare to be disruptive and take chances.
Sadly, most retailers continue to operate out of that rearview mirror.
Incidentally, whatever happened to that merchant I once knew? I think he needs to be revived.