Inside This Issue - Opinion
A spirited debate about retail
October 18th, 2010
by David Pinto
Last summer a small group of retailers and suppliers invited by Emerson Group president Scott Emerson gathered in New York City to address the issues surrounding branding and the attributes that make a particular brand “nontransferable,” not easily replaced by a similar brand or removed entirely from the merchandise mix.
The three-hour discussion quickly broadened to include a spirited debate about the shopper, the economy, the emergence of programs as an essential marketing and merchandising tool, the dramatically changing role of the category manager, the availability of significant data relating to brand equity and relevance, and the state of the buyer-seller relationship — and the particular importance of strong personal relationships in today’s retail environment.
Participants in the discussion included Mike Bloom of CVS/pharmacy; Joe Magnacca of Duane Reade; Tom Coughlin, formerly with Walmart; and Yesim Orhun, an assistant professor of marketing and shopper behavior at the University of Chicago, along with representatives of six supplier companies: Lansinoh Laboratories, Novartis, Prestige Brands, Fleet Laboratories, Boiron and Insight Pharmaceuticals, as well as Emerson, the iconic leader of America’s foremost consumer products equity organization.
What follows is a summary of the key observations and conclusions that were reached by the participants:
About the customer, the panelists generally agreed that she has changed dramatically in recent years — and continues to change even more dramatically. She has become a more cautious shopper, a more value-oriented shopper, one more receptive to private label alternatives. In some categories she has traded down, while in others she has traded up. She is increasingly interested in both large and small sizes. She more readily responds to promotional merchandise than she formerly did. And she is spending more selectively, more thoughtfully — and more efficiently.
The economy, most panelists agreed, remains in the doldrums, and the recession is not anywhere close to over. The clearest indication of this is the fact that while traffic counts have not declined, the average market basket has.
The retailers, with one notable exception, and the suppliers agreed that loyalty programs have emerged as a far more efficient marketing tool than the scattershot promotional and advertising vehicles of the past. Loyalty schemes were praised as a more efficient and effective way to target and reach the customers that most interest both retailers and suppliers, enabling retailers to speak to those customers who are most important to them, while giving suppliers the opportunity to work with retailers to that same end.
Some criticism was leveled at smaller suppliers for not always grasping the power of loyalty programs as a more efficient spend than such broad advertising vehicles as FSIs.
Additionally, the retailers pointed out the important role that loyalty data is coming to play in enabling them to focus on and speak to those customers who shop most often, spend the most money and bring the most profit to their stores.
The suppliers, by contrast, insisted that they do understand the power of loyalty programs, though they maintained that pressure exists for them at retail to create awareness for their products by defensively relying on more traditional price promotions, though they are fully aware that price promotions, in appealing primarily to price shoppers, don’t build long-term brand loyalty.
Finally, the panelists agreed that loyalty data enables retailers and, through them, suppliers, to examine their metrics and their business in different, more sophisticated and more productive ways, by focusing more closely on the more valuable shoppers.
Discussing SKU rationalization, the participants agreed that there is much more to deleting SKUs than simply lopping off the items that appear to be the least robust performers. Some brands are indeed nontransferable, and eliminating them, the panelists noted, will drive the customer into a competing store for that item — and all her other shopping needs — rather than producing the intended effect of switching her to another brand.
The power of a relevant and compelling assortment cannot be overemphasized, according to the retailers, who cited the dollar stores as having been particularly efficient at capturing mass and grocery store shoppers who have become disillusioned with SKU rationalization and its impact on their shopping habits.
Then, too, it was noted that some specialty products, despite low dollar volume or piece movement, appeal to high-spend shoppers, and that deleting them based on sales volume or item movement will often result in lost customers.
Suppliers pointed out that SKU reduction at one retailer can sometimes help them with another, primarily by giving the second retailer another reason to carry a particular product.
The retailers insisted that they would listen to rational arguments against deleting a particular brand, especially when that argument is supported by meaningful sales, profit or consumer data — like the quality of information available through loyalty programs, which they indicated they would willingly share with suppliers.
They told the suppliers as well, in no uncertain terms, that their growing commitment to private label is a fact of retail life, and that suppliers do themselves no favor by ignoring it or railing against its increasing placement on store shelves, though they agreed that house brands negatively impact larger brands more dramatically than they do smaller ones, which are more nimble and more innovative.
Finally, the panelists acknowledged that they had not always given enough serious thought to deleting an item, and that sometimes a more effective approach is to delete a particular size, flavor or scent rather than a single product. But the discussion ended with the reiteration of an indisputable fact: SKU rationalization is a fact of retail life these days, and only those suppliers who aggressively defend their brands at retail have a chance of mitigating its impact.
But perhaps the panelists made the most salient and critical points when discussing the current state of the buyer-seller relationship.
For their part, the retailers agreed that they don’t interact with suppliers in give-and-take information and idea-exchange sessions as often as they need to, a position suppliers eagerly embraced. Then too, the retailers urged small suppliers not to think of themselves as small suppliers but to act and position themselves as big suppliers, simply because, in the struggle for sales, smaller suppliers have become more important to retailers than they have been in a long time, especially those who bring the retailers high-margin items with a loyal, if small, customer base, and particularly if those items resist transferability.
The argument was made by the retailers that smaller suppliers don’t always hire the best and the brightest salespeople available, in contrast to larger suppliers, a view with which the suppliers vehemently disagreed.
Suppliers were urged to pursue innovation, with a capital “I,” when approaching retailers, rather than simply meeting with retailers periodically to review product performance and pitch new items. The retailers apparently took notice of the age-old supplier gripe about the difficulty of getting appointments with category managers, and were encouraged — indeed urged — to go above the category manager if they were dissatisfied or disappointed with their reception at category-management level. Getting an audience with a senior manager at retail, they insisted, was only about requesting one.
Relationships, all parties agreed, are more critical than ever, especially in light of the fact that the role of the category manager is changing and that information, gleaned primarily from loyalty data, has become a more critical tool. Category managers are now being trained to look beyond a product and a category, to a department or, in some instances, to the entire store — and indeed to view the store as a brand — when evaluating brands and products. Category managers, in short, no longer manage categories, but are being encouraged to think in broader terms. In this environment the one-on-one relationship is gaining critical importance.
Several suppliers stated that their products are not given sufficient time to prove themselves, and that they would welcome a two- or three-year period to demonstrate an item’s worth rather than having to justify a product’s value every six or nine months. The retailers were lukewarm to the idea, remarking that three years is a very long time at retail.
At the session’s conclusion all parties agreed it was a valuable — and all too rare — exchange of views, and the suppliers maintained that retailers need to be more receptive to such idea forums going forward. They stated as well that such tools as loyalty programs will make it both easier and more essential to bring buyers and sellers together in the future.
Collaboration, the participants agreed, must become the more accepted way for buyers and sellers to do business, and is certainly more rewarding and productive than confrontation.