Tuesday, July 20, 2010

What we really need is a helicopter

I had a friend once that told me the story of how he was caught in a trough while swimming in the ocean off the Venezuelan coast. If you've ever surfed, you know it takes a great deal of energy to break out of a trough as the waves keep you stationary and impede your progress.

After awhile, my friend simply gave up. His only hope was a tiny, Styrofoam boogie-board he had swam out on. Fortunately a helicopter was dispatched to pick him up, but the waves were so high the heavy, metal basket, slamming into the waves, threatened to decapitate him. In desperation, the rescuer opted to jump into the trough to assist him. Instead of helping, now there were two swimmers fighting over the same floatation device. Only through a miracle were both men successful in grabbing onto a tow line so the helicopter could drag them to shore.

Sometimes our tried and true resources fail us, and too often we make a decision to remain in a trough until we are exhausted. Well-meaning supporters may risk their lives and careers to help, but what we really need is a helicopter.

I just received an email today from an organization called Trade Promotion Marketer's Association (TPMA). They have just released information obtained from retired K-Mart executives whose non-disclosure agreements had recently expired. I love to study K-Mart and IBM, as both are poster children for imbecilic mistakes.

What I found most amazing about TPMA's information is its astounding accuracy, and how it runs parallel to the data I have accumulated over the past three decades. It did surprise me that the increase in new SKU's has jumped by 836 percent between the years 1997-2009. In the year 2009 there were 89,000 new SKU's registered versus only 10,651 in 2005, and the average number of items in supermarkets jumped from 30,000 to 48,000 during the same period. This means in order to keep up with the influx of new products, a retail supermarket had to expand by 160 percent OR decrease the number of selling units per brand to make room for the new items they put on their shelves.

This makes it glaringly apparent that retailers must know exactly how many units of each and every product is present on their sales floor, else the store stands the chance of running out of popular brands between delivery cycles.

According to TPMA, when one of your customers finds an item out-of-stock, an astounding 35 percent will buy the item from another store. This leads me to believe we are experiencing a mass movement of customers among retailers. Of all the customer loyalty programs out there, the most effective one appears to be, having on hand, the items your customers want to buy.

In investigating new product trends, they confirmed my suspicions that 70-80 percent of all new products fail. So when you have a limited amount of shelf space, accepting new products with that degree of failure rate is suicide. A severe lack of research on new products is accounting for many of the losses experienced by retailers. The smaller an enterprise is, the less likely it is to do the data mining necessary to keep the right products and the right amount of those products on their shelves. It's a relatively simple equation: Two many products and not enough space.

Products, like businesses have life-cycles. How quickly you recognize a product's death throes, has a great deal of bearing on profitability. In most convenience store operations, dead products have a way of becoming permanent monuments on a store's shelves, and customers have to dig through the graveyard to find the items they're looking for. Unsightly rusting cans and candy bars with their ends chewed off can cause a customer to shift stores faster than anything else I can think of.

Like it or not, convenience store operators must find a way to swim out of the trough, drill down into their categories and pay more attention to items. Too much credibility has been given to category management and planograms. These age-old tactics just don't work anymore.

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