Tuesday, April 19, 2011

The Case Against Category Management – Escape from CM - 4

CM has been, and always will be about supplier control over their retailers. Large retailers like Walmart, Target and Kroger, through their tremendous buying power and brute strength, have turned the tables and forced their suppliers to make unheard of concessions that serve only to increase the supplier’s buying power. It’s an old ploy: If I buy a bunch of merchandise at a loss, I can sell some of that stock to others and come out with an overall profit. All I need is an endless supply of small retailers who aren’t paying attention to what goes into their stores.

For the smaller retailers, e.g. the bulk of the convenience store industry, CM is simply about supplier control and nothing else. To put it another way, suppliers who sell to big chains are using the profits they get from smaller retailers to make up for the losses incurred by servicing the big chains. Ask yourself two question, 1) “Are your suppliers succeeding in increasing your profits on the items they sell to you?” 2) “Is it sufficient to keep you in business over the next decade?” If your answer to either one of those questions is ‘maybe’, ‘no’ or ‘I’m not really sure’, then you may need to take a closer look.

To be fair, I will have to admit that many retailers would have never made it through their first years without the support and involvement of their suppliers; however, over the years, suppliers have learned how to tilt the tables in their favor. In some cases this situation is unavoidable, but many retailers who have learned to lean on their suppliers are getting the short end of the stick. To put it another way: There comes a time when the kids need to leave the nest and make a life of their own, else they will always be under the thumbs of their parents.  

Running a retail business is hard… I know. I have been working with my retail clients for thirty-three years and I’ve seen both successes and failures. I’ve watched some prosper and grow, and I’ve seen others flounder and disintegrate.  During it all, I have noticed one clear difference that seems to set the two groups apart: The attention to detail exercised by the survivors is always a great deal more intense.

On one end of the scale is the operator that stays up until two in the morning analyzing reports, pays his employees well, and visits his store(s) at every opportunity to bolster enthusiasm (e.g. Sam Walton); and on the other end of the scale is the operator that opens a store, sits in his office and shuffles papers, lets his suppliers make his inventory decisions, and puts minimum wage workers on the front lines to represents his business to his clientele.

As I have said time and time again, the convenience store industry is an anomaly, created on the premise: “Build it and they will come.” There may have been a time when this was true, but the opportunity for that kind of business has fallen prey to saturation. They will come alright; but will it be to buy your merchandise or cart it off to a sheriffs’ sale?

As I said, your suppliers have to make their money back somewhere. They depend on the majority of small retailers who rely on them to do the right thing, but instead of helping you they are putting their overstock into your stores. Don’t blame the suppliers. You have trained them so. They simply can’t make up their losses anywhere else.  

These ‘tools’ I talked about in the previous posts are tools the big fellas might be using this very minute to make your life miserable and run you out of business.  In a previous example, the decision of whether or not to sell one or two small sizes of chips appears utterly ridiculous in a CM environment, but if you switch environments, things that were once considered ridiculous serve to knock down old assumptions and sometimes even become critical, particularly when the new environment becomes a threat.


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