Saturday, April 30, 2011

The Case Against Category Management – Three Current Scenarios

1.       In a category management environment, a supplier may assign a Category Captain to help make decisions regarding the makeup of a retailer’s categories, consisting of not only the supplier’s own products, but of the products carried by other vendors. The Category Captain may receive proprietary information from the retailer. In the past, Category Captains have been accused of price fixing and blocking competitors. Under the best of circumstances, the Category Captain will be biased on which products make their way into the retailers’ stores.

2.       Most small to medium-sized retailers are not large enough to get that much attention from any one supplier, so the mid-sized operators often employ Category Managers to work with their vendors. In even larger enterprises, the Category Manager may oversee a Category Development Team.

Unlike the Category Captain, a Category Manager works for the retailer, but you can’t dismiss the influence a major supplier has over the Category Manager. In most cases, the CEO of the retail operation approves of this arrangement because the supplier’s services are free, and he encourages his Category Manager to develop an excellent working relationship with his suppliers.

In addition to this ‘good ol’ buddy’ relationship, there may also be a dark side. Some suppliers assists the Category Manager with other things as well— like junkets to Maui for golf, a nice widescreen television every now and then, tickets to NASCAR races, weekends in Vegas, and free drinks and admission to private parties at various trade show functions… all in the interest of the retailer of course. The retailer doesn’t mind so much as sometimes he gets to accompany the Category Manager on these all-expense paid trips for events the manager attends. In this case, everybody’s happy… except for the company’s bottom line. It may not be doing too good.  

3.       The third scenario is the most common one of all… short and sweet: The retailer is NOT assigned a Category Captain, and he can’t afford a Category Manager, so he just lets the suppliers battle it out on his sales floors.

In none of the above scenarios can the best interest of the retailer be found. Needless to say, CM is BIG business, and it’s not going away anytime soon. But there is a bright side to this coin. During recessionary times such as these, there is greater opportunity for change and anything different is likely to get some attention. For years, retailers have relied on Category Management in a mass market environment. Maybe it’s the environment that’s changed and CM is merely a victim of the times.

Could be, there are some advantages for CM, if you’re working in a large grocery store environment; but in any case, it’s a poor substitution for item-level control in any retail operation. Suppliers are NOT at fault. We have built our stores to function in this kind of environment, and purposely sidestepped technological advances of the past three decades. While retailers are frying chicken and warehousing their suppliers’ goods, they are also drowning in a sea of red ink. 

Go out into your stores and look at your categories. There’s no better example than the health and beauty aids section: 25 percent of the stuff is making you money, 35 percent is costing you money, and the other 40 percent is also costing you money by just being there. There should be no free rides on your shelves.  Items must pay their own way… not categories.  

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