Friday, April 8, 2011

The Case Against Category Management – Overview

Category Management (CM) is a retailing concept in which the range of products sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, washing detergent, toothpastes). It is a systematic, disciplined approach to managing a product category as a strategic business unit. – Wikipedia April 3, 2011

According to Wikipedia, there are three rationales for using Category Management in your stores:
  •  Desire for suppliers to add value to the retailer’s business.
  • There is only a finite amount of profit that can be milked from price negotiations and that there is greater profit to be made by increasing the total level of sales.
  • Collaboration with the supplier means that the supplier’s expertise can be drawn upon and a considerable amount of the workload of developing the category could be delegated to the supplier.
I find this topic extremely interesting because, I believe Category Management is the primary killer of convenience stores. That’s right, I believe CM to be the reason most retail businesses fail. Why? It’s not because the idea of CM is a bad one, on the contrary.  I suppose it could be possible for CM to work, but only if you can trust your suppliers and your suppliers have the resources to hold up to their roles in the process. 

What sustains Category Management’s popularity is the tremendous amount of resources suppliers and their proponents expend on encouraging retailers to offload a great deal of their responsibilities to their suppliers. It was originally meant to be a two-way street, with the supplier doing his part, and the retailer assisting where he could; but as an increasing number of retailers tend to rely solely on their suppliers to decide what needs to be placed in their stores, the suppliers are now being called upon to make all decisions regarding inventory, and with regards to convenience stores in particular, the dumbing down of store personnel has made it virtually impossible for the retailer to hold up his part of the bargain.  

Consequently, Category Management has become a supplier thing; however, as suppliers gain market share, they take the risk of becoming marginalized by their major customers because they are no longer able to converse and actively contribute to the Category Management process.

If you would like a more in-depth description right away, I urge you to read, because it is the best description of Category Management I have seen so far. I, on the other hand, have railed against CM for some time now because I have seen the damage first-hand it has caused the convenience store industry. At the same time, I admit I have been lacking in the background necessary to support my arguments.

In our book, “Turning Convenience Stores Into Cash Generating Monsters,” Jim and I have attempted to point out deficiencies in CM as compared to item level inventory control; however, our new book currently in production, will delve more deeply into the subject of CM and I intend to document most of our research here because I feel if something is not done quickly, the industry is in great peril.  

Before we move forward into this discussion, I would like to lay the groundwork for my arguments:
  • Category Management is and always has been a supplier activity supported by their retail customers.
  • Category Management is detrimental to the advancement of item-level inventory control. 
  • Suppliers have redefined the original idea of CM to their advantage.
  • Retailers face a great deal of opposition in controlling their flows of inventory.
  • Suppliers, retailers and consumers alike would benefit by abandoning CM for a more accurate method of analysis relating to what items should and should not be placed in stores with greater emphasis on the neighborhood’s individual store’s services.


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