Wednesday, April 13, 2011

The Case Against Category Management – The Customer is King

Most of us grew up in a world dominated by Walmart. Very few had the experience of holding our Grandma’s hand, walking five blocks, boarding a trolley or ‘street car,’ and enduring the bumpy ride on hot plastic seats to fetch groceries, shoes and purple hurl peas in the center of ‘downtown,’  where you wove in an out of throngs of shoppers, most who recognized her, and stopped you every few steps to ask about Uncle Charlie, who was ‘down with the arthritis,’ or Aunt Sally, who just got over another ‘spell.’  Sears & Roebuck may have started the mass market of retailing, but Walmart FINISHED IT.

Walmart became the world’s largest retailer for a reason, and that reason was Sam Walton. He had a vision of providing his customers with an enormous array of choices at “everyday low prices,” and he widened that vision by expanding his product lines to cover everything from apples to zippers. 

Look around you. Big companies are starting to shrink, and more and more are aiming at specialty markets and moving out and away from shopping malls, and those that remain are struggling to keep up the high rent.

Something is happening in America, and most retailers are asleep at the switch. Buyers are becoming more selective in their buying habits and increasing the number of trips they make to stores, arriving at the check-out counters with lighter shopping carts and paying with their debit cards.  Shoppers are demanding less expense and even lesser complications. Margins on product sales are getting tighter than Katie’s hat band, and retailers are feeling the pinch.

Notwithstanding the iffy economy, shoppers are becoming more cash conscience than they ever were during the past sixty years or so, and it shows in a change of buying habits. Being all things to all people may no longer be prudent. In fact, it may be a huge mistake. As an example, the world’s largest retailer is testing smaller footprints with fewer choices of products, focusing on the specific demographics of neighborhoods.

There are two types of customers; only two – profitable ones, and unprofitable ones. We should learn to tell the difference between them and cater to the NEEDS of the former and resists the urge to care about the latter.

If you have an average of 3,500 products in each of your stores. Out of those, 700 may be making you money, 1,400 are probably costing you money, and the remaining 1,400 items… well they’re value is ambiguous. Out of the final 1,400, between 350 and 525 are simply ‘dead-dead.’ You bought them, you’re carrying them on your books, you’re paying interest on them, they’re contributing to an unsightly mess- they have become invisible to your staff and an inconvenience to your customers. If the truth be known, those 1,400 products are costing you money as well, because they are occupying space where profit could be possible, if only you had the resources to replace them with something that will sell.

The days of filling stores to capacity with anything and everything that profitable and unprofitable customers might need are coming to an end. Retailing is fast becoming an exact science, a science that requires a scalpel instead of a broad sword.

In order to succeed in the new decade, you are going to need more information that you ever thought possible. Every item in your store is a tiny little machine that generates cash. It’s either working, or it’s broken… and if it’s broken it needs to be fixed or thrown out, so the space it occupies can be put to profitable use.  You’re going to require help to do this and it’s not going to happen overnight. The clock is ticking. Just think about it.


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