Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

Retailers cutting back variety

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Stan Pohmer (Pohmer Consulting Group) sent me a link this morning to a WSJ article discussing retailer moves to cut back on the number of SKU’s. Here is an excerpt (for the full article, click here):

For years, supermarkets, drugstores and discount retailers packed their shelves with an ever-expanding array of products in different brands, sizes, colors, flavors, fragrances and prices. Now, though, they believe less is more.

Pharmacy chain Walgreen Co. is cutting the types of superglues it carries to 11 from 25. Wal-Mart Stores Inc. has decided that 24 different tape measures is 20 too many. Kroger Co. has tested stripping out about 30% of its cereal varieties.

In the next year or so, these and a few of the other largest retailers are expected to slice the assortment of products in their stores …

Stan made a few elaborative comments in his email saying:

Line simplification, making it easier for the consumer, reducing SKU’s for better inventory control, back to basics, reduction of confusion…

As explained in the book The Paradox of Choice: Why More Is Less by Barry Schwartz, and explained in the article, having the retailer be the gatekeeper of the assortment, reducing the SKU count to reduce customer confusion and only stocking the best of the best, could increase sales, rather than hinder them (which goes against the logic of most producers).

This could have major implications for the L&G; industry…do we really need another red petunia? If the Boxes embrace this philosophy of short and deep, is this an opportunity for the IGC’s, to fill the gap and gain differentiation? Or is this a fundamental shift for all retailers?

To which I replied with my own comments:

In our industry, we have already seen brand blurring erode brand equity; product proliferation whittle away at the length of the product life cycle; and analysis paralysis on the part of our consumers (as you stated). I contend that retailers should put each product category and each product within the category to the value proposition test. We [as an industry] need to remember that we are in the solutions business. Even in our research regarding the value of landscapes to perceived home value, the sophistication of the design was the number one contributing factor, followed by size of the plant material. The diversity of the plant material was still a contributing factor, but well behind the other two.

To which Stan replied with the following:

As far back as the early 1990’s, the Big Boxes (specifically TGT and WMT) went through an exercise they called ‘space wars’ where every department, every planogram and every item on that planogram was evaluated through multiple metrics (i..e unit and $ sales and net contribution (GM less markdowns of all types, adv costs, internal/external distribution costs, plus any internal charges…down to the item level!). Looking at the numbers at the macro level, management determined division and dept space re-allocations, and then the individual departments did their micro level critiques. Using this information in building the assts for the next season, category, asst and unit decisions were made, down to the # of facings and shelf inventory.

Overall this system worked (one had to make judgment decisions and couldn’t let the numbers force stupid decisions). Every item had to justify it’s existence every year…there were no sacred cows. Even if the buyer wasn’t a product expert, the numbers forced him to, at least at the top level, make more intelligent decisions based on sales (consumer demand) and profit. It makes me wonder, however, how the SKU proliferation that’s taken place over the past few years survived the space wars analysis process (unless one incorrectly equated breadth of asst with differentiation)

Want to join in the discussion???


Cut costs, not customer experience

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Here’s a quote from a recent blog entry by Jeffrey Pfeffer, a professor of organizational behavior at Stanford’s Graduate School of Business and is the author or co-author of 12 books including “What Were They Thinking? Unconventional Wisdom About Management.”

Not all cuts are the same. Management, which is invisible to the customer, seldom cuts itself, because no one thinks they’re redundant. … The companies that will do the best are those that recognize their own particular “moments of truth” — the small but crucial experiences that matter most to their clientele — and figure out ways to reduce costs that don’t adversely affect these small but psychologically important customer interactions.

From the BNET Report…click here for full post!

Retail Rebound?

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May 7 (Bloomberg) — Wal-Mart Stores, the world’s largest retailer, reported comparable-store sales for April that rose more than analysts expected. Revenue from U.S. stores open at least a year increased 5%, excluding gasoline sales, in the four weeks through May 1, the Bentonville, Arkansas-based company said today in a statement. That exceeded the 3% average estimate compiled by Retail Metrics Inc.

U.S. store visits rose the most in seven months, spurred by demand in the grocery, health, home and entertainment categories, Wal-Mart said. Some consumers spent more freely on sporting goods and other discretionary merchandise after gasoline prices and payroll taxes dropped. The shift of Easter to April 12 from March 28 in 2008 also lifted sales.

Target Corp. announced Thursday that net retail sales for the four weeks ended May 2 were $4.45 billion, up 4.5% from the comparable period last year.Minneapolis-based Target (NYSE: TGT) said first-quarter highlights included better-than-expected same-store sales and gross margins, favorable retail expense performance and credit card results that were in line with prior guidance. Target’s April results far exceeded those for the first two month’s of the company’s fiscal first quarter. Same-store sales were down 6.3% in March and 4.1% in February.

Weather and retail sales report

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Despite the economy going into a tail spin, retail industry same-store sales were on the high side of expectations (-0.1% vs expectations of -1% to -2%) and in many cases exceeded expectations, especially Wal-Mart which blew away it’s own expectations with a +5.1% gain.

There was some discussion that lower gasoline prices helped the industry but an analysis reveals that’s most likely not the reason for the stronger gains. As the chart below shows, gasoline prices have steadily risen by $0.27 gallon from December to February so that certainly didn’t help boost disposable income. Unemployment went from 7.2% to 8.1% so that didn’t help retailers any. So what was difference from the earlier Winter months when retail sales were the worst in decades to the better February? MUCH BETTER WEATHER!

In December we had a slew of negatives for retailers with the coldest conditions in 8 years, 2nd wettest in 16+ years and snowiest in 20+ years with the snowiest week prior to Christmas in over 100 years resulting in the worst retail sales ever despite easy comparisons to a year ago. Yet unemployment was lower than February and gas prices much lower than February so it was all about the weather creating the PERFECT STORM for the abysmal industry results.

Then came January which had a few more positives but cold and snow was still extreme and despite worse unemployment, higher gas prices retail sales were not as bad December and higher than expected.

Then there’s February – much worse unemployment, worst stock market plunge since the Depression, $0.27 gallon higher gas prices than December and very tough comparisons to a year ago retail sales, yet the industry comes in much higher than expected? Why? Maybe consumers felt a bit of Spring in the air with 1,581 new record high temperatures, warmest February in 4 years, least snow in 7 years and driest in 13 years? All very favorable trends for higher store traffic and higher retail sales. Click on chart below to enlarge.

January retail sales up 1%

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The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $344.6 billion, an increase of 1.0 percent (±0.5%) from the previous month, but 9.7 percent (±0.7%) below January 2008. Total sales for the November 2008 through January 2009 period were down 9.5 percent (±0.5%) from the same period a year ago. The November to December 2008 percent change was revised from –2.7 percent (±0.5%) to –3.0 percent (±0.2%). Retail trade sales were up 1.1 percent (±0.7%) from December 2008, but were 11.0 percent (±0.7%) below last year.

A statistical mirage? Many pundits think so — click here.

2008 retail sales down 0.1%

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The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences (but not for price changes) were $343.2 billion, a decrease of 2.7 percent (±0.5%) from the previous month and 9.8 percent (±0.7%) below December 2007. Total sales for the October through December 2008 period were down 7.7 percent (±0.5%) from the same period a year ago. However, total sales for the 12 months of 2008 were down 0.1 percent (±0.4%) from 2007.

ANLA Management Clinic Blog

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In order to stimulate interest in the 2009 ANLA Management Clinic, ANLA developed a one-day blog entitled Managing Through Tough Times. For one jam-packed day, industry leaders, including business owners, consultants, and editors, provided ideas for managing costs, driving sales, targeting new customers and motivating staff in the midst of strong economic concerns. Check out these thought-provoking (and action inducing) blog entries by clicking here.

How will the current retail environment affect green industry sales in the spring?

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Quick overview of some of yesterday’s December retail data (no real surprises):

Wal-Mart cut fiscal Q4 earnings target about 10%.
Costco posted a 4% drop in December same-store sales.
Family Dollar gained 8%; Same store sales gained 6%.
BJ’s Wholesale had 1.6% sales growth; the lowest in a year.
Sears (the largest U.S. department-store) sales fell 7.3%.
Target same-store sales fell 4.1%.
Macy’s December sales fell 4%.
Gap stores sales fell 14%.
Abercrombie & Fitch fell -24%.
Neiman Marcus reported a 28% drop off.
Limited Brands reported a 10% drop.

Also, a recent DJN press release states:

Food retailers are girding for a “battle” with vendors in the first half of the year as grocers push for lower prices to help shoppers through the recession and food manufacturers resist, Supervalu Inc. (SVU) Chief Executive Jeff Noddle said Wednesday.

With commodity and ingredient costs falling sharply in recent months, supermarket chains have been pushing for lower prices on everything from coffee to soups to help increase sputtering sales. In recent months, both Supervalu and competitor Safeway Inc. (SWY) have switched to a pricing strategy that sells more products at “everyday low prices” rather than relying on coupons or other promotions.

But food manufacturers have been reluctant to roll back their price increases, taken to offset higher input costs, despite some consumer product categories experiencing declines in sales volume of between 3% to 5%, Moody’s Investors Service said in a recent report on the sector.

Lastly, from Wednesday’s Business Week:

Shoppers are getting used to those 75 percent off sale signs, and that’s bad news for merchants who worry they will also have to quickly slash prices on spring goods to attract customers.

Anxieties about how rampant discounts have affected shoppers’ psyches and stores’ profits are running high…The deep price cuts are making shoppers question the true value of items.

My Commentary:

Obviously, all of the trends above begs the question of whether or not we are “training” consumers to be more price (discount) oriented that they have been in the past. Or, as a friend of mine put it…what is the longer-term psychological impact of the drastic price reductions of the holiday and post-holiday sales periods going to be on the going-forward consumer expectations and purchase behaviors?

Obviously, people are currently spending less than normal; certainly less than justified according to their actual incomes (they are saving more which is good in the long run but bad for the economy in the short run). They are also shopping smarter, focusing on the “value” they derive from each precious dollar spent. So as we have discussed before on this blog, those retailers that have their value proposition clearly delineated will be in a much better competitive position than those who don’t.

Without a doubt, several leading lawn & garden retailers are already positioning themselves for price-oriented competition this spring. We have always had a segment of consumers that are price-conscious shoppers and this will obviously bode well for them. Today’s economic environment may increase the number of these price-oriented consumers and the real question is by how much.

But the majority of our core lawn & garden consumer base have other things besides price in their value equation. The question is whether or not retail firms have successfully identified what THEIR key customer base truly values and are differentiating themselves accordingly.

Another key point to remember is that even though unemployment is at 7.2% (from today’s labor report), we’ll still have 93% of the workforce earning a wage. The monies not being spent now will eventually burn a hole in people’s pockets (if historical behavior holds true). It will probably take a few more months of spending declines for this hole-burning to take effect, so the economy will likely hit its low point this spring.

The key question then is whether “spring fever” will induce our core customer base to let go of those discretionary dollars burning a hole in their pockets. And, if so, will they be willing to pay the prices we must charge to cover the cost increases we’ve incurred in the last 2 years? Again, they are much more likely to do so if we appeal to their value equation.

It will also be very interesting to see how President-elect Obama’s yet-released-but-being-revamped stimulus plan is eventually structured and even more interesting to see how much of it is actually spent (historically only 20-40% of a stimulus is spent — the rest is saved or used to pay down debt). But fortunately, many folks will be receiving their tax returns about the time spring season kicks off, which means another influx of funds to burn a hole in their pockets!

Ok, now that we’ve discussed the retail environment, what does all of this mean for green industry growers? The tougher selling environment at the retail level this spring translates into a need to develop more intensive and collaborative relationships with your customers in meeting the needs of the end consumer – particularly in terms of their value proposition. During the downturn in 2008, those growers that proactively worked with their retailers (and usually these were pay by scan sales) to more closely provide landscape solutions for consumers were the ones who were most successful.

If any of you attended the recent industry webinar entitled, “It’s a Great Time to be in Business” you probably heard lots of great ideas. One of the best quotes that I wrote down during the webinar was “These are the times during which great companies are made.” Bearing that in mind, recall also that there are plenty of companies that have survived the last 50 years, which means they have gone through 11 such recessionary periods. How did they do it? By relentlessly focusing on and emphasizing their value proposition to their key customer base. There’s a great lesson there. What is yours?

Roundup on Retail

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As projected, the media is focusing on the depressed holiday sales this year (see links below). I have talked with a couple of garden centers who indicated their holiday sales were strong. However, they happened to be located in areas where the downturn has been buffered somewhat (see previous post here).

• Retailers Brace for Major Change
WSJ, DECEMBER 27, 2008

• Bargain-Hunting Shoppers Turn Up Noses at Post-Christmas Sales
Bloomberg, Dec. 27 2008

• Amazon Claims ‘Best Ever’ Christmas (Whatever That Means)
NYT Bits, December 26, 2008

• For stores, a very un-merry holiday
CNN/Money.com, December 26, 2008

• Retail stocks suffer, some defy dismal sales data
Reuters, Dec 26, 2008

• Christmas Aftermath: Navigating the Gift Return
WSJ, Holiday Sales Blog

• Holiday Sales Tumble as U.S. Consumers Cut Spending
Bloomberg, Dec. 26 2008

• US-Holiday sales may be down 4 pct -SpendingPulse
UK Reuters, Dec 26, 2008 2:12pm GMT

• Amazon says 2008 holiday season was ‘best ever’
AP, Dec 26, 2008

• Fresh survey shows gloomy U.S. retail sales: report
MarketWatch, Dec. 26, 2008

• Amazon Lauds Its Holiday Sales
WSJ, DECEMBER 26, 2008, 9:41 A.M. ET

• Retail sales dismal in United States and Britain
International Herald Tribune, December 25, 2008

• Retailers slash prices to entice holiday shoppers
AP, Dec 26, 2008

• After-holiday prices reach ‘rock bottom’
THE TENNESSEAN, DECEMBER 26, 2008

• Visits to U.S. Retailers Fell 24% on Weekend Before Christmas
Bloomberg, Dec. 25 2008

• Retail Sales Plummet
WSJ, DECEMBER 25, 2008

• Early Reports Confirm Weak Holiday Shopping
NYT, December 24, 2008