Retailers and Vendors

When retailers were small, manufacturers had the power. The strongest manufacturers could dictate the terms and shelf space they wanted for their products. The advent of giant retailers—hypermarkets, superstores, category killers—changed the power forever.

No longer were the retailers the dumping grounds for the manufacturers’ products; instead they became the customers’ representatives. The retailers chose to carry the goods that would most satisfy their customers.

And the giant retailers ordered such high volume that they could play off the manufacturers against each other for the best terms. A company such as Toys ‘R’ Us commanded such a significant share of the toy market that it insisted on participating even in the design and packaging of new toys that it would consider carrying.

The shift of power from manufacturers to retailers is vividly captured by Bowling Green sales manager Kevin Price’s remark: “A decade ago, the retailer was a chihuahua nipping at the manufacturer’s heels—a nuisance, yes, but only a minor irritant; you fed it and it went away. Today it’s a pit bull and it wants to rip your arms and legs off. You’d like to see it roll over, but you’re too busy defending yourself to even try.”

The only force taming giant retailers is the competition they face from other giant retailers: Home Depot vs. Lowe’s; Sam’s vs. Costco; Barnes & Noble vs. Borders; Office Max vs. Office Depot vs. Staples; Circuit City vs. Best Buy.

Retail is detail. It is hard work. Cyril Magnin, an American merchant, advised: “If you are over 40 years old, you don’t belong in retailing.” An old Chinese proverb adds this advice: “If you cannot smile, do not open a shop.”

The three success factors in retailing used to be “location, location, location.” With the advent of the Internet, physical location is less important. Millions of people buy books from without knowing the company’s physical location. All that is needed is an Internet address.

Companies need to solidify their relationships with their vendors. A company should form a vendor council that meets a few times a year. The vendors should be encouraged to critique the company’s performance and make suggestions.

The company needs to send its experts to visit and help vendors improve their business practices. The company should learn from its best vendors and inform other vendors of best practices. And the top-performing vendors deserve recognition and better terms.

Today’s retailers must adopt new practices to survive in the brutal marketplace. First, retailers need to spend more time in learning who their customers are. They should give their customers a club card and capture information in their customer databases.

By analyzing customer purchases, they will know which ones buy a lot of wine or fish or ice cream, and can then announce and run special events for these customer segments.

Second, retailers must invest in making retailing an experience rather than a chore. Brand experience counts for much more than brand image. By designing a distinctive brand experience, store owners encourage people to come back more often, as has been demonstrated by Barnes & Noble, Stew Leonard’s supermarket, and other top retailers.

Third, retailers must move more aggressively into private branding. Private brands make more money for retailers than national brands. At one time, store brands were considered inferior to national brands.

Then along came President’s Choice introduced by Canada’s Loblaws supermarkets, a store brand that exceeded the quality of some national brands. The next step was for retailers to carry two or three store brands pitched at different quality and price levels. The main requirement was to create trust in the retailer and to give good value to the customer.

Fourth, a retailer should open up a web site and offer customers more information and opportunity for contact and dialogue.

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