Jim Harris passed away on Tuesday (9-21-99) night from heart failure.
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The Giant Catching Strategy
©1995, Jim Harris
During the course of structuring a
new product for launch into the
mass merchandising arena, most innovators of new products assume
that
Wal-Mart Stores, Inc. is the immediate objective for their new
product. As
a retailing giant, Wal-Mart is indeed a desirable retailer in
which to
ingratiate a new product. I must explain to the prospective
entrepreneur
that Wal-Mart is probably nothing more than a fleeting dream, a
"pie-in-the
sky" hope. There are several reasons for this bold
statement. Please allow
me to explain.
To begin with, most modern retailers
have a computerized inventory
control system built over decades by finely-tuning their
merchandise mix.
To put it bluntly, they already know what will sell! Any
new product,
unless successfully tested elsewhere, is an assumed liability to
the very
formula that made them successful in the first place. For
that reason
alone, 85-90% of the new products that are shown to the
merchandising
division are rejected out of hand. Why should they be
expected to replace
an established product having a proven track record for
"zillions" of order
cycles with a new product that has not been heard of
before? In essence,
what you are asking the buyer is to dilute that share of a proven
and known
value with an unproven and unknown value. New product
failures are not how
buyers keep their jobs.
Another consideration is the
amount of open-to-buy the buyer has for
his department. In other words, how many dollars does he
have left in his
budget to spend on product, whether new or old? Seasonal
returns,
advertising and sales promotions, departmental landed gross,
interest on
inventory purchased, and markdowns both current and year-to-date
all play a
factor in determining the amount of available open-to-buy the
buyer has to
spend.
Seasonal buying for an event
during the forthcoming year begins
during the same event in the current year, and perhaps as much as
40% of
the buyer's annual budget is spent during the months following
that season
as it leads to the next. Juggling those dollars is a very
complicated and
formulated process! Figure in the average turns per year,
gross markup at
retail versus landed gross, net profit budgeted versus actual
profit due to
markdowns, and a virtual plethora of other factors complicate the
matter.
Then figure how may square feet and the dollars per square feet
(sometimes
even dollars per square inch! ) each known product will bring in
to conform
to a certain shelf profile or gondola modular layout that will
maximize and
enhance his department's sales in order to come in at or over
budget in all
of the above except inventory, and one can begin to readily see
why a buyer
may not really be interested in new products. His job is
very complex. To
keep it as simple as he can, he will stick with what he knows
will sell ---
much to the chagrin of new product developers.
So now we must pose the
question. Can the giant be captured? There
is not an easy answer. Mass merchandisers such as Wal-Mart
must compete in
order to maintain market share and sales momentum.
Invariably this means
keeping new products on the shelf. Certainly it means
giving exposure to
any new product they perceive is costing their company consumer
sales. Sam
Walton told me many times, "80% of your sales come from 20%
of your
merchandise," and his perception was uncannily
accurate. This was at a
time prior to computerization of major chains. Today he
would probably
say, "83.271% of your sales come from 21.00593% of your
merchandise."
Computerization of inventory control has brought pinpoint
accuracy to the
retail giants. The smart product developer should realize
the nature of
the beast he is trying to tackle, and act accordingly. Just
where and how
does your product manage to fit into this equation? How do
you position it
where it can be envisioned as part of the 80%? Do you even
want it there?
These should be your basic questions. Then again the best
question might
even be, "Do I really need to capture the beast?"
Possibly you do, but during the
launch, probably not. Being aware
of the rigors of entrenching a product in the "giant's
lair" keeps me aware
of the fact that viable options must be pursued--options allowing
for a
steady growth of market share, yet still with the vision of the
giant as
the ultimate goal. To this end I have developed a strategy
called the
"Sunflower Concept."
Large mass merchandisers are not
often interested in new product
opportunities. The "Sunflower Concept" is a
way around the problem. At
the same time, it provides increasing market share for your
product
allowing you to "test the waters" before making the
commitment to move into
the lair of the giant.
By identifying and isolating
smaller regional and sub-regional
retail chains, and explaining you are not interested in showing
your
product to Wal-Mart or one of the other giants, you are offering
a great
incentive for that company to test your product. Even if
they have only
300 retail units, you are gaining market share while creating a
positive
sales history. Then, utilizing this company's sales,
approach the next
one--maybe a regional chain with 600 retail units. There
are many
companies with 1, 000 to 1,500 stores. Each is like the
petal of a
sunflower. The giant is in the middle, and it is the
ultimate goal. The
advantages of this approach are numerous. By the time your
product is
being sold in a dozen smaller chains, the total retail unit base
may easily
exceed the giant's. You may even find you don't need him
and his problems
anyhow.
Also, keep in mind that by the
time you are servicing 3,000 to 4,000
regional sales units, all the inherent problems that come with
growth are
usually solved. Your receivables are tracking your
payables, and the
market has told you in measurable terms exactly what it expects
of you and
your product. It is now thoroughly entrenched, hedging in
on the giant's
market, and can no longer be ignored. The option of
"catching the giant"
is now yours and yours alone. What a position to be in!
Entrepreneurs must come to terms
with the fact that while they can
be creative, I have never met an entrepreneurial innovator who
can be
everything to everybody. It is my wish that all market
worthy new products
have their shot at success, but the real probability for those
that enjoy
success is limited only by the reasoning the entrepreneur puts
into his
marketing plan. Having said this, I strongly urge any new
product
innovator to seek competent and professional help in determining
market
direction and strategy. Realize your limitations, and
further realize that
yours may be the best new product since shoes, but your chances
for success
are greatly diminished if you try to strike out on your own with
the
attitude that you are indeed capable of "doing it
all." There are probably
those among you who have the ability, but they are very rare
birds indeed!
Should you decide to attempt to
capture the giant, I'm certainly not
saying it cannot be done. But you will find your skills and
ability to
corner that giant will increase exponentially if you finely hone
your
marketing weapons on smaller game until you are ready for the
"safari" of
your life! Good Luck and Good Hunting!
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