Pockets of profitability

While many grocers are inclined to pare down their general merchandise offerings, cat­egories such as greeting cards, personal grooming and high-tech accessories show potential for growth.

By Nina Amir

For quite some time, grocers have struggled to view general merchandise categor­ies as profit centers for their stores. More often, they carried some items out of a sense of duty to their customers and suppliers rather than a duty to the bottom line. As a result, many supermarkets have reduced allocated space for general merchandise, sometimes even eliminating a category to replace it with food-oriented categories perceived as better opportunities. Yet, consumers still consider local grocery stores the most convenient place to shop for both food and non-food items and prefer to consolidate trips when possible.

David McConnell, president and chief executive officer of Global Market Dev­elop­ment Center (GMDC), a 40-year-old Col­orado Springs, Colo.-based international trade association serving the health, beauty, and wellness categories, says “general merchandise categories within the traditional grocery format are going through a metamorphosis” as senior management takes away shelves from those categories perceived as “over spaced.”

Bruce Kramer, vice president of the North America consumer division of Wahl Clipper Corp., based in Sterling, Ill., says, “Retailers are being penny wise and pound foolish. Those that make cuts in this category to save on inventory dollars are creating their own downward spiral. You can’t sell what you don’t offer.”
For example, Kramer reports that some categories, such as hair clippers, actually flourish in the current retail environment. “We provide a money saving solution for consumers. Last year Wahl clipper sales were up 17% versus the previous year,” he says.

Reflection of the times

For the 52 weeks ended Dec. 26, the New York-based The Nielsen Co., reported that general merchandise as a total category was down 5.1%  in food channels. Within the top five general merchandise categories—magazines, kitchen gadgets, batteries/flash­lights/chargers, office and school supplies and cookware—all but cookware have showed sales declines.

Several consumer trends also have contributed to the decline in general merchandise sales. The downward trend in some of the formerly big general merchandise categories, such as film, film processing and video, can be linked to consumers’ digital focus. “These categories simply don’t resonate with them any longer,” McConnell says.

A slowing of item introductions has also affected sales. “In the past, general merchandise category sales were consistently energized by the introduction of new items, merchandising concepts and departments,” McConnell says. “At GMDC, we work hard to identify suppliers who develop exciting new products and merchandising concepts so that we can introduce them to our wholesale and retail members at our annual General Merchandise Marketing Conference.”

Industry observers say grocers can get hurt if they put profits ahead of quality. According to Andrew Kingery, customer marketing manager for Columbus, Ohio-based Elmer’s Products, economic conditions, and resulting increasing downward pressure on costs, have made this practice quite pronounced.

“In some categories, narrow focus on removing costs is causing retail to end up with product that barely meets or does not meet shopper expectations during the second moment of truth when they use the product,” Kingery says. “Products that barely meet expectations don’t provide experiences that build trust with the shopper, causing them to save purchases for a trip to another channel or retailer.”

Kingery emphasizes that balancing quality and price is crucial for private label success. “I think grocers are careful about the quality of their private label foods, but often seem biased toward quality being too low in general merchandise,” he says. “As retailers build their store brands, I think it’s critical to remember that quality is remembered long after the price.”

Building a brand and private label strategy can provide good solutions to these situations. “The retailers can’t justify research in every segment of the category, but the brands generally can when fairly represented in the category,” he says. “Placing a brand in the category can incent the manufacturer to infuse knowledge about consumer use the retailer teams can leverage to ensure the private label products are at least building trust with shoppers.”

He says the adhesive category remains fairly stable, especially the adhesives associated with school activities, do-it-yourself, crafters and general home repairs.

McConnell says grocers can increase traffic and sales in all general merchandise categories by evaluating their merchandising strategies, especially product placement.

“We think that there is a bright future for general merchandise as long as retailers recognize that it’s not necessarily how much space you allocate but more importantly where that space is located,” he says.

Going local

While he says mass merchandisers such as Wal-Mart do a great job with the general merchandise categories, supermarkets’ ability to fine-tune their product mixes to appeal to local markets can help them compete.

“They’re more immersed in their communities and, if they listen to their shoppers, can tailor a mix that meets their needs more effectively than a big box retailer,” he says.

Retailers need to look at all the general merchandise categories as strategic weapons that allow them “to profitably differentiate their mix as either stand-alone categories or as smaller groups of products that complement relevant food categories,” McConnell says.

Some companies, like Wahl, help grocers compete against mass merchandisers. For example, Kramer says, “Wahl has products and programs that will position the grocery retailer in a very good place beside the mass retailers. There are also key high velocity/high profit niche items that could be returning significant incremental revenue for grocers.”

According to Cheryl Severini, senior marketing and corporate communications manager for Woodland Park, N.J.-based Maxell Corp. of America, retail grocers should find ways to partner with brands that can provide them with unique styles and pack sizes that differentiate them from their mass merchandise competition. “As a full line supplier, Maxell can provide a wide assortment of products in a variety of styles, colors and price points to suit their needs,” she says. “Maxell’s wide range of categories are perfect for cross merchandising and cross promoting. Custom displays and merchandising units are one of our specialties.”

Since grocers have already built traffic via their food categories, they can grow their business by capturing those customers’ general merchandise business as well, according to industry observers. “Grocers have a reason for people to show up at the door—we all need food,” Kingery says. “Having general merchandise on their shelves is a great way to take share from other channels through trip combinations.  We’re seeing traffic to grocers hold the best among all the retail channels.”

Aisles of innovation

According to industry executives, general merchandise categories continue to offer opportunities for supermarkets to introduce innovation to shoppers. Larry Esten, divisional vice president, sales-grocery at Cleveland, Ohio-based Amer­ican Greetings Corp., says supermarkets face the same challenges for the general merchandise category as for food—bringing freshness and innovation to shoppers. “This is something that all general merchandise categories must work with their retail partners to deliver to ensure return trips and profit,” he says.

Grocers can compete with Wal-Mart in the general merchandise category by featuring the same deals that  drive traffic.  “We’ve seen some retailers get results by mirroring the price points at Wal-Mart for the items on their weekly flyers,” says Kingery.  “Consumers build a lot of perception regarding price by looking at the weekly flyers and coupons. If grocers can demonstrate there are key deals in the general merchandise category that shows prices competitive with Wal-Mart, they can capitalize.”

Kingery recommends that grocers continue to pay close attention to shoppers’ buying habits. “I’m a big believer in loyalty programs to analyze basket purchases and find insights and to correlate merchandising with features to create synergy,” he says.

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