View
from the States:
Why Consumer Goods Are Good for Business
Mark
Dollinger,president of Trendlines America, offers his perspective
on aspects of doing business in
the United States. Mark often participates
in trade shows, accompanies clients
on road shows and trips, and represents
clients at meetings.
Debbie Yerushalmy, senior consultant,
attended the International Home & Housewares Show this
year (and in the past).
From industrial polymers to biotech,
from business plan development to in-licensing negotiations,
our work in consumer products influences much of the
marketing consulting and business development we do.
Here’s
why: Few businesses are as fast-paced as
consumer products (with the exception of commodity
trading and a few others). With consumer goods, ideas
turn into products in packages on the shelves -- and
evolve or die -- before many industries can even
produce a prototype. In fact, there’s a multi-billion
dollar segment called FMCG (fast-moving consumer goods).
There’s no better place than the world of consumer
goods for learning the basics -- and the possible
futures -- for any career in business, in any
type or sector. The retail environment teaches that
speed is the essence of all that we do. Neither competitors
nor customers will wait. With your product placed
before millions of people (literally), it only takes
a season or two to gain a reputation as a leader or
a follower.
What follows are observations from the 2008 International
Home and Housewares Show in Chicago, beginning with
macro considerations first and then drill down to
micro. You can apply these observations to your own
market and your own opportunities.
The State of the U.S. Economy
The International
Home & Housewares Show
The
world’s largest housewares trade “marketplace,” the 2008
International Home & Housewares Show
attracted more than 60,000 attendees, including 23,000 buyers
(16,000 U.S.; 7,000 non-U.S.) from more than 100
countries. Nearly all (99%) of the top retailers
in the United States were represented at the Show.
The Show
continues to be at the center of the industry, showing
off product ideas, designs, and trends in the market. Trendlines
International represents the Show’s sponsor, the
International
Housewares Association, in Israel. Trendlines
International has been attending the International
Home & Housewares
Show for more than 30 years.
The U.S. economy is “challenged” by a housing
crisis, a weak dollar, weak job market, and record high
energy prices. (See "A
Sense of the State of the U.S. Retail Market.") Since
about 2/3 of the U.S. economy consists of consumer spending,
these conditions have pressured consumers’ willingness
to spend.
Americans are jittery about the economy. Overseas companies
selling to the United States need to consider this in their
business activity.
The State of Housewares and Home Décor
Manufacturers
Like many other sectors, the $76.2 billion
U.S. housewares market has experienced considerable
consolidation. (See "The
U.S. Retail Landscape, Part 1.")
In some sectors,
such as tabletop resources (dinnerware,
flatware, glassware), the consolidation has
created healthier companies such
as Lifetime Brands, an industry leader. (A publicly
traded company, Lifetime Brands licenses Calvin Klein,
Farberware, Hershey’s, KitchenAid,
Nautica, and 30 other well-known companies. Lifetime
Brands' 2007 sales were $493.7 million.)
In other sectors,
such as kitchen appliances, financially
weak companies are merging, creating companies
that are very much at risk. One particularly
troubled sector is consumer plastics. This sector has
been increasing prices for the past two years or so,
but cannot stay ahead of the rising cost of resin. Continued
company failures and consolidations are a reasonable
expectation within the sector.
In difficult conditions, companies commonly "pull
in their horns" (to back off or take fewer
risks). This typically results in scaling back on product
development efforts.
The State of Housewares
and Home Décor Retailers
Traditionally, home décor retailers
have been early indicators of trouble ahead. This sector
experienced major failures in 2007. A number of mid-tier
stores closed or experienced soft sales. Only the upper-tier
retailers such as Crate and Barrel are weathering the
storm well.
The housewares retailers’ problems emerged a bit
later. Currently one major home store retailer, Linens’ n
Things, is working actively to restructure its debt.
Even Williams Sonoma, the preeminent upper-tier kitchen
and furniture retailer is experiencing difficulty in
achieving comp-store growth (top line revenues, widely
considered the best indicator of a retailer’s
health).
Most housewares business occurs in big box retailers:
Mass merchants (Wal-Mart and Target)
Wholesale clubs (Costco and Sam’s)
Mid-tier retailers (JC Penney and Kohl's)
Department stores (Macy's and Dillard's)
These retailers, while all financially healthy, are
suffering from the economic challenges described.
In this economy, consumers operate in “trade-down” mode.
The department store customer migrates to the mid-tier
retailer and the mid-tier customer migrates to the
mass merchant. While this scenario does not identify
any “winners,” it does suggest that department
stores will be greatly challenged by the current conditions.
In addition to the consumer purchasing pressure, there
is very real pricing pressure. During the past 10 years
or so, the “China effect” has greatly insulated
the U.S. consumer product market from experiencing
pricing pressure. The China effect refers to the movement
of production from the United States (and other expensive
locations) to lower cost Chinese factories. Two major
events have now greatly mitigated the China effect.
1. The Chinese government is removing factory
rebates in many product categories. The elimination
of the rebates has caused many small Chinese factories
to close. Larger factories are passing increased costs
to their customers (importers and retailers).
2. Chinese factories are no longer “absorbing” the
weak U.S. dollar. Chinese factories have recently begun
to protect their profit margins on U.S. sales by
Tying a purchase order (PO) to
a current exchange rate between the Chinese and U.S. currency
(the U.S. dollar, while declining more slowly against
the Chinese yuan than other international currencies,
is dropping about 1%/month).
Giving price quotes with very small windows.
Many quotes are valid for one week or less. If a purchaser
does not issue a PO within this window, the Chinese factories
reserve the right to re-quote, often increasing the cost.
Product Trends
There are three core trends the housewares
market.
Color. A key
trend for years, color changes easily and
creates newness with little risk. (The acknowledged
color leader, Pantone, has a major presence at the Housewares
Show.)
Look to colorful trendsetters KitchenAid, Le Creuset,
and Lifetime Brands. KitchenAid’s stand mixer represents
a shining example of a wonderful use of color. Relying
on the same basic design for years, KitchenAid has introduced
its classic item in high-fashion, trendy colors
that has made it a stand-out product.
Although derived from the European color palette, the
U.S. color palette often lags a number of years behind.
A case in point: orange. A core European color for a generation,
it is only now emerging as a presence in the United States.
Design. Also a key element
for years, design (unlike color) requires more time and
investment, yet remains a critical factor in staying competitive.
Not every product can be a KitchenAid stand mixer, an
iconic design. Zak and Cool Gear, respectively, bring
sleek designs to their plastics and drinking bottles.
Going “green.” The
eco-friendly trend has finally come to the U.S. market
in a big way. Any and every product category is making
an attempt to identify a green connection. A word of caution:
the U.S. consumer will buy green, but will resist paying
a significant premium to do so.
The Opportunity for Israeli
Suppliers
How does this decidedly gloomy assessment of the U.S.
market affect your ability to penetrate the U.S. marketplace?
There are a number of specific reasons why Israeli
suppliers should be looking to penetrate the U.S.
market now.
Israel is not China. In the past
year, there have been significant quality control issues
with Chinese factories (dog food, toys, pharmaceuticals).
There is a general unease with Chinese products. Some
U.S. retailers are looking to source elsewhere.
Israel is … Israel. Americans
perceive Israelis as inventive and creative.
The dollar "erodes." While
the dollar has eroded against the shekel, its erosion
against European currencies is much more extreme.
Take-Away Message
Do your homework for your sector
Assess the U.S. consumers’ interest
in your product.
Understand pricing opportunities and challenges,
especially in this challenged U.S. economy
Know your market barriers
Determine the correct entry point (direct
to retail or through a wholesaler or importer)
Target healthy retailers in safe sectors and
avoid risky retailers
Differentiate, differentiate, differentiate
Contrary to the prevailing mood in
the United States, you should view the
economic downturn as an opportunity to enter the
world’s most important consumer
economy to learn about business,
and most importantly, to learn about your business.
