View from the States: The U.S. Retail Landscape, Part 2
Last year, I presented an overview of
the U.S.
retail landscape. In this article, I look more closely
at the structure of this vast and complex market sector.
The U.S. retail landscape has consolidated and changed over the past 10 years
in ways that even the most jaded observers of the retail scene would admit
are breathtaking. The world’s largest retailer; Wal-Mart, did not even
exist until the 1960s, and the two U.S. retailers that were the largest volume
retailers throughout most of the twentieth century (Sears and K-Mart) are now
one struggling company.
How does understanding the structure of the U.S. retail landscape help your
company successfully sell into the world's largest consumer market?
What Is Your Entry Point?
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.
Before you can determine your entry point, you need to determine your exit point — who
is your consumer? Before you can determine which retailer, or which class of
retailer you plan to sell to, you must know your target customer.
As the U.S. retail market has consolidated, the successful
(surviving) retailers have clearly narrowed their focus based on demographic
sectors. This means that you need to have a real understanding of their target customer. If, for example, you have developed a range of trendy housewares products geared to 20 to 40 year-old females, the entry point is much more likely to be Kohl’s and Target rather than Wal-Mart and Sears.
If you do not have a clear vision of your target consumer
and cannot express this vision to retail buyers, it will be very difficult to
present a convincing argument as to why a retailer should risk purchasing from
you. Conducting
market research can be very helpful. Sometimes, it will surprise you by identifying
a different profile than you expected.
Once you know your consumer, you can work
your way through the value chain (distributors, importers, manufacturers,
retailers) to consider the possibilities and problems of each of your viable
entry points.
Once upon a Time
The changing retail landscape has put tremendous pressures on its suppliers.
To understand your point of entry, you need to take a closer look at the supplier
structure.
Once upon a time, the supplier base consisted of three primary channels.
Manufacturers: Companies that both produced
and marketed their products. This
sector was a source of industry innovations and name brand items.
Importers: Companies that purchased
their product lines from overseas factories and branded the product under
their own name. This sector had the
ability to react quickly to market changes with substantially less risk than
manufacturers as they rarely took ownership of any infrastructure associated
the product development and maintenance.
Distributors: Companies that purchased
product from importers and manufacturers and provided added value
through their logistics (for example, moving smaller quantities
of products quickly to meet the retailers' needs).
(In retail, these are the terms that are used for the supply channels. It's important
to understand that these words may have different meanings in different industries.
See our From the Top "Speaking
the Same Language.")
Changing Channels
Three important changes occurred that dramatically affected
the way the retailer views these channels.
1.
Say Goodbye to the Distributor
As retailers become
larger and more efficient, developing state-of-the-art distribution centers
and sophisticated point-of-sale analysis, the retailer's need for the
support provided by distributors was limited primarily to niche sectors
such as books and magazines and to second- and third-tier retailers with very
small market share.
2.
Buy Direct from the Manufacturer
Retailers insist that they be sold direct from the same
factories where the importers were purchasing. Since the retailers in many
cases had greater buying power than the importer, the factories often agreed
to sell direct to the retailer. Thus, the importer now plays a much smaller,
yet still meaningful, role.
3.
Consolidate to Meet the Needs of the Retailer
Many once prominent companies have disappeared. Companies like consumer
products giant Newell acquired venerable brands such as Rubbermaid, Calphalon,
Irwin, and Goody. This trend
has been fueled by simply understanding that mega retailers such as
Wal-Mart and Target must work with companies large enough to meet their
expanding needs for products and services. For some manufacturers the transition
to becoming a large, complex multiline supplier has proven very challenging.
The New Strategies
What do these changes in distribution strategies teach about
an appropriate entry point into the U.S. retail market?
The primary beneficiary of the emergence of larger and fewer
retailers is the overseas supplier. I cannot emphasize enough that the
consumer is sensitive to the brand not whether the product is manufactured directly
or purchased by the brand provider.
Since logistics issues and quantity requirements are no longer meaningful
barriers to retailers purchasing directly from overseas suppliers, the
opportunity for this approach to the market presents a very strong opportunity.
We come back to where we started — your
target customer. If, in the end, the consumer does not buy your
product, the retailer will not return with additional orders.
Simple Strategies for Success
The core issues for successfully developing and selling a product
line to a U.S. retailer are deceptively simple:
Develop a targeted product line that is either innovative or less expensive
than the competition.
Know your target consumer and thereby your target retailer.
Understand how to sell effectively to the targeted retailer. (This is a very
important issue that I will address in a future article.).
