It’s not just about price—
Consider Wal-Mart’s current situation. No one would deny the mega-retailer’s clout, but Wal-Mart had a lackluster fourth quarter in 2006, and headed into December expecting more slippage (the company is now reporting an anemic 1.6% increase in December sales), got shut out of a planned expansion into Germany, and weeks before Christmas suffered an internal corporate marketing meltdown that smacked more of soap opera than sophisticated merchandising.
So Wal-Mart can beat anybody on price. But if you’re selling on price, then you’ve got trouble, because the consumer is geared to price. Just how thin is a razor-thin margin?
On the other hand, some companies who do a really good job of developing merchandise—think of the Neiman Marcus Wish Book—look to be doing well. For example, a recent Red Herring article talks about Apple’s retail store strategy and cites some impressive figures:
“Apple’s stores have hauled in annual sales per square foot of $4,032, compared with Best Buy’s $930, Neiman Marcus’ $611, and luxury store Tiffany & Co.’s $2,666. . . . Apple stores, on average under 6,000 square feet, each bring in more than $23 million in annual sales. . . . That compares with annual sales per store of $38 million at Best Buy, which has stores about seven times larger.â€
Apple is not achieving these sales with discounts, it’s using careful hiring, careful marketing, and following a “measured†growth plan.
Another example is outdoor merchandiser Cabela’s. Just in terms of online sales, Cabela’s is world-class sporting goods industry leader. Its Web site, its use of infomercials, and the way they make it easy for customers to find what they need are some of the the hallmarks of good merchandising. When you have 315,000 SKUs in the DC, as Cabela’s does, you can’t hope to have all that in your stores, but you can hope to have a great relation with the vendors—if Cabela’s doesn’t have an item listed, they link to vendor home pages.
People do respond positively to creative marketing and merchandising, and that’s an area that direct merchants can develop to their serious benefit. No one is going to beat the big chains—Wal-Mart, Kohl’s, Target, COSTCO—on price. To thrive, companies have to develop unique product priced appropriately for their customers. The companies that don’t will have lackluster results if they do survive.
Another example: For creative marketing and customer service, we don’t think you can beat Crutchfield, which competes with the Best Buys and Circuit Citys. They don’t always have the cheapest price but their installation and product specialist are probably better then anyone else.
Bill Crutchfield tells the story of his first year in business, when he was flooded with returns. When he looked into the returns, he found that customers felt items were too complex to install. Crutchfield produced wiring diagrams and technical service for installation of their products in thousands of models of cars and trucks. After more than 20 years it’s now a wildly successful business.
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