THE GM IMPERATIVE

Dan Alaimo

WEST DES MOINES, Iowa -- General merchandise is a core component of Hy-Vee's business strategy.

While many retailers still regard nonfood as an afterthought, upper management at Hy-Vee made it a top priority in the late '90s, said Ron Pearson, Hy-Vee's chairman of the board and chairman of the executive committee. Seven or eight years ago, "we decided that in the next five years we had to grow the equivalent of 20 years' growth in general merchandise if we were going to be competitive," he told SN.

"That meant our procurement had to get better, the products we were offering to our customers had to be better, and our values had to be better," Pearson said.

Today, the retailer continues to improve on its displays, assortments and promotions, gaining strength in several key competitive categories, while extending its procurement efforts to the world.

"General merchandise has to be just as important as fresh meat or lettuce in our stores. It has the same prominence and the same customer care. We want our customers to come back to our stores because of general merchandise, and not only because of what we carry routinely, but because of what we have exciting and new every day," Pearson said.

"The thing I'm most impressed with about Hy-Vee is they are always willing to try new approaches with their GM programs," said David McConnell, president and chief executive officer, General Merchandise Distributors Council, Colorado Springs, Colo.

"Their dollar program and the new kitchen store concept are both excellent examples of their effort to provide fresh new approaches that meet the needs of their customers. Their store directors also bring creativity to their seasonal selling by bringing in products that may actually be locally produced. They're really in touch with the individual communities they serve," he said.

Hy-Vee also makes sure all its management-level people are as educated about general merchandise as they are about food or any other aspect of the business. "They had to learn the same things about general merchandise -- how you procured it, how you displayed it, how you priced it, how you marked it down," Pearson said.

The educational effort extends beyond simple training sessions. For example, below the store director will be a director of perishables, a director of operations, and a director of general merchandise, all equals, and the three will rotate into the other jobs. This program started about five years ago, "and it's working very, very well, helping to broaden the information base about general merchandise," Pearson said.

Many GM products are different from a canned grocery item like pork and beans that sells for the same price, and there's never any surplus. "You buy (the GM product) and have a sell through, then you have some left over, and there's a different kind of chair or shirt or some other product that you bring in. It calls for totally different merchandising techniques and the learning process is very critical," he said.

Although "other companies are good at it," Hy-Vee has moved ahead of many in the supermarket industry in GM because of the focus the retailer puts on it, Pearson acknowledges.

An example of that focus: "We made up our mind about five or six years ago that we were going to be the biggest lawn and garden seller in our territory," he said. That involves more than just fresh flowers, but also all the related general merchandise items. Now the company sells swings, barbecue sets, patio sets, chairs, loungers, birdbaths and much more, from its parking lots and other places adjacent to the stores, "and it broadened our whole selling opportunity. It's a matter of learning about it and making your mind up you can do it," he said.

People are interested in taking better care of their homes, as is evidenced by the growth of Home Depot, Lowe's and similar retailers. "We can get a portion of that business if we're providing those things, and that has been a good focus for us," Pearson said.

Hy-Vee has been widely recognized for its tent sales, where the retailer sells a wide range of merchandise in the warm weather months. These include groceries, as well as large, high-ticket items like big-screen televisions. The tent sales are an opportunity to bring in "unique general merchandise items -- one-of-a-kind items that we were able to buy multiple truckloads of, or that we procured from overseas. We can put them in at a very special price, which creates an exciting sale for 10 days or two weeks. It gives the customers the opportunity to come and it leverages the space," Pearson said.

One of the hallmarks of Hy-Vee's culture is the autonomy of its stores. While this can result in some inconsistency, "that's our strength," he said. For example, a couple of stores purchased some goods at a U.S. Army closeout. "They bought most everything there, and when they came back, they had a sidewalk sale and customers flocked in from miles around," Pearson said.

"The had the autonomy to go buy it. They had the autonomy to sell it and price it, and it excited their customers. That's the uniqueness of general merchandise and uniqueness of our people," he said.

The result of the education, the autonomy and the focus is GM growing as a percentage of Hy-Vee's total sales, Pearson said. Health and beauty care sales, especially the beauty items, also are increasing. The retailer has been putting special effort into displays with large poster-sized images of people. "We see a revitalization in that particular area," he said.

Hy-Vee started out having to play catch-up in GM, but "now we're at a plateau where we're doing so many things. Now we have to build our procurement, the education of our people and our physical structures to sell even more general merchandise.

"That will mean bigger stores or bigger events outside the store, or bigger places that we can sell the general merchandise, because as we get the expertise, we'll need the room to explore the product and display it, and we're going to do that. You're going to see us grow more and more in that particular area," Pearson said.

Hy-Vee doesn't aspire to the size of stores Wal-Mart is putting up, he said. "We think that what we do in our 70,000- to 80,000-square-foot stores is fine," although 100,000 square feet is a possibility, he acknowledged.

Looking at GM and the overall supermarket industry, Pearson sees growth there too. "More and more retailers realize the opportunities are there. I've seen Safeway do some exciting, explosive things in general merchandise. I've seen some other large grocery store companies realize that they can procure and sell through general merchandise, while providing a good value for their customers," he said.

"It doesn't have to be a permanent section like pork and beans -- traditional grocers think in those terms; they always have to have a permanent section. These can be sell-through products. So I see that as a big part of the future for all of the retailers in this grocery industry," Pearson said.

What's Cooking at Hy-Vee?

WEST DES MOINES, Iowa -- A new design for Hy-Vee's housewares department in a Kansas City, Mo., store is being highlighted in the "Merchandising for Success" study developed by the General Merchandise Distributors Council's Educational Foundation, New York. The study will be unveiled at the GMDC GM Marketing Conference, which begins at the end of this week.

"The biggest reason for doing the kitchen and gadget set is, we felt for a long time that the customers are buying all their ingredients from Hy-Vee, but we've never put our energy behind selling the right skillet, the right pan, the right cutlery," said Jon Wendel, vice president, general merchandise.

"We've decided to take part of that business back that, over the years, the grocery industry has lost. That store was our first attempt, and it's been pretty successful," he said.

When the concept was presented at a recent company meeting, several stores asked for the new look, which will be incorporated in new stores and retrofits, Wendel said. "Over the last several years, there are many areas that truly the grocery industry has lost, and this is one area that we're going to step up and take back."

The store also has a Dollar Day section that the retailer is adding in certain locations. "With the autonomy at Hy-Vee, we let our stores make the decision, but many stores are putting in large Dollar Day sections," he said.

Other changes are also under way. For instance, Wendel said the retailer was shifting its greeting cards from American Greetings to Hallmark. This is not being done out of dissatisfaction with American Greetings, but rather the change itself will give customers a new look and create excitement, he said.

This summer, Hy-Vee will change its front checkstands, going to a more rounded end, adding general merchandise without subtracting any magazines, and adding soft-drink coolers at a uniform height with the rest of the front-end racks, he said.

Recognizing the challenge of effectively merchandising batteries, Hy-Vee is adding displays throughout the store, even in areas where batteries do not specifically relate, like dairy, Wendel said. The retailer has similar plans for single-use cameras, he said.

Reaching Out to the World

WEST DES MOINES, Iowa -- Hy-Vee is increasing its international procurement efforts, said Jon Wendel, vice president, general merchandise.

The retailer has one staff person dedicated to sourcing goods worldwide, and Wendel traveled to China in October with him. This has become essential to compete in many nonfood categories, he noted.

"The biggest change in general merchandise is that it has become a worldwide market, and to be the best, you truly have to source from the world."

This is especially important in seasonal goods, "but I also think you'll start seeing more and more retailers picking up everyday section items, such as lighting, electrical, party goods and kitchen gadgets, from China," he observed. Hy-Vee also gets merchandise for its Dollar Day sections from China, he added.

"To be able to sell it right, you've got to buy it right, and as a result, global procurement for all retailers is becoming big," Wendel said.

Besides the cost benefit, "you are able to source product that you actually spec yourself." Using a park bench as an example, Wendel stated, "You travel to China, and you choose the wood, the design, the color, [and] every detail of how the metal is bent. Then you place the order and they start the production line, making the park bench exactly to your order."

Hy-Vee Sees Opportunity in DVDs

WEST DES MOINES, Iowa -- Hy-Vee anticipates more growth in sell-through DVD, said Jon Wendel, vice president, general merchandise.

"The industry has definitely moved to DVDs, and the major part of the industry is sell-through. We are continuing to grow in that area. We're going to put a lot more emphasis on it in the future," he proclaimed.

"Over the past several years, a lot of retailers have forgotten about DVDs, but it's going to be another major growth area for supermarkets where we can step up and achieve additional sales."

Hy-Vee continues to rent videos, including DVDs, but sell-through is now the bigger part of the business, said Ron Pearson, chairman of the board and of the executive committee. "It's amazing the size of DVD libraries that customers have now and how many they want to buy. So that mix is exciting for us, not only to provide the brand new titles, but older movies in the DVD format, as well," he asserted.

Shrink is a concern, but it is something "everybody deals with," said Pearson. Most Hy-Vee stores have security gates at the front, "so we feel pretty free about piling DVDs out, and they sell," Pearson stated.