THE TROUBLE WITH TRAINERS

JONNA CRISPENS

Training pants may be keeping kids, and parents, in diapers longer, but they may also prove to be leaky barriers against retail profit erosion in the disposable diaper category, said retailers interviewed by SN.

The products, which give busy working parents additional time to potty-train their children, are falling prey to the same low profit margins that have prompted many buyers to view regular diapers as loss-leader items.

Retailers are watching margins on pull-up pants slip down, thanks to low price competition. In some cases, mass merchants are dragging them down, just as they've done to diapers, the supermarket buyers said.

"We carry all the major brands of training pants, about 14 stockkeeping units, but they're really nothing more than an extension of the diaper category -- and another space killer," said Peter Jost, head grocery buyer at Harp's Food Stores, a 28-store chain based in Springdale, Ark. "As it is, there's too many SKUs and too little money coming from that category." Jost, like other retailers, cited the competitive environment created by mass merchandisers for the low profit margins. He said about 70% of his stores are in areas where such competition exists -- and those stores usually sell diapers at a 5% gross profit margin, compared with the 12% commanded in his chain's other locations.

Such margins are also the norm at Bashas' Markets, a 68-store chain based in Chandler, Ariz.

"The entire baby area is pretty depressed, with most of the items selling at loss-leader prices, and the training pants aren't too different," said Bill Spear, grocery buyer. "We carry eight SKUs and they generate a gross profit margin of about 5% -- the same as our other diaper products."

"We first introduced a national brand of training pants about two and a half years ago, thinking the product would expand the diaper category and make some money for us," said one retailer from a large Midwestern chain who asked not to be identified. "It's expanded the category, but unfortunately, it hasn't proved profitable," he said.

Most retailers said they're protecting themselves against further sagging of their gross profits by keeping advertising minimal, or even forgoing it altogether. In addition, many cited private-label brands as a sure way to help the droopy bottom line.

Bashas', for example, hopes to counter the 5% gross profit margin it earns on national branded training pants by introducing a private-label line, which it expects will capture up to 25% of the product's sales.

Here's more of what buyers had to say about the training pants market:

Bill Spear grocery buyer

Bashas' Markets Chandler, Ariz.

The entire baby area is pretty depressed, with most of the items selling at loss-leader prices, and the training pants aren't too different. We carry eight SKUs, and they generate a gross profit margin of about 5% -- the same as our other diaper products.

However, we're adding four SKUs of a private-label line, which will triple that gross profit margin. We're hoping it'll account for 20% to 25% of our training pants sales.

As it is, product sales are growing, but it's not by leaps and bounds.

Training pants sales may have cannibalized a few diaper sales, but overall, I'd say they've expanded the category. If a child stays in training pants for six months longer than he would have stayed in diapers, it can only mean extra sales.

I think the category is being driven by parents looking for convenience. When a child has an accident, parents can simply throw away the training pants, instead of washing out the cloth underwear. It's the whole reason disposable diapers were a success in the first place.

We promote training pants when we promote diapers. If we run a diapers ad for Huggies, we also mention the training pants.

Steve Blattern category manager

Associated Wholesale Grocers Kansas City, Kan.

Training pants have definitely increased our diaper category. Sales are up 10% to 15% from two years ago, when we first introduced the product, and they're probably growing at a rate of 10% a year.

We carry all the national brands -- about 12 SKUs -- and have expanded the category facings to create a separate section for the products.

They haven't cannibalized our diaper sales at all. They've expanded the category by allowing parents to postpone putting their children in regular cloth underwear. In fact, it makes me wonder what's happened to the sale of those items.

I think there was a real need for this type of product. Parents prefer its disposability to cloth underwear, and children like the fact that it looks like real underwear. It helps make the switch from diapers to underwear less traumatic for the child.

So far, our training pants have been enjoying a gross profit margin of 13% to 15%, which is a lot better than the 5% to 8% margins typical for our other diaper products, which are often used as loss leaders to attract customers to the baby aisle.

Unfortunately, those margins will probably erode over the next year as competition increases -- and they could bottom out at 5% to 8% like the other diaper products.

As it is, we don't advertise the product, since doing so would only further erode the gross profit margins.

Of course, we could always add a training pant in our private label. We carry two private-label lines of diapers, and they maintain a gross profit margin of 15% to 20%.

Ron Little space allocation manager

Basics/Metro Markets Randallstown, Md.

Training pants are not really a growing part of the diaper category. The movement is really kind of flat on them.

When they first came out, I think a lot of parents stopped buying the larger-sized diapers in favor of the training pants -- which simply cannibalized our diaper sales.

I think the products can seem pretty confusing to consumers. Products are separated into boy and girl items, different sizes, different types of material, velcro straps, and the list goes on.

John Ruhland buyer-merchandiser

Fairway Foods Minneapolis

Our overall diaper sales have increased about 3% over the last few years because of the addition of training pants to the category.

They currently account for 8% of overall diaper sales, and I expect the figure to reach about 15% in the next year or so.

Fortunately, although we price our regular diapers at a 5% gross profit margin -- which makes them loss leaders -- we've been pricing our training pants at a 15% gross profit margin, since the competition isn't so intense right now.

Although we advertise training pants, we don't advertise them nearly as much as we do regular diapers. They're not as competitive, and I think most parents have already committed to certain brands -- or at least are well aware of their options -- by the time their children are ready for training pants.

Peter Jost head grocery buyer

Harp's Food Stores Springdale, Ark.

We carry all the major brands of training pants, about 14 SKUs, but they're really nothing more than an extension of the diaper category -- and another space killer. As it is, there's too many SKUs and too little money coming from that category.

Diapers are generally loss-leader items because of the intense competition from mass merchandisers. We're forced to price them at a 5% gross profit margin in about 70% of our stores, which doesn't really leave a profit once you cover labor costs.

About 30% of our stores, however, are in areas that aren't affected by mass merchandisers, and in those locations we're able to generate a 12% gross profit margin.

I think training pants are filling a need created by today's dual-income family. Today's mothers can't always spend the time potty-training their children, which means children are being trained at a later age.

I think training pants have extended the use of diapers by anywhere from three to six months. In fact, if our nation's working situation ever changed, I think we'd see sales of training pants tumble.

We don't promote or advertise our training pants because of the low profit margins.

Executive Midwestern chain

We first introduced a national brand of training pants about two and a half years ago, thinking the product would expand the diaper category and make some money for us. It's expanded the category, but it hasn't proved profitable.

We've added other national brands since then -- giving us about 15 SKUs -- and they all have the same problem. Like nationally branded regular diapers, they generate a profit margin of 5% to 10%, which is less than half of the 30% margin we like to maintain in our grocery department.

In other words, we can't make any money on them. They're not going to make us rich.

There is, however, money-making potential in our own private brand of training pants, which we introduced about a year ago. We make about $1.98 per sale before delivery, compared to the 43 cents we make on our national brands -- so you can see very quickly which one we want to sell.

To be honest, I don't think we'll ever again add another national brand, because we just can't make money on them. As it is, we almost never advertise the national brands. I'd like to put a huge sheet of plywood in front of them, so the customers only see our private-label training pants.

Unfortunately, we're still selling more of the national branded items. We sell about 2.5 boxes for every box of our private-label.

Stunted Growth

Growth for the training pants segment slowed last year, although it continued to build volume in both dollars and units.

TRAINING PANTS VOLUME

52 Weeks Dollars Units

(Mar.-Mar.) (mil.) % Change (mil.) % Change

1994 248.1 5.5 26.8 18.95

1993 235.1 21.8 22.6 25.4