WHEN CLOSING THE LOOP, DON'T CLOSE YOUR MIND

JAMES TENSER

Proponents of third-party merchandising services point out again and again that the mere presence of a person in-store to shelve out the merchandise can cause out-of-stocks to fall and promotional lifts to rise.

It seems simple -- close the loop, count the profits. But as other observers point out, pitfalls lurk in this activity.

"Third-party merchandising organizations do a very good job at what they do, but there is a definite list of things they do do and things they don't do," says Walt Williams, executive vice president of Neo Inc., Shelton Conn.

"They do an excellent job of ensuring retail presence according to what has been authorized. For lots of items in the store, which turn fairly slowly, that this is all they need," he adds.

"Success or failure depends on the key account people selling in the right assortments, establishing the right price points, shelf space and position, and on communicating these retail standards in an actionable away to the merchandising firm," he says.

A case in point, says Brian Travers, executive vice president of Premium Retail Services, occurred several years ago when a major cereal company designed a cross-promotional program for 15,000 grocery outlets. Custom display units were drop-shipped to the stores via UPS. A special-edition sports magazine was shipped in separately. Incremental cases of the product were shipped in via normal warehouse channels.

"We were supposed to pull it together at retail," Travers says. But the manufacturer didn't have its logistics buttoned down.

The result was an in-store "treasure hunt" in which the merchandising people had to search for the components of the display promotion. Hours were wasted. Some display racks were lost or discarded by unwitting store employees.

"Sadly, only 13% of the displays actually got placed," he says. That despite many hours of merchandising time invested. If the components of the promotion had been combined or unitized prior to shipment to the store, he suggests, the hit ratios could have been significantly higher.

There is also some question whether merchandising service firms are always the best choice for meeting a brand marketer's specific objectives. When it comes to stocking the shelves, other choices abound: food brokers, full-service distributors, rack jobbers, direct-store-delivery route drivers, even one's own direct sales force.

"Brokers are better positioned in terms of speed-to-market or speed-to-shelf," says Vic Del Regno, president of Morris Alper, a Boston-based food brokerage firm. Their advantages stem from their "critical mass, local market knowledge, better discipline and training, full and part-time personnel and local market contacts," he adds.

"If the requirements for independent decision-making are minimal, task-oriented people can put up POS materials, execute planograms which are very rigid, do audits, etc. Third-party merchandisers can supply that need," he says. "When it comes to more complex activities like new-item cut-ins, some selling, display-building and planogram development, third-party firms can't do as well as a good broker can."

With the industry spotlight shining on the third-party service firms, Del Regno vows that brokers will give them a run for their money. For two years or so his company has operated its own merchandising division, called ARMS, for Alper Retail Merchandising Services. Other strong brokers have taken similar steps, he adds.

Another almost ironic potential consequence of the widening use of merchandising to close the promotional loop in-store is crowding. Retailers routinely overbook promotions, counting on loose execution rates to resolve any overlap. Increasing performance could cause a tightening of competition for limited promotional display space. Might this drive retailers to be more selective about how many promotions they can accept? Yes, says Travers, there is some logic to this. "But if you do not get those displays up, it's like rolling the dice."