NO EXCUSES

Dan Alaimo

The numbers don't lie, at least not these numbers.

Statistics from Information Resources Inc., Chicago, show a prolonged decline in most general merchandise and health and beauty care categories.

Retailers, wholesalers, a leading consultant, and executives from the General Merchandise Distributors Council recently came together to examine the numbers and discuss the trends. The roundtable was moderated by SN and held in Chicago.

The participants acknowledged the impact of Wal-Mart Stores, Bentonville, Ark., but mostly spoke about factors in their companies and the supermarket industry that keep retailers from maximizing the potential of these nonfood categories. They also described success stories, new opportunities and ways to improve this area of the business.

Following is the first part of the roundtable. More from this event will be presented in future issues of SN.

Participants were:

- Robert Candelora, senior vice president, nonfoods and pharmacy merchandising, Pathmark Stores, Carteret, N.J.

- Lanny Hoffmeyer, corporate director, wholesale general merchandise, Supervalu, Eden Prairie, Minn.

- Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif.

- David Lowe, director of merchandising, HBC/GM, C&S Wholesale Grocers, Keene, N.H.

- David McConnell, president and chief executive officer, General Merchandise Distributors Council, Colorado Springs, Colo.

- Steve Urgo, GM buyer/category manager, Save Mart Supermarkets, Modesto, Calif.

- Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill.

- Roy White, vice president, education, General Merchandise Distributors Council Educational Foundation, New York.

COMPETITIVE WEDGES

SN: Looking over the data from IRI for general merchandise and health and beauty care, the trend has been mostly negative in the last couple of years.

ISHII: As I look through the data, there's no doubt that there's been leakage, and for a number of reasons. There's a certain amount of leakage to the mass market. In our case at Unified, our retailer base is extremely varied. We've got highly urban stores in and around the Los Angeles area where probably the effect of Wal-Mart isn't quite as significant as it might be in some of the more rural or outlying areas, like in Northern California, the Central Valley or the Pacific Northwest. But there's still a significant amount of leakage to the other classes of trade.

There are other factors, too. One, with some of our retailers -- especially the independent retailers -- is loss of space in the stores. Another one has to do with operational execution. Oftentimes, an independent retailer doesn't execute as well as chains might. They might not have the infrastructure for training to support the execution at store level.

WHITE: Does this represent a decline in the number of customers because they're being siphoned off elsewhere? Or does this mean, in the case of the grocery store, that they are not continuing to convert the grocery shopper into the GM/HBC shopper? If that's the case, then that's probably a serious situation in that the potential is being lost because they are not able to attract the GM/HBC shopper, even though they have the grocery shopper in the store.

WISNER: Business is being lost to other channels, and the tendency is to think of Wal-Mart. But then, in the case of general merchandise, you're looking at home center stores and the growth that they've experienced in recent years, and the amount of square footage that has been added to a lot of the categories that used to be the province of what we thought of as food/drug/mass -- there are a lot more channels. Dollar stores have taken a lot out of the market, and we've all seen how those numbers have grown.

Then you get into the whole measurement criteria issue -- club stores, for example, and that impacts both food and drug. What we found is club stores could use the nonfood categories, GM and HBC, as a wedge to create a destination, a trip. That's what Wal-Mart did in the early days with HBC. It was the wedge they used to get more foot traffic and then convert the customer in-store. Whereas 20 years ago, if you lost a sale to another retailer, you didn't lose $100 of food sales with it. That's what's happening now, and that's difficult for the industry.

WHITE: That's what our Merchandising for Success study last year keyed on. I think the message from that was that in GM and HBC, merchandising for excellence is now the way to go in terms of developing the potential of the supermarket, as well as developing the potential of the drug store.

URGO: Grocery just seems to be coming to the forefront with Wal-Mart coming into the picture -- now we've got the Wal-Mart effect. The fact is, in general merchandise, we've had the Walgreens effect, the Costco effect, and the proliferation of Targets coming in, all expanding in seasonal categories. So, we are really fighting to maintain that share.

I agree with this notion of excellence and execution. For us as a retailer, it's about assortment planning, but we're really trying to get into this whole idea of excellence of execution at the store level.

HOFFMEYER: I'd pick up from what Larry [Ishii] said. For so many years, we've harvested the profits out of these categories, whether it be automotive or hardware, and all of the sudden, a lot of our retailers are faced with deciding, "Where do I want to position myself?" Maybe we were positioned in the middle before, but the middle is getting narrower. That may be no different than our population -- the middle class is shrinking. What we're really seeing a lot of, with these retailers positioning themselves on the low side, they're taking out traditional categories and they're going into the dollar sections. Or the opposite of that is happening, where somebody says, "In my market, with my demographics, I want to go upscale." In both cases, they're leaving the middle where we have so long lived and enjoyed, and they're either going up or they're going down. That's part of what we're seeing in some of these trend numbers.

In some of these categories, we're just saying, "We don't want to be in that business anymore." So, if I see a decline in the hardware category, it wouldn't be surprising to me. It's just a business that a lot of our retailers don't want to be in anymore. Rather, they are going to the destination departments, whether that be pet or kitchen. They say, "That's where I'm going to make my stand."

SHRINKING GM SPACE

URGO: One thing we've seen is this emphasis on fresh for the conventional retailer. As we're remodeling stores and developing new stores, the center of the store is shrinking, and when that center of the store has shrunk, guess who takes the tail end of that? It's typically the general merchandise department. To your point about the hardware category, there was a time when we had a 16- or 20-foot hardware-automotive combo. Now, our standard set is eight-foot, and sometimes it's four. So in some cases, as we move through these categories, we have basically forfeited them. It's interesting to see what the general merchandise departments are doing with these. They seem to be scrambling to try to find a new identity, or redefining themselves, or putting a big focus on assortment planning to a higher degree than what we have in the past.

CANDELORA: The fact is that consumers are making more trips in order to satisfy their shopping needs, and that has been proven. We've mentioned buyer conversion, and that's something we measure very carefully. We watch how many category shoppers are coming into our store and how many are actually buying. It's an important measure for us in terms of how we go to market: Do we have the customers coming in our store? Or don't we have the customers coming in our store for these particular categories? So, we measure that category by category for both GM and HBC, and we change our marketing tactics accordingly.

We really need to cut down the number of SKUs and have the right assortment on the shelves. At Pathmark, we are working pretty hard at that. We all know that in most categories, the consumer is only going to be at that shelf for a couple of seconds making a decision. We want them to make the decision in our store. If it is overcomplicated, they're going to make another trip to another outlet. We need to make sure that we're capturing it. We could point to Wal-Mart, but there are a lot of things we could do ourselves to really fix that problem.

LOWE: From my experience of being with a retailer until recently, and now I'm back in wholesale, but going back to my early years in retail, there's no question in my mind that we set the stage for this. We'd look at the fact that GM items move slower at retail, and we'd gouge the customer -- "harvest," if you will. We went after higher margins. Then when the customer went to Wal-Mart or wherever, they'd say, "Oh, this is $2 cheaper."

Another factor in these categories is, we haven't had the freshness. You talk about a hardware section, we'd accept the fact that that's not going to be a very fast mover. But what are we doing about that? What kind of new items do we put in there? We're always last, pretty much. The other channels will have the new innovative items out there and we get them later, if we ever changed it. How many sections today still look like they did 10 or 15 years ago?

McCONNELL: In our Merchandising for Success study, Hy-Vee walked away from much of their everyday housewares business and tried a new approach, a kitchen shop destination, and it's been successful for them. They've created a different image for the customers, and the customers are coming back to them. I also saw an interesting deployment of the value approach up in Minnesota at Coborn's. They dropped in Dollar Zones throughout their store -- they integrated it, rather than having a separate destination for dollar merchandise. At this point, it appears that they really didn't cannibalize their brand sales and their everyday sales. They've actually enhanced the lift.

TAKING OWNERSHIP

SN: What wins have you had? David, you spoke about the Dollar Zones you put in at K-VA-T, similar to those at Coborn's. Was that a win for you?

LOWE: Yes, we implemented Dollar Zones all through the store, and it was awesome. It was a big win, and it was great. We put in topper shelves -- cap shelves over the different sections through the store -- and that resulted in a real nice increase in business. Over the pet supplies, we put pet carriers, dog houses, pet beds and related products in a space that wasn't being used. Over baby, we put all the Little Tykes stuff, and strollers, high chairs and other products, and we had a great increase in business. You have customers still making planned trips to supermarkets every week. They don't make the planned trips to the Wal-Marts and everywhere else, so we have the audience. If you're in there, you capture the business.

WISNER: It depends on how your most senior management embraces the importance of GM and HBC in the organization, and that filters all the way down. Every study we've been involved in, no matter what the topic, whether it was whole health or GM/HBC or whatever, the one key driving force that tends to separate the folks who are successful from the ones who aren't is a sense of ownership and initiative that goes all the way through the organization. Somebody says it's important.

For example, look at how they talk about HBC at a chain like Giant Eagle. It's The Drugstore at Giant Eagle, and the reason they did that is they wanted everybody in the company to know that it's as important as a whole store. All of the sudden, you start to get an attitude that goes through that company that this is not something separate. It's not a support piece, but it's part of our mainstream organization. That makes a difference.

LOWE: Wegmans is remarkable. I'm real impressed with what they do. They put in a new section up front of kitchen products, including a $200 or $300 mixer. Wow. How many of our retailers do that?

WISNER: They've made it even bigger. I saw a new store in Washington that opened recently. I think they've added another 10 feet to that section. It's like walking into a department store.

LOWE: But guess what they don't have? Hardware sections and items that we're still trying to blow life into. They left that. They do a fantastic job in seasonal, so that part of their GM is a big driving force. But after you get out of kitchen and gadgets and stuff and pet, that's it.

McCONNELL: Ten years ago, Hannaford used to be big in general merchandise and health and beauty care, and really big in seasonal. I was at one of their stores late last year, and it's really cut back. Their GM assortment is immaculate, but it looked to me like it was reduced close to 50%. They've walked away from some of those categories that we've been talking about. They've decided they're going to give that up and move to categories they are good at, and they have stayed strong in those areas.

SN: What are some of the growth categories?

CANDELORA: For us, DVD is a strong category. It's easy to handle. You've got to watch the shrink on it, but I'm not even talking about the new releases. I'm not talking about "The Incredibles." That's cyclical. If the releases come out, they come out. But if they don't, they don't.

McCONNELL: Have you seen those [DVD] vending machines that are available now?

CANDELORA: I haven't seen them yet, but I've been hearing about them.

McCONNELL: We were just down in San Antonio and [H.E. Butt Grocery] is rolling them out. The manufacturer that produces them is Texas-based and can't keep up with it. It's amazing how much volume they do in a little 4-by-4 footprint.

SN: Are you talking sales or rentals?

CANDELORA: I was talking sales.

McCONNELL: He was talking sales, and I'm talking rentals at H-E-B.

HOFFMEYER: We've piloted that rental concept, too, but it's really hit or miss. So far, it's not real clear where that works. Where you think it would be perfect, it won't do anything.

CHANGING SEASONS

SN: How about the seasonal business?

CANDELORA: You can still grow your seasonal business if you manage it properly. You can continue to grow your seasonal if you work with the importers to upgrade the merchandise. Our customers seem to be receptive to this.

McCONNELL: It's really about execution.

LOWE: There you go. If you make it a seasonal shopping experience, they purchase.

CANDELORA: You need to change your stores and keep them fresh and exciting. We've moved gondolas. We've opened up some spaces. We've made sure the tables were out for some gift wrap, or whatever we're pushing that season. If you stay static, then we'll just be blaming Wal-Mart, that they're taking our lunch again.

SN: Larry, what is your approach to seasonal?

ISHII: Over the last couple of years, we've focused on several areas to help our retailers to be more competitive. A major one is seasonal. There's no question that seasonal continues to be a big opportunity, whether upgrading the customer to higher price points, better-quality items, or expanding variety. Another area that we refer to is "hot buys," and that's finding key promotional items that we might not have thought we could sell in the past, whether it's big cooking pot sets or electronics items. We haven't done TVs yet -- I haven't been able to get my retailers to go for that. But we're looking for things we can get in and out of.

There are two other areas: one on the low end of the price range, and the other on the upper end. We want to help our retailers find niches where they can be competitive with other classes of trade, be it dollar or whatever. We don't warehouse a full general merchandise dollar program, or as we refer to it, "value merchandise." We have selected strong categories of merchandise that stand on their own and are available for the retailers, be it the HBC or the general merchandise side of the business. Also, we've made a very, very strong commitment on the upscale housewares side of the business, and pet supplies, too. We've had lines like Zyliss, Norpro and Oxo, and have made a very strong commitment to support our customers in those areas because a lot of them are looking toward that segment of the business to try to differentiate themselves, to protect themselves from the things that are coming. Those have all been working very nicely for us.

URGO: I'd like to go back to seasonal for a moment and talk about the idea of educating the stores in that execution. A few years back, we implemented a mandatory cross-merchandising program where we would have a general merchandise item displayed on our endcaps at all times, with some exceptions. There were some high-volume displays that would not support that. We put some teeth into that, and it was probably the first and most important initiative that we did in our company that really spoke to general merchandise.

From that came the idea of in-and-out promotions because we felt that once we were able to execute, as a buyer, I went out really looking for these opportunities. Before, I may have had something presented to me and thought, "Neat item. I know we can sell it, but we'll never get it executed on that line of scrimmage." So, it opened up this type of business for me as a buyer. We expanded our seasonal business, and over the years, we've done some extraordinary things with that.

As part of that, when we had our shows, we developed workshops on the seasonal program and a variety of topics. It started out with just our general merchandise clerks coming to the show, then we invited the grocery managers and the store managers. We always asked one of our executives to be our keynote speaker. That brought focus on our business. It's been a platform for us to educate our stores on the importance of our business. I would hate to think where our business would be without that emphasis on seasonal categories. So, it's really been a good thing for us.

WHITE: So, has it broken down silos?

URGO: It has broken down silos and, in our particular instance, we have a new president of our company who came aboard almost two years ago who really understands general merchandise. He has been very supportive, and as you were saying, those who are successful are the ones that have that executive support. I'm very optimistic about where we're going, although we certainly have our work cut out when you look at these trends.

A Look Back at GMDC's 35-Year History

1970: First organizational and charter membership meetings held. Fran Willmes of Spartan Stores is first president. Robert Keats is first executive director.

1971: First GMDC Marketing Conference held in Dallas and concept of the Controlled Casual Conference format proposed.

1972: Health and Beauty Aids Supplier Advisory Board formed.

1974: Rick Tilton succeeds Robert Keats as GMDC's executive director.

1976: GMDC's first industry survey unveiled at GM Conference.

1978: GMDC wholesale members initiate Performance Analysis Review (PAR) program so members can benchmark departmental growth.

1979: GMDC headquarters moves from Dayton, Ohio, to Colorado Springs, Colo.

1981: "HBA Means Business" education program with supplementary material introduced.

1985: "1 Will Get You 5" education program designed to drive incremental general merchandise sales and profits.

1987: GMDC admits direct-buying supermarket chains to membership.

1992: GMDC Educational Foundation launched. Organization expands membership to include service merchandisers, non-direct-buying supermarket chains and club stores.

1993: GMDC Educational Foundation releases landmark study on Rx-to-OTC switch products.

1996: GMDC Educational Foundation introduces its "Seasonal Best Practices: How-to-Manual."

1999: GMDC opens membership to all mass market wholesale and retail channels.

2000: Dave McConnell succeeds Rick Tilton as president and CEO. GMDC introduces CCCnet, a Web-based tool suite to maximize the effectiveness of GMDC.

2001: GMDC Educational Foundation releases "Birthday/Celebration Merchandising Strategies Store Research Report" and "Women's Well-Being Merchandising Strategy Study."

2002: Following decision to pay expenses, retailer and wholesaler attendance increases 45% at GM Marketing Conference and 27% at HBC Marketing Conference.

2003: GMDC board of directors amends the association's bylaws to allow supplier leaders of the three advisory boards to serve two-year terms as directors of the board.

2004: GMDC introduces the Showcase @ GMDC program at its May GM Marketing Conference. GMDC Foundation introduces "Leveraging the Connection Between Pharmacy and the Whole Store" study.

2005: Wholesale/retail and supplier members pilot new Roundtable Idea Exchange sessions at the May GM Marketing Conference; Senior Executive Meetings (SEMs) and at the September HBC Marketing Conference.