Grills, back-to-school supplies, Halloween costumes and Christmas decorations were all once reliable profit generators for supermarkets. But it's no secret that the advent of supercenters, dollar stores and discount formats has put the squeeze on the seasonal merchandise category. The ongoing recession has, if anything, worsened the trend of shoppers migrating to other formats for their general merchandise purchases.
Most supermarkets can still do well with commodity products and seasonal necessities such as charcoal in the summer and rock salt in the winter, but companies interested in keeping seasonal merchandise sales strong will need to reemphasize their commitment to the category in this economic environment.
General merchandise, as a category, has been down throughout the retail world during the recession, and it follows suit that the category is facing challenges in supermarkets this year as well, noted Neil Stern, senior partner with McMillan Doolittle, Chicago. Seasonal merchandise faces additional challenges, since many seasonal products are highly discretionary.
“Customers are buying necessities, but they're being very, very cautious on discretionary spending,” Stern said. “While seasonal is important, it's also something that's a bit more impulsive, a bit more discretionary than buying groceries for the week.
Furthermore, mass merchants such as Wal-Mart and Target have become increasingly sophisticated in merchandising and promoting seasonal products. They've got the space to devote large dedicated areas in their stores, and create thematic programs around those areas, Stern added. Drug stores have followed suit to a lesser degree.
“We've seen a lot of nonfood business move from us to Target and Wal-Mart,” said Tanney Staffenson, an advisor at Wilsonville Ore.-based Lamb's Thriftway. “It's a tough dilemma, because with perishables, you've got a pretty good opportunity to compete with everybody. It's much easier to set up a point of difference. But when you look at these mass merchandisers, customers can save a good chunk of change [on general merchandise items] if they go there.
“You can't just give up on a category, but one that I think about is school supplies. We'll have school supplies, but I can go to Wal-Mart and buy some of those products cheaper than I can get them from a wholesaler. If you're not careful, you can end up hurting your price image.”
Staffenson did add, however, that Lamb's primary wholesaler had been able to help out with some nonfood products, such as plasticware, by making aggressive buys, and giving its members the opportunity to put an attractive retail on those items while still maintaining a decent margin.
Of course, seasonal merchandise can't all be viewed through the same lens. A lot of seasonal items, particularly those related to food — like paper plates, plasticware, charcoal and lighter fluid, and to a lesser extent, nonfood-related items like firewood, rock salt and de-icer during the winter in colder climates — already sit well with how customers shop a supermarket, Stern noted. These items are relatively easy to cross-merchandise in other departments or stack into simple displays.
“When you want to start being thematic, and sell barbecue grills, aprons and tongs, now you require some merchandising and some creativity around it. [Seasonal merchandise] is one of those areas where a few supermarkets still do a nice job, but it's an area that's overlooked by many supermarkets, so it's natural that customers have migrated to other channels,” he said. “They can still do it well, but it requires a commitment and it requires space, and not everybody has the space to do it well. I think it's one of those areas where it's ‘go big or go home.’ If you commit to it, the business is there, but it requires a bigger commitment than previously.”
Jon Hauptman, partner with Willard Bishop, Barrington, Ill., agreed, arguing that “there's a strong role that supermarkets can play in the seasonal business, but the way that they approach it needs to change — as opposed to having a lot of one-off products, having themed events with an assortment of very carefully selected items.”
Stern also noted that seasonal promotions used to be very finite, but now, retailers must extend seasons longer, particularly if they have dedicated significant space to seasonal merchandise.
“The joke is ‘Christmas in July,’” he said. “But the key is, if you have a seasonal aisle or a seasonal area, you don't want to live with gaps. It's very logical. Right now everyone's working on back-to-school, and after that there's a bit of a lull, but a lot of people go very early on Halloween. And then after that, you're in the heart of Christmas and the holiday season.
“Part of it is, it's an advertising display. You want to be top of mind when they do come to buy. If you can live with the fact that the space is obviously not going to be as productive during the first week of November as it will be during the first week of December, it creates a festive feel to the store and reminds people that when it is time to do that shopping, they can do it at this store.”
Early displays and early ads also help create and establish a store's price image in the category, said Scott Preston, business director of general merchandise, United Supermarkets, Lubbock, Texas. These displays also appeal to customers who are pantry loaders and prefer to buy early. Plus, many items can be consumed before a holiday, creating repurchase opportunities.
“We are very bullish in relation to seasonal merchandise; it's part of our company strategy,” Preston said, noting that the chain was “somewhat blessed” in that its market area has not experienced the severe recessionary situations that many parts of the United States are currently enduring. “Disposable income and expenditures have been solid for us.”
But the seasonal merchandise category still requires a significant commitment. To ensure its continued success, Preston explained that United allocates permanent space for seasonal merchandising, with aisles typically in prominent locations within the store.
“We use a tunnel presentation with cross aisles and ceiling treatments designed to attract guests to these aisles.”
The company also regularly generates strategic plans between general merchandise and other store departments, to “develop synergies in relation to our seasonal presentation in the stores,” he added. And the category is regularly supported with print ads and temporary price reductions.
For example, United's Monthly Values flier for July featured deep discounts on summertime products like folding chairs, grills, charcoal, citronella candles and sun-tea jars, while August's flier features back-to-school deals like 10 for $10 washable glue, crayons, notebooks and binders, two for $4 multi-pack pens, or 99-cent markers, highlighters and scissors.
“We have found, in relation to our ad strategy, that first and foremost a tag creates interest and a tag generates transactions,” Preston said. “We're aggressive in relation to generating tags and drawing attention to the items.”
Good sourcing and procurement practices and disciplined product selection are also critical for retailers competing with mass merchandisers in this category.
“We offer a strong value to the customers in relation to the products we choose,” Preston said. “We're selective in relation to price gaps and very focused on our price points.”
United has also put a lot of effort into getting store-level management involved in general merchandise and seasonal merchandise plans, inviting them to shows where they can interact with the merchandise, and make decisions based on the demographics served by their store or cluster of stores.
“We feel we have superior store execution, which is probably the most important part of seasonal merchandising success — we have exceptional associates and store management leadership,” Preston said. And having store- and regional-level management participate in the shows causes them to take ownership of their aisles when they make a commitment to a product mix.
“We strive [at the headquarters level] not to allocate product,” he said. “We give them the full opportunity to purchase what is right for their demographics and their store cluster based on neighborhood marketing.”