This Week in Retail …

admin2 on 03 14, 2011

By Manita Khuller

Money, Money, Money – It’s a Rich Man’s World

Retailing is big business – today the Top 25 Retailer ‘brand’ names account for sales of over $1 trillion from 38000 stores in 71 countries*! No matter how many zeros that is, it’s a very BIG number.

You don’t get to be that big or successful without some pretty smart business strategies and tactics. Organised retail is complex business with large structures and shareholder expectations just like any other big corporation. They have aggressive sales and profit targets with global growth plans. How do big retailers make money to fund their growth plans? Broadly there are two simple ways – grow sales and profit or contain cost.

In both, retailers look to their suppliers or ‘vendors’ to achieve their commercial goals. Why are they able to do this? Because manufacturers need them to get their brand or product into consumers hands. Because without them brand growth plans could not be executed unless manufacturers get into a different business model such as the retail business. Some do find very profitable ways to reach consumers directly – the story of Avon cosmetics is well known. But most of us have to rely on existing retail systems.

Every year, manufacturers plough millions of dollars into leading retailers in a quest not just to have their product available to the end user, in distribution and stock, but also to be visibly promoted and attractively displayed. In the fight for consumer’s wallet, top 250 manufacturers in the consumer goods industry ploughed nearly 300 Billion US dollars worldwide into the pockets of modern retailers in promotions alone!

Above all, retailers are able to do this because they are tough negotiators!

Size and power helps to gain maximum leverage from suppliers. In the old days, retailers earned service margins of 1 to 2%. In some categories today, large global retailers command 35 to 40% contractual margin which is hotly negotiated annually with top management of big suppliers.

Retailers do not thrive by earnings from supplier margins alone, because they have costs too and lots of them. Store operations, warehouses, staff on the shop floor etc. They constantly seek ways to minimise costs – often suppliers and brands can win support with a retailer if they can demonstrate ways to help cut cost.

Something to think about, is your brand increasing sales of your retail customer (hence margins) or their costs? This could make all the difference you getting support for your brand activity plans in retail.

*MVI – TOP 25 Retail Brands Report

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