KNOW THE COMPETITION!! – #109
As my wife would concur, I loved to go shopping with her – a strange phenomenon when the Cubs are playing. While she shopped for essentials, I would look at leaders of the industry battle for shelf space and display space for their new and existing products. I have done this for years, and I grew in understanding of the strategies of both small and large manufacturers. How many of your Marketing people can give you a solid briefing on the competition and their individual marketing strategies, as well as to how they are reading trends? The third quarter was great for Lowes, Home Depot, Dollar General, Costco, Home Goods stores, which I visit often. Best Buy, my best thermometer, just reported a 4% increase during the third quarter which represents a growth of a 1.5% over industry forecasts. What did these six companies do – to insure growth – during a quarter in which most businesses suffered greatly?
- They already had infrastructure in place to shift to, and e-commerce was already being employed in a wide manner of ways.
- They already had been competing against Walmart and Amazon when the pandemic hit. While each one was adopting to different levels of infrastructure adjustments, the question arose of whether they can keep-up with both competitors new rates of introducing new products and marketing strategies.
- In order to compete with Walmart and Amazon everyone had initiated online capabilities before the pandemic started to really affect retail in March. So, they had to sharpen their online skills without having to start from scratch, which represents a big investment in time and money to those having to do so.
- The importance of cash management came into focus, due the fact that each of these retailers had adequate cash on hand to provide support to the changes as they came up.
- They were selling what their Customers needed, and they had large networks of reliable suppliers that could provide the latest materials needed.
- They didn’t close – each one was declared as “essential” a category of classification that allowed them to be operating. I can’t see “Dollar Tree” as being “essential” in any way. On second thought, it might represent a low-cost channel of distribution for low-cost goods from China.
- One of the major advantages to the “seven” was the size of their parking lots – there was room to create a line for cars to pick- up materials they had ordered online. The exposure to COVID-19 was eliminated through “touch-less pick-up” of goods.
- The six plus two = 8 all-together had a good “third” quarter in terms of revenues and profits. How about Target increasing their earnings by 80% and Lowe’s increasing their profits by 100% over a year ago. I would not estimate that they could have achieved this without each area having a one-page plan.
- The thousands of smaller retail businesses had made no one page plans that contained a contingency strategy for events such as COVID-19. Most small businesses lose money and the losses appear in tax returns if you have a good tax accountant. The small business – man/woman doesn’t stand a chance to be successful in this world of making a profit, and the end of touchy/feely management. COVID-19 is just the beginning. $15.00 per hour wages started the ball rolling towards bankruptcy where you can walk away from all your debts.
- How many budget cuts can a retail business stand, before they have a negative effect on Customer Service. This is the area where better products, services and total Customer support is needed.
- Have you watched the warehouses being built in key centralized areas to meet competition in the e-commerce market in terms of free freight and speed of delivery.
- How about the ongoing development of apps for smart phones and the use of artificial intelligence to aid in running robots. The improvements in technology in every area of these large retailers is amazing, and on their contribution to profitability by everybody in the organization.
- Big retailers would increase their prices only to lower them in promotions while maintaining their profitability. The only loser in this strategy was the Customer who thought they were getting lower prices. However, most people do comparative shopping for prices on competitive e-commerce sites. The potential Customer is a knowledgeable buyer, therefore, you have to really know your competition as well competitive pricing and promotions.
- Within Target and Walmart it is difficult to understand why they both traded big chunks of floor space generating 25% – 40% gross profit margins on a wide array of goods, for food items generating a low margin (2%)? I can’t believe they could have forecasted a pandemic – that one-stop shopping would be a lucrative opportunity for all Customers. Instead, they just wanted to acquire Customers by giving them a one – stop shopping experience and offset the loss of revenues and profitability with gains in other areas. Who am I to question their logic, but I see a lot of renovations in both stores as a means of letting everyone know that they are extremely focused on testing every new idea in merchandising and Customer service.
- What will the retailers do when government support will run out? We simply can’t go on in the way of uncontrolled government spending. It is important to have a plan in place that makes assumptions, and has plenty of strategies with ample contingency plans for impacts that might or might not happen.
This blog reflects my thoughts and observations of large retail Operations. I sincerely hope that you can adopt a few ideas for your business. If you can’t, please meet frequently with your managers to have an ideas session about what it will take to sustain the business for years to come. What changes can your manager expect?