During the course of structuring a new product for launch into the mass merchandising arena, most innovators of new products assume that Wal-Mart Stores, Inc. is the immediate objective for their new product. As a retailing giant, Wal-Mart is indeed a desirable retailer in which to ingratiate a new product. I must explain to the prospective entrepreneur that Wal-Mart is probably nothing more than a fleeting dream, a "pie-in-the-sky" hope. There are several reasons for this bold statement. Please allow me to explain.
To begin with, most modern retailers have a computerized inventory control system built over decades by finely-tuning their merchandise mix. To put it bluntly, they already know what will sell! Any new product, unless successfully tested elsewhere, is an assumed liability to the very formula that made them successful in the first place. For that reason alone, 85-90% of the new products that are shown to the merchandising division are rejected out of hand. Why should they be expected to replace an established product having a proven track record for "zillions" of order cycles with a new product that has not been heard of before? In essence, you are asking the buyer to dilute that share of a proven and known value with an unproven and unknown value. New product failures are not how buyers keep their jobs.
Another consideration is the amount of "open-to-buy" the buyer has for his department. In other words, how many dollars does he have left in his budget to spend on product, whether new or old? Seasonal returns, advertising and sales promotions, departmental landed gross, interest on inventory purchased, and markdowns both current and year-to-date all play a factor in determining the amount of available open-to-buy the buyer has to spend.
Seasonal buying for an event during the forthcoming year begins during the same event in the current year, and perhaps as much as 40% of the buyer's annual budget is spent during the months following that season as it leads to the next. Juggling those dollars is a very complicated and formulated process! Figure in the average turns per year, gross markup at retail versus landed gross, net profit budgeted versus actual profit due to markdowns, and a virtual plethora of other factors complicate the matter. Then figure how may square feet and the dollars per square feet (sometimes even dollars per square inch!).
Each known product will have to conform to a certain shelf profile or gondola modular layout that will maximize and enhance his department's sales in order to come in at or over budget in all of the above except inventory, and one can begin to readily see why a buyer may not really be interested in new products. His job is very complex. To keep it as simple as he can, he will stick with what he knows will sell --- much to the chagrin of new product developers.
So now we must pose the question. Can the giant be captured? There is not an easy answer. Mass merchandisers such as Wal-Mart must compete in order to maintain market share and sales momentum. Invariably this means keeping new products on the shelf. Certainly it means giving exposure to any new product they perceive is costing their company consumer sales. Sam Walton told me many times, "80% of your sales come from 20% of your merchandise", and his perception was uncannily accurate. This was at a time prior to computerization of major chains.
Today he would probably say, "83.271% of your sales come from 21.00593% of your merchandise". Computerization of inventory control has brought pinpoint accuracy to the retail giants. The smart product developer should realize the nature of the beast he is trying to tackle, and act accordingly. Just where and how does your product manage to fit into this equation? How do you position it where it can be envisioned as part of the 80%? Do you even want it there? These should be your basic questions. Then again the best question might even be, "Do I really need to capture the beast?"
Possibly you do, but during the launch, probably not. Being aware of the rigors of entrenching a product in the "giant's lair" keeps me aware of the fact that viable options must be pursued -- options allowing for a steady growth of market share, yet still with the vision of the giant as the ultimate goal. To this end I have developed a strategy called the "Sunflower Concept".
Large mass merchandisers are not often interested in new product opportunities. The "Sunflower Concept" is a way around the problem. At the same time, it provides increasing market share for your product allowing you to "test the waters" before making the commitment to move into the lair of the giant.
By identifying and isolating smaller regional and sub-regional retail chains, and explaining you are not interested in showing your product to Wal-Mart or one of the other giants, you are offering a great incentive for that company to test your product. Even if they have only 300 retail units, you are gaining market share while creating a positive sales history. Then, utilizing this company's sales, approach the next one --- maybe a regional chain with 600 retail units. There are many companies with 1,000 to 1,500 stores. Each is like the petal of a sunflower. The giant is in the middle, and it is the ultimate goal. The advantages of this approach are numerous. By the time your product is being sold in a dozen smaller chains, the total retail unit base may easily exceed the giant's. You may even find you don't need him and his problems anyhow.
Also, keep in mind that by the time you are servicing 3,000 to 4,000 regional sales units, all the inherent problems that come with growth are usually solved. Your receivables are tracking your payables, and the market has told you in measurable terms exactly what it expects of you and your product. It is now thoroughly entrenched, hedging in on the giant's market, and can no longer be ignored. The option of "catching the giant" is now yours and yours alone. What a position to be in!
Entrepreneurs must come to terms with the fact that while they can be creative, I have never met an entrepreneurial innovator who can be everything to everybody. It is my wish that all market worthy new products have their shot at success, but the real probability for those that enjoy success is limited only by the reasoning the entrepreneur puts into his marketing plan. Having said this, I strongly urge any new product innovator to seek competent and professional help in determining market direction and strategy. Realize your limitations, and further realize that yours may be the best new product since shoes, but your chances for success are greatly diminished if you try to strike out on your own with the attitude that you are indeed capable of "doing it all". There are probably those among you who have the ability, but they are very rare birds indeed!
Should you decide to attempt to capture the giant, I'm certainly not saying it cannot be done. But you will find your skills and ability to corner that giant will increase exponentially if you finely hone your marketing weapons on smaller game until you are ready for the "safari" of your life! Good Luck and Good Hunting!©1995, Jim Harris Reprinted with permission
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Posted 1/4/98. Page last updated 5/27/98.