The “right price” image

The “right price” image

Australian Hardware Journal

Competition is tough around the world, but perhaps nowhere but in the United States would retailers react so aggressively to convey the “right price” image.

The efforts to convey the ideal price image by American retailers are reflecting two important strategies – one, to lower a great many everyday prices (to match the concept of everyday low prices espoused for years by Wal*Mart and later copied by Home Depot) and two, to offer to match the advertised prices of competitors.

Meijer Thrify Acres uses a sign by its frontentrance to promote its price-matching policy, as well as a blue sign to tell customers it is lowering everyday prices

To achieve their overall gross margin goals, everyday prices most retailers tend to be quite a bit higher than their advertised prices. This provides them with extra profit on non-advertised sales and also a cushion to show a big savings when prices were reduced on sale items.

Wal*Mart, which does little advertising has affected that strategy by keeping everyday prices low. That it works is best proven by the company’s tremendous and ongoing growth – same-store sales consistently exceed those of other chains and it now generates more than $150 billion in annual sales. Home Depot followed its lead in adopting the policy several years ago.

Lowes and then Menards, the other two large chains quickly began offering to match prices, but did not promote those policies with aggressive in-store signing and advertising. But when hypermarket chains like Kmart and Meijer Thrifty Acres, and then Sears, began aggressive signing that they would match prices, Lowes and Menards began promoting their own price-match policies more publicly.

Still, no one in the home centre field is using signing as aggressively as Kmart as it tries to rejuvenate its discount store business. And Meijer, a privately-owned Mid-West powerhouse hypermarket chain, is fighting off superstores being opened by Kmart, Wal*Mart and Target in its core trading area, so its signing is now much more aggressive.

And Sears, dependent on its hardlines business in its mall stores as well as its 245 hardware stores, considers both discounters and home centre chains as competitors so it too now is price-matching and telling the world about it with aggressive interior and exterior signing. One question cries for an answer: will consumers begin to doubt these policies as the signing becomes so widespread?

Pricing is one outcome of the competitive US marketplace. Now experts say that there are far too many retail stores in America, and they predict a major fallout in the coming year or two as weaker individual and chain units suffer in the current economic slowdown. The closures are not limited to any single class of trade; all will be affected to some degree.

The increasing importance of top flight technology in retailing and distribution will only heighten the rate of closures. Stores which cannot improve their efficiency with better technology will slip further and further behind. Experts in logistics like Wal*Mart and Target will create havoc with regional chains like Ames, which is closing another 54 stores, and struggling Kmart, whose empty shelves and reduced advertising deter customers from shopping them as a first-choice location.

In the hardware/home centre field particularly, Payless Cashways recently folded; Restoration Hardware, a niche player, is not putting up the impressive numbers it did a few years ago; mergers are increasing as successful small chains gobble up struggling ones.

Even Sears, once America’s largest retailer, is trying to re-position itself. Under former CEO Arthur Martinez, it sought to strengthen its apparel offerings and downplayed to some extent its strengths in Craftsman tools, power garden equipment and paint. Under its new CEO, Allan Lacy, the emphasis is being shifted again to major appliances and male-oriented lines.

Tool Territory sections in its mall stores blend national brands with its own powerful Craftsman brand, for example. And its Brand Central appliance departments now include national brands in addition to hits highly rated Kenmore brand.

Average retail profit margins dropped from 3.97% in 1996 to a negative .17% in 2000, even as consumer spending rose. The 2001 holiday season featured earlier and heavier discounting than ever before as stores tried to rebuild volume lost after the Sept. 11 tragedies. Rampant discounting is bound to hurt gross margins as well as net profits.

More store closures

But just how “over-stored” is America? According to the F.W. Dodge research firm, retailers added 3 sq. ft. of retail space for every man, woman and child in the US just during the 1990s.

While most retail experts don’t expect as many retail failures as occurred in early 1990s, it is true that 31 publicly traded retailers filed reorganisation proceedings in 2001, well above the normal rate. Much harder to track are the closings of individual stores and privately owned chains in every field, including hardware, lumber/building materials and home centres.

One measure to dramatically prove the retail fallout rate is the number of empty store fronts in shopping centres large and small.

Changes at Sears

Sears continues trying to re-shape itself and regain the profitability and consumer appeal it once enjoyed. Allan Lacy explains that “The Softer Side of Sears” concept introduced by Arthur Martinez, his predecessor, worked for a while but apparently not enough to be continued. In a presentation to financial analysts recently, Lacy outlined the following changes:

    * More emphasis will be placed on housewares, appliances, hardlines and outdoor living and garden products (areas in which Sears long had a top reputation)
    * Its hundreds of brand names in soft goods and apparel are going to be consolidated into fewer, leading ultimately to a “mega-brand” which might be comparable to the Craftsman name in hardlines
    * In a surprise move, the company is slowing expansion of The Great Indoors, a high end, décor-oriented specialty chain which apparently had been developing strong sales in its first few units
    * Major cutbacks in personnel will eliminate thousands of home office positions, as well as field supervisory positions in an attempt to make the chain leaner and meaner.
    * Lacy also cast doubt on the future expansion of other specialty operations such as its auto stores and Sears Hardware stores.

In its hardgoods business, Sears’ 860 shopping mall locations are not as convenient to shop as self-standing hardware stores and home centres. And assortments in basic categories have offered consumers far less choices than independent hardware stores and chain home centres. It already has attempted to upgrade its hardware categories by expanding tool assortments and adding brands, but the problem of inconvenient mall locations still exists.

In apparel, competitors Target and Kohl have been offering fresher styles, lower prices and easier-to-shop facilities, so Sears also plans to revise store layouts and fixturing. The market and its customers are asking the perennial question: Will this latest re-structuring of the company work?

Localising merchandise

Meanwhile at Wal*Mart, the world’s largest retailer at more than $150 billion, demonstrates why it has grown so much by its latest effort to bring in more sales. Its managers at store level, who always had some freedom of choice in what they stock and how much they stock, are now being actively encouraged to “personalise” their assortments to local needs.

And its buyers at its Bentonville headquarters are being more creative in working with suppliers to develop new items which can be Wal*Mart exclusives. One weird one is offering Spam, a canned meat that is an American icon, in camoflauge colors, which is stocked in sporting goods sections in over 700 rural Wal*Mart stores.

This local focus is helped by Wal*Mart’s outstanding database, which provides industry-leading sales information to buyers and cooperating vendors. When products move well with a change in location or selling price, this information is quickly disseminated throughout the chain.

When Wal*Mart first expanded internationally, it relied too much on its US layouts and assortments, but it quickly changed direction as it analysed performance. These days its international units are tailored to local needs and tastes and country managers are given much more authority in meeting local needs and taking advantage of local opportunities.