whitepapers

Why Sell the “Big Boxes”?

Timing is everything. Given current economic conditions, manufacturers are forced (as never before) to gain share in order to counteract declining sales within their existing customer base.

Retailers face a similar challenge as they attempt to lift “comps” (i.e. comparison of same store sales in the current versus the previous year) into positive figures. In response, a noteworthy shift in purchasing behavior is occurring, with increased emphasis being placed on new products and established “Pro” brands. Trends such as this are evident as you make a visit to your local Home Depot; this retailer has been relentless in their pursuit of brands with high contractor acceptance, and has even introduced an “innovation index” (sales from new items as a percentage of total sales) to the metrics used in supplier evaluations.

As these economic factors and strategic initiatives converge, a manufacturer’s foray into today’s retail market may be met with an unprecedented rate of success.

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In addition to the “fertile ground” condition described above, suppliers may choose to enlist the home improvement industry as “another” distribution channel for the following reasons:

Market Consolidation

The two leading players (The Home Depot & Lowes) have a combined +3500 locations and (depending on the product category) may account for as much as 65% of the retail market. Both companies operate highly centralized purchasing models from global campuses in Atlanta (The Home Depot) and Charlotte (Lowes). Suppliers will be pleased to discover that the cost of sales for this channel will be only a fraction of the cost of the sales force they deploy to call on commercial / industrial customers.

Test Markets

A rollout of any national program will be preceded by a test market, which may vary significantly in size & scope (from 50 to 500 stores, single or multiple markets, etc). Nowhere is it written that the “tester” is the retailer and that the “test subject” is the supplier. Instead, savvy suppliers “test” the customer and in doing so acquire useful knowledge on logistics, order frequency, rate of sale, retail price positioning, etc. After a period of 90-180 days, a supplier usually has a clear indication of what a “full-blown” national program will present in the form of investment, profit, and conflict with customers in other channels.

“Leaner & Meaner”

Before becoming a supplier to a major retail chain, manufacturers will be evaluated in a number of areas, a process that often results in a more “fitful” enterprise as it relates to: (a) materials handling, (b) sourcing & procurement, (c) transactional costs, and (d) technology adaptation.