FOR MY FRIENDS IN RETAIL
What sort of job would I have to do in order for you to pay me 5% of your gross sales? Seriously think about it, better yet do the math. Let’s say your top line is $10 million a year. That would mean you’re giving me $500,000 because it’s crystal clear that I bring a lot of value to your company right? Would you ever pay that amount to someone in your company that wasn’t working as hard as they used to, and has a side job consulting with your biggest competitor that is taking business away from you? Sound crazy? Consider that retailers are paying legacy “S” brands in the mattress industry a 5-10% premium for their products every day. Are these brands earning that extra margin? My good buddy Ryan Baty, owner of The Mattress Hub, enlightened me on his perspective as it relates to all of this so it got me to thinking.
GIve some consideration to the following questions:
- Out of 10 customers that walk through your door, how many of them are adamant that they purchase one of those legacy brands? How many ask for them by name? How do you know these answers, have you talked to your rsa’s recently or worked the floor yourself to know?
- Out of 10 customers that walk through your door, how many were delivered to you because of some marketing push from the legacy brands driving them to your locations? What’s the proof?
- Are the legacy brands a lot easier to deal with than others? Do they give you significantly better service than other vendors?
- Are they constantly in your office bringing you new marketing ideas and offering up money to help you execute?
- Do their reps calling on your stores make a big difference with your people helping them close more sales? Do you even have a rep or allow a rep to visit your locations?
- Are the legacy brand products competitive to what you could get with someone making you a private label product? Is the profile/perceived value at $1,000 the same? If not why not?
- Are the legacy brands driving new product innovation that is so compelling that the consumer has to have it?
- Do your legacy brand partners put you at the center of their universe? If you dealt with your customers in the same way they deal with you, where would your business be?
The assumption here is that the legacy brands don’t deliver the same margin as what some other brands do, so for the sake of this conversation we will say they are light by 5-10%, which based on what I’m hearing is a very conservative assumption. Can you really afford to give that up? Take a look at just one cost center for the retailer which is financing. Big retailers today are pushing hard on 72 and 84-month plans so the pressure is there. Offering just 36 months it will cost you something like 10% of gross moving up to 60 months that can cost you about 15%. Now add in that 5% gift you give to the legacy brands, then subtract out your rents, advertising cost, payroll, delivery fees, COGS, utilities, increased payroll due to low unemployment, insurance, and a much higher acquisition cost to get a new customer and where are you? How big is that 5-10% now?
Not only are you paying a legacy brand a premium but they are also competing with you in your markets. They are opening their own stores, selling directly to YOUR customers online, placing their line at undesirable retailers, starting new bed in a box brands, even buying e-commerce companies. The worst part of it all is that your business is helping them fund it all. If you went through the 8 questions above and determined that the legacy brands are delivering enough value to you to justify that 5-10% premium you are paying them, then I encourage you to stay the course. If not, consider the following.
I happen to know of a bedding company that…
- Makes incredible beds that actually justify those big tickets.
- Delivers 70% margins.
- Has developed selling stories that capture the hearts and minds of consumers that nobody else can tell.
- Will help you create new marketing strategies to make your store brand come to life and crush your competition.
- Partners with a digital team that can push people into your stores.
- Has created a new approach to THANKING your customers that drive reviews and will have them telling their neighbors about you.
The reality is that there is a trend towards private label (Sherwood, Englander, Symbol, Diamond, Southerland, among others, are doing a great job with that), and there are some craft beer brands like Spink and Co, that offer up something different; something special that doesn’t come along that often. (Sorry, but I had to do a little selling 🙂 Jordan’s, Art Van, Mattress Hub, Famous Tate, HOM Furniture, Living Spaces, City Furniture, Sit’N Sleep, and Mattress Firm are just a few examples of retailers that are developing their own products and craft beer programs and are having some great success. To be clear, I’m not suggesting that retailers get rid of “S” branded products only that they continue to blend in other collections that deliver story and margin to create interest and profits!
I encourage you to continue to push on the current state of things, challenge the way you have always thought, and trust in your store brand to be the connection to your customer. Because it is. Things aren’t getting any easier these days and the e-commerce guys have really complicated things so my encouragement to us all is to always be testing a new path to success. Don’t settle for how things have always been, and make sure you are giving your customer unique in-store experiences through your awesome people and unique products. If you look, act, and sound like everyone else, you will likely get the same result they do, and who wants that?
Yes, this post makes a great case for Spink and Co but there are others guys like Shifman, Chattam and Wells, James and Owen that are doing some cool stuff with their brands. But really, that’s a small part behind the inspiration for today. I want owners to have a healthy business so that they can provide great jobs for their people and continue to thrive in this crazy industry for a long long time. The reality is….in order for that to happen, you’re going to need margin to do it, so go getcha some.
Thoughts? Just e-mail me at email@example.com or leave a comment in the comments section of the blog!
Really fun Dos Marcos podcast posted this week so check it out. We discuss my last blog Pull The Dang Trigger, in some detail so see what that is all about!