The 7 Deadly Sins of Retail
Earlier this year, I was invited to the annual National Retail Federation’s Big Show in New York City to share my two cents on the industry that never sleeps: private brands. As I was debating what to discuss at the conference, my mind gravitated to the topic of the year — retail Armageddon. While this phrase has been tossed around (a little too liberally, in my opinion) to describe the industry these past few months, it really got me thinking about how many of the pitfalls retailers and brands have faced are the result of sins they have committed.
Here’s what I shared with the folks at NRF. It’s my take on the seven deadly sins of retail that are breaking private brands today, as well as the virtues that can turn things around for those seeking redemption.
Thinking your brand is untouchable is a recipe for failure. If you’re tone deaf to the market, then you’re irrelevant. Tesco’s Fresh & Easy had this mentality when it launched in the U.S. without accommodating stores to American shoppers. The result? It lost more than $2 billion and was forced to exit the market. If you’re not using market research to understand your shopper and are just hoping your namesake will win you gold, you may be guilty of this sin. To turn things around, adopt brand humility by getting to know your customers instead of assuming you know all the answers.
A price only strategy isn't a winning ticket for success; rather, you need to create value. Walmart is a company that used to be all about price, but has turned things around by taking on price gratitude. With the launch of brands like Uniquely J by Jet.com, Walmart has eliminated the tradeoff between price and quality by wooing millennials with higher-end private brand products that are price conscious, sustainable and come with a charitable bent. Now that’s what I call value.
National Brand Wrath
National brands can undercut private brands, but the true threat is being so focused on the competition that you lose sight of the market. Gillette is a prime example of how this can happen. For years the company fended off its oldest rival, Schick, but because it had such a narrow focus it wasn’t prepared for the likes of Harry’s and Dollar Shave Club, which have helped plunge Gillette's market share from 71 percent a few years ago to 59 percent in 2017. If you have competition tunnel vision, it’s high time you learn national brand patience and keep an eye on new competitors.
If your products aren’t up to snuff, it won’t go under the radar. Lidl is guilty of this since it launched in the U.S. last year with subpar products, which were tested and reviewed by Daymon experts. The real sin is knowing you can’t provide quality and launching anyway. Roughly 52 percent of shoppers have said they have increased store brand purchases because of quality, according to Daymon’s Private Brand Intelligence Report. If you’re overly concerned with speed to market, then keep quality chastity in mind before hitting stores with a poor product.
Everyone wants higher margins, but getting greedy by not reinvesting in your business is sinful thinking. If you’re managing your bottom line and killing your top line by sacrificing customer savings and core business operations, then it’s time to nix the greed for margin generosity. Retailers like Costco have already shown that it’s possible to maximize profits without duping shoppers by capping its margins at about 10 percent and making most of its profits on membership fees (starting at $60). Costco is using that revenue to lower its private brand prices.
Contrary to popular belief, you can have too much of a good thing. And when a retailer overpromotes or overdiscounts its products, it does little to convince shoppers that there's more to the brand beyond a good price. CVS committed this sin when it handed out receipts that were chock-full of coupons, making them the length of a toddler. Consumers were so taken back by these promotions that it ended up becoming a meme. To get promotions right, you need to go the opposite route of CVS and practice promotion temperance by developing discounts that are personalized, relevant and not meme-worthy.
In grocery, there are always new trends to look out for. The reality though is that many retailers are slow to adopt these trends for their private brand products. While this may seem pragmatic, not differentiating can be a downfall considering that 59 percent of shoppers have increased their store brand purchases because of greater product variety. Therefore, if a retailer or brand is late to the party, it shouldn’t go at all. Instead, it should practice assortment diligence and invest in innovation like Trader Joe's did last year when it debuted Icelandic yogurt while others were barely jumping aboard the years-old Greek yogurt trend.
As you can see, overcoming these sins can mean success for those brands that are willing to give it a try. For those that don’t check their sins, it's up to them to roll the dice.
Jim Holbrook is the CEO of Daymon, a provider of expert global retail strategies and services.
Related story: When Armageddon Means Reinvention in Retail