Entering into the retail market is fraught with challenges. If you have a product suited to consumers, you must get retail right. The current economic environment makes it especially difficult with even established retailers under pressure to simply survive. Yet, in this environment, the deals you can strike to enter retail are at a peak. Shopping malls are desperate for footfall, rentals are up for negotiation and landlords will do great deals to have you in their environment. Or so one would hope.
Listen to the podcast
Success in retail requires you to get the following right
DON'T BE PRODUCT LED
What are you retailing?
- Necessities – unless you are retailing in the middle of the bush with no other sources of competition around you, you will not succeed in offering necessities. By their nature, everyone needs them. Think toilet paper. Because of this the big retailers that have distribution, purchasing power and baskets-benefits on their side will always outperform you. Suppling to them as a manufacturer is equally hard. Basket brands offer deals that you cannot compete with and your stock pull through from their shelves will be compromised by the location on the shelf you are offered.
- Commodities – also dominated by the retail chains, commodities offer few opportunities. Think peanut butter. It’s not a necessity nor a luxury. Most commodities have countless substitutes and are bought based on price, access and ease of purchase. The manufacturers and suppliers have economies of scale on their side.
- Exclusive – if you have exclusive access to a product that stands apart and on its own, the seed of success in retail can be planted. Think about one of the most successful retailers in South Africa today, the Cape Union Mart Group which houses the retail brands Cape Union Mart, Poetry, Old Khaki, Tread and Miller and Keedo. They own definitive brands with strong identities and they further own an extensive downstream supply chain producing their own products for their exclusive retail.
- Luxury – exclusive products that carry either an investment value or offer high status. Unless branded and established, the likelihood of success in retailing this product in South Africa is poor. The market for these products travels extensively and these products are available abroad where you can get them not only at better prices but in the right season. Think about an Armani Suit, Rolex watch or Churches shoes.
WHAT PROBLEM DO YOU SOLVE? AND FOR WHO?
All products should solve problems for the shoppers that buy them. If you cannot identify the problems your product solves, its unlikely that your product will succeed in retail. Understanding the problem is multi-dimensional. If you create cheap toilet paper to solve an affordability problem but create another when its tears with each wipe, your product does not solve a problem. Problems need to be understood in the context of an experience and that includes everything from how you learn about the product, access it, acquire it and consume it. It also means you must be clear on who it solves a problem for. Cheap toilet paper is not for every consumer.
HOW WILL YOU CREATE ACCESS TO YOUR PRODUCT?
Creating access to your product means finding retail outlets that serve the consumers your product is most suited to. There are many types of retailers from small independent stores to groups to the chains. They all have different buying processes and demand different things from you in terms of supply, price, merchandising and promotional support. Alternatively, you can open your own retail store and offer your products in the manner and way you believe your consumers would best respond to.
WHERE DO YOU START?
Rather don’t because retail success is hard come by. But if you must, it all depends on your product, again. The most successful shot at this is if you have an exclusive product that resonates with a limited, well defined consumer. For example, motor bike fashion safety clothing. It’s a very well-defined market, easy to reach through limited retail stores, active online and community oriented. Let’s use this as an example to build out a retail strategy.
- Get into the community – buy a bike, ride it, ride with bikers, buy the gear, see what works, see what fails, ask a thousand questions and find the brands that work and see what you can do differently. Understand what they buy, how, why, how often and ask them how they think about a product before buying it. Do they buy on brand, the advice of a sales assistant, own research, community views?
- Get your first products – make a few items of your product if manufacturing, or import some samples of the products you want to retail. Use them, offer them to friends in your community, test them and try them, ask for feedback and don’t believe most of what you hear that’s positive.
- Establish a first footprint – do a deal with a retailer to retail your products. Ask them to carry your product, often on consignment because no retailer wants to buy stock that has no evidence of pull through. Be sure to visit the store frequently and make sure your product is well merchandised. At the same time, go to events and open stalls to sell products at the events. Markets are very useful since they put you and the products in front of people. Ask lots of questions and learn to read between the lines. Mostly, see how easily customers put their hands in their pockets and pull out cash to buy your products.
- Gather the evidence – collate your evidence of what works and what fails. You’ll need it for when you approach a bigger retailer.
- Get to your big stores and face their buyers – Buyers are organised into planners and buyers. They look at strategy and price and translate them into return per shelf space. They will demand that you carry minimum stock levels, support their promotions, offer rebates on volumes moved and take back anything that doesn’t sell. They will also want 60 to 90-day terms for payment on the product that does sell. Success in retail supply means big volumes and/or exclusive access to big brands. Its extremely hard to make money out of big retailers since they hold most of the power in the transaction.
- Maybe open your own store - This assumes that you have a product range that is comprehensive, like the Cape Union Mart group. It needs to form the core of your offering with all additional products being ancillary and complementary. Your nemeses here is the landlord. South Africa has allowed a few companies to dominate the retail property market. They have little empathy for an upstart retailer, and you will face 3 to 6-month deposit requirements, they will govern your opening and closing hours irrespective of the economic climate and insist on both fixed rents supplemented by turnover shares. These rents will escalate between 8-10% in an economy that is growing at less than 1 % and inflation averaging at 4,5%. The maths never works out. At best you will survive.
We work actively with a number of retailers in the exclusive product ranges that have both a business to consumer and business to business offering. Our strength is in the former and for most of the retailer’s part, their success lies in the business to business side too. If you are in retail and looking for growth, let meet, greet and see if we can help develop a success where most fail.
This topic was requested by numerous listeners including Mawande Tsoliwe on Twitter. Submit your suggestions via social media or below.