June 9, 2006
A New Orleans retailer was walking me through his store some years ago. We were talking about his retail group when he paused at a rack displaying samples of a rather ordinary looking "footprint free" textured carpet. "Warren," he said, "this is a perfect example of what the group does for retailers." He went on to explain that he'd had trouble getting $17.99 a yard for the carpet and that it was barely among the 20 top-selling products in the store. But that, he hastened to add, was before he signed up with a retail group. "Because of their merchandising, advertising, private-labeling, POP materials, warranties and other services, it's now my number three seller and customers are happy to pay the $22.99 listed price! I might only buy it for 50 or 75 cents less, but I'm able to make $5 more a yard at a vastly increased amount of yardage." That, in a nutshell, describes the value of a retail group.
Early on, retailers thought of these groups strictly as buying groups. That has never been their purpose. The value of retail merchandising groups is to help retailers sell. No one ever made money buying. Money is made through selling. The proof in the pudding is that aligned dealers sell more merchandise at higher margins. Average dealers have a fixation on low cost. That should never be the main reason why any dealer joins a retail group. Phil Gutierrez, owner of Abbey Carpet, while speaking at recruitment meetings for future dealers used to weave a masterful scenario of "Our $7.99 price" versus "Their $7.99 price." The fact is that groups generally buy better than individual dealers based on price alone. Retailers tend to focus on the few exceptions, but Phil was willing to compare performance even when the pricing was equal.
He listed everything a dealer could expect with Abbey's $7.99 product and compared it to what dealers get under their $7.99. This startling demonstration opened a lot of eyes. Some of the benefits he mentioned included more flexibility on volume, special pricing, delays on price increases, special terms, discounted or free consumer credit, sampling credits, display credits, award credits, upgraded warranties, private label options and the full number of promised rebates...and on and on. (One recent study showed that unaligned flooring dealers receive less than half their promised rebates. )
What else do these retail merchandise groups do for their members? Ideally, by joining a major retail group you align yourself with a national retail brand. Consumer preferences have changed drastically over the last 20 years. No longer does she trust the local store more than the national brand. The information age has changed the shopping equation forever. Consumers today are far more sophisticated than shoppers of old. They know how they should be treated. They know quality and price and won't stand for less than exemplary service. Although many small retailers profess to be in the service business, frequently, it's the lack of service that is hurting these retailers, not Wal-Mart or Home Depot.
In almost every other industry, retail groups have changed the way business is transacted. Look at the hardware industry. I haven't seen a "Joe's Hardware" for years. Why? All too often, Joe's store was dingy and dirty with no pricing and poor lighting-sort of like some floor covering stores I've seen. If Joe was on the telephone, you waited until he finished. Now, Joe's store is finished. In its place are clean, neat, departmentalized, well-merchandised, clearly priced and brightly lit emporiums staffed by easily recognizable and friendly people eager to help. Women now love to shop at Ace Hardware and TrueValue. This is what retail groups have done in almost every industry. Instead on the old "Ptomaine Diner," we now have Subway and KFC. Today's consumer is knowledgeable, canny and mobile, ready and able to drive miles for the service and selection she requires.
When retailers join a group, they are really buying expertise they couldn't afford on their own. The group can hire experienced buyers for individual product categories as well as merchandisers and advertising experts. Major groups negotiate insurance and compensation packages. They provide better credit plans and even custom consumer charge cards or discounted major credit cards. There is also business financing, legal and accounting services, exclusive products and signage as well as warrantees unavailable to others. And here's a big one: electronic everything from inventory control to B2B packages, customized Web pages, interactive training and, of course, peer networking.
When I look at the above list, I wonder how, during my 25 years as a flooring retailer, I ever did it all. The honest answer is, I didn't. I may have been one of the top performing retailers of the day and a leader in six markets, but there were things that simply were not getting done. And it is more than help with day-to-day tasks. As a member, individual retailers gain huge leverage in settling disputes and obtaining services from suppliers. With two mills controlling almost 90 percent of the business, an important issue today is a guaranteed source of supply. What happens when a single retailer has a dispute with one of the giants? This is why I tell retailers that if I was in retail today, I would not hesitate to join a group.
Harvard Business Review ran a fascinating article on the evolution of merchandising groups in other industries. Typically, when groups are first formed, manufacturers ignore them and try to work directly with individual retailers. Over time, as the groups gain strength, tension ensues and suppliers actively oppose and even compete with them. But opposition gradually evolves into grudging acceptance even as some manufacturers still covertly bypass the groups. Inevitably, the more sophisticated manufacturers recognize the economies and efficiencies of working with a few groups rather than a multitude of individuals. It is telling that our manufacturers are much further down the evolutionary scale in their relationships with the groups than other industries.
Are groups for everyone? Some stores like the legendary Einstein-Moomjy in the New York/New Jersey area may not need to affiliate. Their award-winning marketing includes the famous Manhattan store grand opening, Moom Over Manhattan and their famous Good Carpet for Bad Dogs! ad featuring a sad-eyed Bassett Hound. The stories of upscale suburban women refusing to accept deliveries during the busy Christmas season because E-M has to hire outside delivery trucks that lack their famous logo are true, not just legend. So great is the panache that customers want their neighbors to know they bought at Einstein-Moomjy and paid through the nose. When this happens, you don't need a group. There are others like the incredible ABC Carpet and Lane's Floor Covering in New York that stand tall on their own.
Great floor covering stores like Cole's in San Diego, Pierce Flooring in Montana and FCA Network (a group within a group) in the upper Midwest may not seem to be candidates for a retail group as such. But, it turns out, they do see the benefits of aligning with a retail group where the volume requirement is $10 million a year with some fellow members are doing over $100 million.
What about smaller floor covering stores? When sales hover around the $1 to $2 million dollar level and bring less than a 5 percent return after the owner's compensation, it's time to hire the experts. Some smaller flooring retailers have carved out a niche and garner a decent return on their own, but this doesn't mean they can't do better. The reason these stores are reluctant to even investigate retail groups has to be emotional. They don't want to take their own or a beloved relative's name off the marquee and they fiercely value their independence. Still, protecting your sources, increasing your leverage and making more money can only enhance your sense of independence. Groups let you keep your autonomy (and often that means your name stays above the door) and you are still your own boss. But remember, the members who are the most active in the group are usually the most accomplished members. Moreover, the groups that demand the most participation are the also most prominent in the industry.
At the very least, dealers who take the time to investigate retail groups will get an education. I work with every major retail group in flooring; from the unique warehouse operation of Big Bob's Carpet Outlet to CCA Global's International Design Guild where some members operate closed showrooms. How do you choose between Abbey Carpet, CarpetsPlus/Colortile, Carpetland U.S.A., Carpeteria, Flooring America, Floor to Ceiling Stores or Floors to Go? Visit several groups, talk to the members attend their membership meeting if you can. If you decide this is the route to take, you will surely find a group that fits.