|
 When
you think about retailing and manufacturing, you would think the word “new” in a
positive light. In truth, “new” has become a bad word and it is killing the
scrapbooking industry. It’s not that “new” is such a bad thing, but the amount
of new products needed to keep the revenues up of both retailers and
manufactures is killing everyone’s bottom line. Too much new is only a symptom
of the problem. Why is the industry so caught up in “new”?”
Too much new makes it harder and harder each year for both manufacturers and
retailers to turn a profit. For manufacturers, profits are found in the length
of time a product can stay within their product offering mix. Generally, the
longer it can stay in their mix as a good seller, the more profits they can
generate from that SKU. The greater the length there is in the product
life-cycle, the lower the cost of product marketing and development as a
percentage of sales. Simply stated, the longer a product lives the more profits
it produces. The shorter the life-cycle of the product, the less likely it will
be to produce profits. For manufacturers, the higher the percentage of new
product offerings, the lower the chance that they can produce meaningful
profits.
Without knowing for sure, I could safely predict that most manufacturers today
are simply breaking even. Meaning that they are working harder each year and
having less and less to show for it on their bottom line.
For the retailer, too much new is just as bad, perhaps even worse. Most
retailers starting out do so with fresh, new inventory. However, most are not
willing to mark down losing products, which are any products that have less than
a four time turn rate. Over time, the inventory of the retailer gets more and
more stale. Stale inventory impacts the store’s sales figures, leaving no money
to invest in new products. If left unchecked, over time the retailer has so much
dead inventory that they have no choice but to pack it all in and call it quits.
We know the cycle of too much new or not enough new, depending on how you look
at it, is harder on the independent retailer than the manufacturers. This is
because the failure rate in sheer numbers, and as a percentage of business
failures for either group, is much higher for retailers than it is for
manufacturers.
We know that the need for too much new causes pain to both retailers and
manufacturers. So now the question is, “Why does the industry need so much new
product to keep revenues going?”
The answer is simple; the industry needs so much new because it has been
attracting the same consumer base for years. To be successful, however, 50% of
the store’s traffic should be the newbies coming into the scrapbooking category
for the first time. More realistically, the industry is perhaps welcoming new
scrapbookers at a rate of about 10% of the current customer base.
To the newbie consumer or scrapbooker, everything is new, while the seasoned
scrapbooker already owns the old and wants the new. Most independent scrapbook
stores spend 100% of their ad budget on their current customer, and spend
nothing recruiting new scrapbookers. The fact is that most newbies will be
escorted into a store by a friend who is an old-time customer. Compound that
problem with the fact that there are less and less “oldies” because more and
more of them are getting to the end of the seven year life style of active
scrapbooking. The consumer base for the scrapbooking industry is not expanding
but shrinking.
If we had more newbies, the product life cycle would increase and manufacturing
profits would rise. If the product life cycles are longer for the manufacturers,
it means they would be for the retailers too.
As for converting newbies, manufacturers are in an even worse predicament than
retailers because much of their advertising dollars, nearly $8 million worth, is
going to a very narrow niche of elite converted consumers who are subscribers of
the two traditional industry consumer magazines and who are not the newbies.
Here is what we know about marketing to grow your business from a retail
perspective. First, 70% of your budget should be spent marketing to the newbies.
That is your hunting or conversion budget. The remaining 30% of your marketing
budget should be spent farming the oldies. That is your farming or retention
budget. It’s more expensive to hunt than to farm on a per customer basis.
Therefore, you are required to spend more to hunt as a percentage of your ad
budget in comparison to your farming budget.
Both retailers and manufacturers are going to have to pool their money in a way
to attract more newbies. Manufacturers need to do so in order to become a
consumer brand, not just a trade brand. Retailers need to do it as well,
otherwise the figure of sales per store will continue to slide backwards.
When you hear everyone talking about new products as the key to solving the
problems of the industry, stop them and say, “What we need is not more new
products, but new consumers.”
If you’re a retailer, next time you meet with a manufacturer, don’t ask to see
the new products; ask instead, “What is your program as a manufacturer to get
more new consumers for you and me?” If they say, “Let me show you my SMART
five-step retail loyalty program,” you know you are doing business with a
company who will be a great partner in helping you find new customers rather
than overloading you with too many new SKUs.
Return the positive spin to the word “new.”. If you are thinking more about new
consumers than you are about new products, then you are on top of your game.
That is what being business SMART is all about. |
