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Mention the general merchandise category to most convenience retailers or distributors, and eyes glaze over. Heads shake in despair. Mumbles about mass merchants killing the category on price can be heard, along with laments that the highly competitive and profitable beverage, tobacco and snack categories demand attention first. General merchandise, it seems, has become the ugly duckling of the industry.
Recent sales trends reflect the impact of competition from other channels and the lack of attention by operators. General merchandise is defined by the National Association of Convenience Stores (NACS) as including phone cards/prepaid telecommunications products, smoking accessories, novelties/toys, batteries, film/photo, floral, school/office supplies apparel, hardware, trading cards and other items, such as auto supplies. The Convenience Store News Industry Report states that general merchandise sales declined 10.1 percent in total sales in 2000 to $23.8 million industry wide. While prepaid telecommunications products and smoking accessories experienced growth, all other subcategories were down, with the exception of hardware, which was up slightly.
Many operators are already throwing their hands up in despair over the state of general merchandise. Should they do away with the category altogether? No, say some retailers. General merchandise may not draw the dollars that beer or salty snacks do, but it does have a few things going for it.
The first is its ability to meet customers' emergency needs. "Folks run in, they need film — gotta have it now," said Kendra Kuehl, purchasing and promotions director for the 43-store Pump & Pantry chain operated by Bosselman Inc., based in Grand Island, Neb. "Having that film provides true convenience. They wouldn't get it from us if they didn't have to, but there's many times when they do. We need to have it on the shelf to meet their needs."
Such is the strategy at Sunoco Inc.'s 541 Aplus stores, according to John Krapf, general merchandise category manager for the Philadelphia-based company. Sunoco locations in the Northeast move plenty of windshield washer fluid, antifreeze and rock salt during the winter, which is merchandised in outdoor displays. "One good storm, and the demand is difficult to keep up with," noted Krapf.
Gotta Have It!
General merchandise also elicits impulse sales, especially the toys and novelties and floral subcategories. A cat's tail protruding from a small burlap bag caught customer attention at checkout at Family Express stores last year. A noise-activated device inside caused the bag to jump around as it emitted a cat's panicked meow. "These went like crazy — two dozen out the door in two days in some stores. People saw it and had to have it," according to Ken Hagler, vice president of marketing at the 42-store chain based in Valparaiso, Ind. "At $10 retail with a 50-percent margin, that's a nice ring, and a great incremental sale."
That's the true beauty of general merchandise: incremental sales with typically high gross margins. "The right type and quantity of general merchandise items can provide stores a unique selling opportunity and build incremental sales," affirmed Jeff Hamill, vice president, 7-Eleven Inc.
The Dallas-based convenience giant is well known for its ability to drive impulse sales with novelties, which lead merchandise sales, along with film and photo items, school and office supplies, toys and trading cards. The company's aggressive category management program is applied to all general merchandise products, enabling the retailer to maintain the appropriate product assortment for its customers and achieve its business goals.
"Monitoring the top sellers and slow movers through our proprietary scanning system allows us to concentrate on carrying the right products," Hamill explained. "Keeping up with customer needs is what we strive to do to drive sales in all categories."
Family Express is also hot after the profits general merchandise can generate. Working with distributor Eby-Brown Co., the company is now applying the C/SCAPE system to analyze its general merchandise categories, and expects to implement new shelf sets and assortments in the next few months. "Each subcategory has to be merchandised and handled differently, which is what makes general merchandise so challenging," said Hagler. "But with a little attention, you can drive some great dollars." In fact, general merchandise accounts for only 2.7 percent of inside sales at Family Express, but generates 4.3 percent of profit for the chain.
Emergency purchase items, such as hardware, school and office supplies, housewares and some film and photo items are merchandised together at Family Express stores. The 4-foot in-line shelf section is positioned as a destination category, but is visible to the cashier to help prevent theft. A different approach is taken with toys and novelty and seasonal items, however.
"We merchandise those in high-traffic areas for high visibility," Hagler said. "These are impulse items, and to get that sale, they've got to be out there for the customer to see."
Ahead of the Trends
Toys and novelties are the biggest general merchandise subcategory at Family Express stores, and Hagler relies on Wesco Distributors out of Indianapolis to source hot new items. Among recent successes have been the Big Mouth Billy Bass talking fish. Several dozen were in stores a month or two before appearing in Wal-Mart, and sales were swift. Although boxes were marked $29.99, Family Express sold them for $24.99, maintaining a 25-percent margin.
"You can't slap a 40-percent markup on an item like this — it won't move," Hagler said. "If you price things correctly, you can move the big-ticket novelties and make the dollars.
Last fall, Family Express sold scooters for $49.99, hitting the market just as the big-box retailers were sold out. At press time, a mouse character clad in karate gear singing "Everybody Was Kung-Fu Fighting" was moving well at $10 a piece, with a 50-percent margin. "It's a nice little chunk of change," Hagler noted.
Hagler is working with Eby-Brown and is now turning his attention to some less exciting items. "We'll be diving deep into the school/office supplies, housewares and so on, determining what do we need to carry, how many facings and at what price," he said. "Do we need rulers? If so, do we need 6-inch or 12-inch and should they be wooden, clear or colored plastic?"
In addition to examining Family Express's own sales history, Hagler will look at what's moving out of his distributor's warehouses. "We'll see if there are items that other retailers are doing well with and find out if we should be carrying them as well," said Hagler.
"General merchandise is tough because unlike other categories, there is no real category captain company, so you've got to initiate the analysis and look at movement out of the distributor," he added.
Increased manufacturer support for general merchandise would be welcomed by convenience retailers. "For a long time, there was talk that candy manufacturers should get behind c-stores more, and they have, with good results," said Bosselman's Kuehl. "If general merchandise manufacturers worked with us on price and promotion, we might be able to sell that guy running in for emergency film a four-pack instead of just one roll."
Because convenience stores are a fairly small channel for items such as film and batteries, the major players tend to focus their attention elsewhere. Some manufacturers do recognize the opportunity inherent in the convenience channel, however. Family Express has had success in strategically merchandising its film/photo offering with help from Konica.
The manufacturer approached Family Express last year, offering to conduct an analysis of the category's movement in the chain. The result was an assortment recommendation that called for the addition of three disposable cameras and a fast-speed color film just in time for the holiday season. In addition, gravity-feed displays dispensing disposable cameras were merchandised at checkout in November and December.
"The disposable cameras provide a $7 ring with a 40-percent margin," said Hagler. "Konica approached us and we welcomed their assistance. These programs have worked well. We're meeting with Konica shortly to discuss this holiday season."
Family Express is also working with Sony to create a new battery display piece. The electronics giant's merchandiser will be installed on top of the general merchandise shelf unit. Rather than replacing Family Express's offerings of Duracell and Eveready batteries, the Sony items will present shoppers a branded, but less expensive alternative.
"Brand power in batteries is huge, so we'll maintain the leaders, but are working with Sony to give our customer another option," Hagler noted. "Sony is working to build its brand and they're giving us support. That's important."
Stamp Out Sticker Shock
That type of support can enable convenience retailers to compete more effectively on price. Like health and beauty care items, general merchandise is one category where consumers just assume the prices will be exorbitant. Some retailers are moving away from applying a standard 30- to 40-percent markup on general merchandise and looking more at dollar generation.
"We set prices on the quality, name-brand, seasonal products with a fair margin based on our cost to avoid any sticker shock," said Sunoco's Krapf. "Our goal is to keep the customer coming back — our strategy is long-term."
7-Eleven employs a similar strategy, and is ever mindful of competitor prices. "The competitors in many cases are diverse — grocery, drug, variety and even department stores," said Hamill. "Our pricing is targeted at ensuring a fair recommended price on all items."
Family Express examines what the market will bear, especially on high-ring items. "As the retail gets higher, you don't have to maintain that 40-percent margin, which is where many convenience stores are challenged," he explained. "We lower the margin as the retail goes up. The focus needs to be on dollar generation."
As a multifaceted category, general merchandise challenges convenience retailers to apply best practices in a range of strategies and tactics. Operators need to create assortment and merchandising plans that drive impulse sales for one subcategory, while meeting customers' emergency needs with another. In addition, pricing formulas must avoid sticker shock while preserving profitability. And, retailers need to take the initiative in category reviews and also engage the support of manufacturers. Those willing and able to meet these challenges can be handsomely rewarded.
"These are not glamorous products, for the most part, but all general merchandise sales are incremental and provide extra gross margin," said Hagler. "To me, that's pretty exciting."