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    Switch It Up

    General merchandise can be the most profitable category in a c-store, but it requires open merchandising and constant rotation of product mix

    By Renee M. Covino

    Customers can be seen leaving c-stores with tobacco, beer, bottled water . . . and guitar picks?

    Adding such an item to the mix isn't all that strange for c-stores that appreciate the gross margin and impulse value of novelty general merchandise. In fact, select 7-Eleven stores are currently selling out of Hot Picks guitar picks, according to Stephen Key, CEO of the Turlock, Calif.-based Hot Picks USA.

    It wasn't that 7-Eleven planned for successful sales in guitar picks -- but the chain is open to unique impulse opportunities. When Key approached his local 7-Eleven with a box of the picks, the manager agreed to a test run.

    A couple of days later, a friend stopped into the store and reported back to Key that he didn't see the guitar picks out anywhere. Key returned to the store "with my tail between my legs," he said, expecting bad news. Instead, he was told the store had sold out of his unique novelty items in about 48 hours.

    That one 7-Eleven store in California carrying Hot Picks soon expanded to three stores in the area. Now, "about 30 stores from Fresno to Sacramento to Monterey" have ordered and reordered the guitar picks, Key reported. (Hot Picks can also be found nationally at Wal-Mart, but at this point, 7-Eleven is the only convenience chain to have picked them up in select stores.)

    A guitar pick might seem like a very narrowly targeted novelty item, but Hot Picks were created with universal appeal and are not just for the musically inclined. In fact, guitar players "usually don't want to wreck them by using them," according to Key.

    That's because Hot Picks have what many successful novelty items have -- the collectible factor. They are presented six to a pack (retailing for about $3.99), and each pack has a different theme (gothic skulls, classic monsters) or a movie/character license ("Cars," Tinker Bell).

    "They're obviously not going to replace soda. We're add-on dollars for stores like 7-Eleven," Key said. "But they've told us they're very pleased with how fast they're turning over and as long as we change it up, we have a spot."

    And there lies the key to novelty merchandising -- changing it up.

    "It's one of those categories that if you work at it, there's always growth," stated Randy Bates, vice president and general buyer of Hutchinson Oil Co., based in Elk City, Okla. "We see lots of novelty opportunities, but you have to stay on top of it all the time. There's so much out there -- there's always something coming along that's a new concept that no one else has seen -- you want to be the first out there with something like that."

    Local Yokels

    Being on top of the novelty curve often includes catering to a local clientele with targeted buys. Merchandise with the area's favorite national and college sports teams is a natural fit for many c-stores.

    LSU (Louisiana State University) merchandise, including hats and T-shirts, is the best-selling "in-and-out" merchandise at Friends Enterprises, according to John O'Neill, president of the Morgan City, La.-based chain.

    "The football season is the main driver, especially this year after the National Championship," O'Neill said. "January and February were our best months with it. Now, it'll die down, but we'll pick it back up for the next football season."

    A category manager at Circle K reported doing well with "winning" sports team memorabilia. This year, during the playoffs particularly, Seattle Seahawks and Dallas Cowboys merchandise was popular.

    "Believe it or not, the hottest items were slippers and Santa hats," he said. "They sold out in November, December -- I pumped in as much as I could, but stores were screaming for more, and I couldn't get any more. Those are two items we'll make sure we have a lot more of for next fourth quarter."

    Up in Oregon, the chain has a lot of stores in fishing areas that reportedly do well with novelty fish T-shirts -- the category manager calls them "hilarious" -- and fishing memorabilia.

    The hurricane season presents another local opportunity for the general merchandise at Friends. "We can't compete on price with Wal-Mart year-round for items such as batteries, flashlights and tape, but during our hurricane season, from July to September, but especially August and September, we make sure we have ample supply of that stuff," O'Neill said.

    Happy Holidays

    The drug store trade is notable for using holiday and seasonal merchandising to draw more traffic into stores and increase the basket ring. Many c-stores are catching the holiday fever too, only on a smaller scale -- through their novelty and general merchandise offerings.

    This past Valentine's Day, Hutchinson Oil sold a lot of cards, teddy bears and even women's panties shaped like a rose for $3.99 each.

    "We made a 60 percent margin on those and they sold out," Bates said. "It's an in-and-out holiday deal. You want to bring it in for the holiday period, and blow it out."

    The chain does a little bit with most of the holidays -- Easter, Mother's Day, Father's Day, Fourth of July, Halloween, Thanksgiving and Christmas. For Mother's Day, Bates reported that it will often get into the highest dollar-ring items, such as ceramics and crystals in the $29.99 to $39.99 range.

    He always has a display of holiday-appropriate greetings, especially since "our novelty company guarantees the cards 100 percent," Bates said.

    Actually, a guarantee is common on many items provided by novelty distributors. "Anything you can get through a novelty supplier like that that's guaranteed, you try to sell what you can, but it's a no-lose situation," Bates maintained. "You can take some chances with the category because you know you can return."

    Circle K's category manager agreed that "our biggest novelty provider guarantees everything. They rotate it, bring in the new stuff, and take out the old. It depends on the area, but they usually rotate it every 30, 60 to 90 days. I authorize the items, make sure everything selected is of a high quality and safe, but the guarantee makes it a no-brainer."

    The Shrink Factor

    Novelty items are notorious for high margins -- typically in the 50 to 60 percent range and higher, but c-stores also have to factor in shrink, since small, high-ticket items are usually the easiest to pilfer.

    "We need to have a good gross profit on these items. The target is usually in the mid-40s, and what I ask from vendors is mid-50s because 10 percent of that is shrink," the Circle K category manager explained. "So, 55 percent is the target, and if I hit 45, I call it a day. We try to keep some of the smaller items right in view at the register, but we know we're always going to have 10 to 12 percent shrink."

    He added that "you can't put everything up at the counter. These are impulse buys, so there needs to be multiple points of interruption in the store."

    Bates agreed that "you try to watch the high-dollar smaller items [but] the margins offset the shrink." He said most novelty/general merchandise that he deals with "will be 50 percent and above. It's only below 50 when you do licensed merchandise like Budweiser or NASCAR -- then the margins are in the 35 to 40 percent range, which is still pretty good."

    O'Neill isn't too phased by the shrink situation either -- also because of the high margins. "Some of the LSU merchandise carries 100 percent profit margin," he reported.

    The main novelty/general merchandise issue that convenience stores keep coming back to is not to let the items get stale. Even with novelty distributors, "you still have to stay on top of them to make sure they rotate it properly," Bates said.

    Looking out for opportunistic buys is part of the equation, too. O'Neill has done a lot with dollar items, typically household goods. "Anything you can get a deal on should be considered," he said. "I have contacts in the dollar store business, as well as grocery wholesalers, so I always keep my eye out for buys like that."

    For comments, contact Renee M. Covino, Contributing Editor, at [email protected].

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