TGroup Marketing

Preparing your company

Before mass marketers sign the dotted line on your vendor agreement they will thoroughly investigate your company and be sure that it is financially stable and capable of fulfilling its obligations. Large mass marketers sometimes hesitate to do large-scale business with a very small firm unless they feel secure about its ability to fufill orders and maintain sufficient cashflow. While rapid growth sounds good it can also be the kiss of death if a business is under-capitalized. We'll discuss that in greater detail in another post.

Most mass marketers will require you to be listed with Dun & Bradstreet and will review your report before moving ahead with the process. Wal-Mart requires potential suppliers to purchase the report ($75) themselves. Firms that are rated as "risky" will not be invited to complete a vendor agreement and instead, will receive notification that they must improve their financial position before moving ahead. Several times we have seen where potential suppliers have been rejected due to a Dun & Bradstreet rating of 7 or more. Large retailers are generally very strict about this and don't allow much wiggle room at all so be sure to check your D&B report beforehand.

More on guaranteed sales

Like I said in the previous post, there are times when offering a product as a guaranteed sale is the only choice you'll have if you want to place your goods on a mass merchant's shelves. If and when that is the case, just be sure to take steps to protect yourself and your company. Here are a few tips to help you along the way:

• Don't oversell. While it might be tempting to get a nice fat purchase order, you will be far better off in the long run to have a strong sell-through even though the orders are smaller. Buyers will look at the overall percentage of goods sold over a specified timeframe when determining whether or not your products are going to stay or come back to you. Stores can always reorder.
• Use whatever tools the retailer has available to you to monitor your sales. If the merchant doesn't have an online system for you to use, then you can go to the individual stores (if they are in your area), call the stores or use a merchandising company. You want to make sure that your products are on the shelves.
• We recommend that you do not agree to a guaranteed sale on dated goods (e.g., products that have dates on them or relate to a specific event such as a sports championship, festival, etc.) or anything that you will not be able to sell again. Most buyers understand this and will not put up a fuss.

Managing returns

While avoiding returns is just about impossible, there are some things that you can do to minimize them and their impact on your bottom line. First on the list is to of course do your best to avoid agreeing to a guaranteed sale. Managing guaranteed sales are a real challenge and the stress can easily shave a few years off your life or drive you to drink. If you are in a situation where you don't have a choice then weigh each of the options available to you and determine what is the least costly. For example, our posters in Wal-Mart Department 23 are a guaranteed sale. For us, it is cheaper for stores that want to return goods to just destroy them rather than send them to us or to the Wal-Mart Return Center. We are responsible for all freight costs and since posters that come back to us usually can't be resold because they don't ship well, it is cheaper for us to just have them destroyed. That way, we're only paying the ten percent handling charge for each return but no freight costs. The choice is yours but in any case, do your homework and decide what is going to be best for you. Also, before agreeing to any guaranteed sale, be sure that your contract specifies that the goods have to be on the selling floor for an agreed-up timeframe. It's extremely frustrating to get returns in boxes that have never been opened.

You can also use the retailers' tools (e.g. Wal-Mart's Retail Link) to monitor sales and determine if your goods have made to the floor. If you encounter an extended period of time with zero sales in one or more stores, then it might be because the goods are still in Receiving gathering dust. Unfortunately, this happens far too often--the goods arrive in the back door like they were supposed to, but for one reason or another they never make their way out of the back room (it's tough to sell something that customers don't know exists). If that is the case then you can call the stores and let them know that they need to get the goods on the selling floor. If the retailer doesn't have any way with which you can monitor sales online, then (at least in your local area) its pays to visit the stores and see how well your merchandise is moving or needs to be changed. There are also firms that specialize in doing that for you. They send out teams to check your products and will make sure that all is well and that they are restocked and looking good.

Publicizing your website

This is a nice site where you can promote your company for free.

Blurbosphere.com - Submit blurbs on our blogs for valuable backlinks. We announce blurbs on just about everything!

More about returns

In the last post I mentioned that we've seen several small companies go out of business entirely because of returns from a single large customer. Sometimes there isn't anything you can do to avoid returns (damaged product, spoilage, wrong merchandise, etc.) but there are steps that you can take to minimize their impact on your bottom line.

The first step begins when you negotiate your vendor agreement with a mass merchandiser. Sometimes they will ask you right from the start if you will offer them a guaranteed sale. That means that after a specified time period they can return any unsold merchandise if they're not happy with the sell-through. The temptation is to say yes because you don't want to rock the boat and risk losing the sale, but before you start bobbing your head in agreement, you'll really want to think about it.

When we negotiated our agreement with the stationery department in Wal-Mart we agreed to the guaranteed sale--not because we wanted to but because in this case it was necessary in order to get the agreement. Often times you won't have a choice because the buyer will make it a condition and if you say no, then the meeting is over. If there is no mention of a guaranteed sale though, don't go ahead and offer it up in the hope of getting a purchase order unless you've really thought about it and can financially handle it. More about returns in the next post.

Pitfalls

When we first got word that we would be set up as a vendor with Wal-Mart in Department 3 (stationery), right off I started mentally picking out the new car that I would soon be purchasing with our profits. It's a good thing I didn't rush to the dealership checkbook in hand because I would have had to put a for sale sign on it about a month later. Getting an item listed at Wal-Mart (or any other mass merchandiser) does not necessarily result in a fast-track to riches.

First of all, since our products are "hot market" items with a limited shelf life (they're all sports championship-related), the buyers with whom we work leave it up to individual department managers, store managers and district managers to do the buying for our merchandise. This means that we have to get on the phone, hunt these people down and convince them that they want to buy our stuff. We don't get general orders for hundreds of stores at a time. Wal-Mart isn't the only one that works this way though--others have jumped on the wagon and handle certain products that way.

In our first experience with this we ran into some district managers who loved our stuff and placed huge orders for each of their stores. We were tickled as we happily sent the boxes off UPS. It all blew up in our face a month or so later when the fans' excitement wore off, the merchandise stopped selling and the returns started. At first it was just a box or two so we weren't that concerned but after a couple of weeks the floodgates had opened. Every day we would cringe to see the UPS truck pull up with more boxes from Wal-Mart stores. We started calling the managers and explaining that they couldn't just arbitrarily return merchandise (a lot which we could tell had never even been opened and put on the floor) but they disagreed. The general response was "Fine. Don't take the return. But I can guarantee that you won't do business again in this market." That has since happened with a couple of other big chains as well. In the end, we didn't want to risk losing our vendor numbers so we took the returns.

For a small company, this is a killer because usually, the merchant ends up paying the shipping back, plus a 10-12% "handling fee," which adds up pretty quick. We've seen several cases where some poor guy wound up owing money to Wal-Mart (or Walgreens, or CVS, etc.) because of the returns. Unfortunately, this is something that can not be avoided in a lot of cases, but there are a number of things that one can do to reduce the possibility of returns and minimize their impact on the bottom line. I'll talk about that more in my next post.

Approaching mass merchants

Many of the large chains such as Wal-Mart, K-Mart, Target, Office Depot and many others, have standardized the manner in which potential new vendors submit new products for review. The Wal-Mart site is HERE. I don't want to depress anyone before even getting started but in the overwhelming majority of cases, a rejection letter will arrive so fast that you'll think they sent it out before even looking at your proposal. We recently presented a really great product to Walgreens. This product has a solid track record of sales in other large chains, is strong financially and is really very innovative, but the Walgreens team flat out rejected it and wasn't interested. However, when went another route through a regional office--they just loved it and set the company up as a new vendor right away. The product will be hitting the shelves in about 200 Walgreens stores later this month. Usually, there are lots of different ways in which one can get a product listed with the major chains so if you get rejected the first time but really believe in the potential of your product, don't get discouraged and look for other ways to get past the gatekeepers.

The top ten mass market retailers

These are the top ten mass market retailers according to Chain Drug Review.

1. Wal-Mart
2. Kroger
3. Costco
4. Target
5. Walgreens
6. Albertsons
7. Safeway
8. CVS
9. Ahold USA
10. Loblaws

Some things to consider before doing business with Wal-Mart

Whether you have a small business or a large corporation, doing business with Wal-Mart can be a double-edged sword. On one had, it can quickly give a small firm a huge boost in sales. On the other hand though, it can turn off existing or prospective customers because once they find out that you are selling to Wal-Mart they say, "Why bother? I'm not going to compete with them." In the long run this could diminish your brand and ultimately, be unhealthy for the company.

In our manufacturing company, we don't tout the fact that our products are sold in Wal-Mart to prospective customers. It's not something that we try and hide but we don't go around shouting it from the mountain tops either. In one case, we were approached by a high-end department store that really liked our concept but they were not interested any more once we told them that we were also selling to Wal-Mart. In the end we took the basic idea and reconfigured it so that it had a completely different look and would not be confused in any way, shape or form, with what was being sold at Wal-Mart. The department store buyer loved it and went about completing the deal. That has actually worked out quite well for us and do something similar whenever possible.

Wal-Mart

Whether you love it or hate it, as the world's largest retailer, Wal-Mart isn't going anywhere any time soon. The company has more than 3,800 stores in the United States alone (with 21 new stores opening just in the month of November) and thousands more spread out in more than a dozen countries around the globe (source: Wal-Mart).

Wal-Mart deals with approximately 60,000 different vendors from all across the globe. Each year, approximately 10,000 companies try to sell their products to Wal-Mart, but only about 200 make the cut. Those aren't very encouraging odds. That means for every 100 new vendors that walk through the doors at the company's headquarters in Bentonville, 98 of them are going to walk out the door disappointed.

Lots of folks might think that getting a Wal-Mart vendor number is the key to success but believe me that is not necessarily the case. In fact, if the relationship isn't managed properly it can actually be nothing more than the kiss of death. I've seen it happen to a number of small firms--particularly those where Wal-Mart sales accounted for the majority of their business. Disaster struck when they got so wrapped up in focusing on Wal-Mart that they neglected everyone else. When the relationship with Wal-Mart when south and they realized that only a small percentage of their sales come from other customers, the companies went belly up.

If you are fortunate enough to get a Wal-Mart vendor number, the key to success is two-fold: First, the relationship with Wal-Mart must be properly managed; and Second, don't ignore developing relationships with other customers.