Market Insight: Retail strategies for startups
Consolidation continues
By Nancy Zwiers -- Playthings, 3/11/2008 12:47:00 PM
March 11, 2008—The retail climate is more challenging than ever, and the barriers to entry have never been more daunting. Consolidation continues, with the top three toy retailers (Wal-Mart, Target, and Toys 'R' Us) alone wielding enormous power. And because the power balance favors the retailer, only the strongest vendors are left standing. Thus, start ups and smaller companies have to become more creative and resourceful if they are to give their products a chance to prove themselves in the market.
Strong vendors can have multiple healthy consumer brands, like Mattel or Hasbro, or simply dominate a single category like Lego or Leap Frog. Regardless, it appears that consumer brand equity now outweighs product innovation as the key factor for success in our industry.
This situation is further exacerbated by the fact that toy buyers are coming and going at a much faster pace than in the past. Many haven’t had enough experience in a given product category to hone their product judgment, so they rely heavily on their base of entrenched vendors to vet product. And, if a vendor doesn’t have the deep products to drive consumer demand and clean up any potential excess inventory (euphemistically termed "exit strategy" by the retailers), buyers are reluctant to take a chance. What we’re seeing at retail, as a result, is fewer, bigger branded statements and a shortage of broad-based product innovation.
Gone are the days when a young upstart company with a fabulous product can go it alone and get the broad account support that is required to promote a brand aggressively. It becomes a catch-22. How can you build a brand if you can’t get the retail support that you need to support the investment? What can be done to address this shift in the marketplace? Here are some opportunities:
• Build a distribution relationship with a more powerful company. Distributors have a reason for being when barriers to entry provide the need for another link in the value chain. It used to be that coverage of a fragmented retail base in specialty was the biggest barrier to entry that gave rise to distributors and wholesalers. Now it is the direct opposite—consolidation of the retailer base is the barrier.
• Consider out-licensing your product to a compatible company. Licensing usually includes the licensee manufacturing the product as well as distributing the product through its retail channels.
• Consider out-licensing your product to a retailer as a retailer exclusive. It could be just a one-year exclusive but it gives you a foot in the door.
• Consider in-licensing a strong licensed property to create instant brand equity for your innovative product. This is the equivalent of renting brand equity when you don’t have the wherewithal to build it yourself.
• Prove out your product/brand in the specialty market first and migrate it to mass along the familiar pathway into mass: Target, then TRU, and finally (maybe) Wal-Mart. Specialty doesn’t have to mean mom and pop independents—it could be a non-mass chain that fits your category (e.g. Cranium and Starbucks or micro RC vehicles in Radio Shack).
• Put your product on TV with direct response advertising—Floam helped make this an acceptable strategy with the Trade. This allows you to position your product as an advertised product to the Trade (at a lower media cost) and reduces your reliance on retail distribution.
It will be sometime before the pendulum swings back to favor smaller, more diverse suppliers. Get creative (and give up some control) in favor of winning at retail!
About the Author:
Nancy Zwiers is CEO of Funosophy Inc., the Long Beach, Calif.-based children's products marketing and design firm. For more information, email info@funosophy.com or call (562) 436-5251.
