Commentary From Our President
Kmart’s Pain, Supermarkets Gain
By Mike Sleeper, Chief Executive Officer, Imperial Distributors, Inc.
Supermarket News editor-in-chief David Orgel has no crystal ball to help in prognostications. If he had, his Dec. 24 editorial might have mentioned the mighty thud ahead for the once-mighty Kmart, now in process of closing hundreds of stores as it flails about in Chapter 11.
In the editorial, Orgel took note of fourth quarter developments under the headline “New Year Marks New Directions for Consumers, Stores.” The article suggested that consumers are leaning toward more at-home meals and comfort foods while some operators are turning to price-impact formats.
Another development appears to be that some retailers are “looking to grow the top line” by increasing same-store sales above the inflation rate with no help from the economy. Kroger was cited as looking to increase same-store sales an annual 2% to 3% above inflation.
Suggestions on how such gains could be made were not offered. But it takes no genius to know that sales increases per se–especially modest ones–aren’t all that hard to obtain. You can sharply increase promotion and advertising and/or sharpen your knives to slash prices. These costly efforts may increase the top line, but they can play havoc on the all-important bottom line. It’s like winning the battle but loosing the war.
And if the campaign stirs up the competition, even the top line may suffer.
What about adding to sales while helping the bottom line–and without raising or cutting prices?
Orgel missed a good bet by not offering a way that should come immediately to mind: Adding new categories or expanding existing categories that enrich the mix with higher margin goods. And—this is most important— the same products being blessed with LOW OPERATING COSTS.
The reference here is to general merchandise and health and beauty care.
Research studies have shown that non-food categories top off their higher retails and percent margins with proportionately lower occupancy and utilities charges and lower labor costs. The reduced labor-cost factor is particularly noticeable when full outside service is brought into play. Virtually the only labor cost is ringing up the sale!
Whether on full service by distributors or self-distributing, the store gains from giving more space and promotion to non-foods. Further sales and profit gains are assured with additional emphasis on seasonal goods and professional maintenance and setup of shelf and special displays spiced with new items.
Other large general merchandise specialists have bitten the dust. Service Merchandise, Bradley’s and Caldors come quickly to mind. Even once top-of- the-heap Toys ‘R’ Us isn’t looking too good these days.
Kmart’s pain is supermarkets’ gain—particularly for non-foods.
So between supers’ needed sales/net profit enhancement and diminished competition from other outlets, there are powerful reasons for operators to re-think and drive their GM/HBC business. Its expansion reinforces the one-stop shopping concept, which is the very essence of modern supermarketing.
For comments or questions, E-mail: msleeper@imperialdistributors.com