REBUILDING GM CATEGORIES

Although industry sales numbers for many nonfood categories may be down or flat, retailers are focusing on new opportunities to build their general merchandise business.For example, the market for film-based photo products is in sharp decline, but retailers are taking a close look at how they might profit from new digital products, whether they be digital imaging kiosks and related photo items or

Although industry sales numbers for many nonfood categories may be down or flat, retailers are focusing on new opportunities to build their general merchandise business.

For example, the market for film-based photo products is in sharp decline, but retailers are taking a close look at how they might profit from new digital products, whether they be digital imaging kiosks and related photo items or new technology items, like the iPod Shuffle. Meanwhile, many retailers have been giving batteries more attention lately.

Working from statistics of Information Resources Inc., Chicago, a group of retailers, wholesalers and a leading consultant, and executives from GMDC, Colorado Springs, Colo., came together to examine the numbers and discuss the trends. The roundtable, put together in collaboration with GMDC, was moderated by SN and held in Chicago earlier this year. This is the second part of the discussion.

Participants in this part of the roundtable were:

- Lanny Hoffmeyer, corporate director, wholesale general merchandise, Supervalu, Eden Prairie, Minn.

- David Lowe, director of merchandising, HBC/GM, C&S Wholesale Grocers, Keene, N.H.

- David McConnell, president and chief executive officer, GMDC, Colorado Springs, Colo.

- Steve Urgo, GM buyer/category manager, Save Mart Supermarkets, Modesto, Calif.

- Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill.

- Roy White, vice president, education, GMDC Educational Foundation, New York.

SN: A general merchandise category that has slipped for nearly all retailers is photo, as digital imaging has grown at the expense of film photo finishing. What do you make of the trends in photo and what are you doing with digital?

HOFFMEYER: There are plenty of opportunities out there. Yes, photo is off a ton. The film roll business is going down. The developing is going down with that. With digital kiosks, we've got retailers that are doing fantastic with them, along with the ancillary products that go with them. It's just a matter of going out and saying "I want to do that," then shifting gears and getting out of those things that are not selling anymore. There's plenty of upside in the whole digital area.

LOWE: Sandisk [maker of digital camera cards] has the best display I've seen. It's like film for your digital camera, and for your holiday memories.

LOWE: There are a lot of opportunities that I keep seeing pop up. Now you have those [USB flash] drives. For example, in Costco, I was amazed at how many things they have there with memory chips and such. It's just a whole new product area.

URGO: We've looked at the digital opportunity -- and there's no question that it's a tremendous opportunity. But in our environment, it comes down to the capital expenditure required to get into that business, and then execution at store level. Here's a quick example, if you need a passport photo and you go to Wal-Mart, they've got all the digital equipment to do it. They also have several people working in this department, helping customers use the kiosks. They have a beautiful department, probably 600 square feet or so, and it's a good piece of business. So as a retailer, you have to sit back and honestly say, "OK, in this 38,000-square-foot store, where is it going to go? What's it going to cost? Can we do this successfully? Because if we can't, then we shouldn't do it." Because of those concerns, I've been holding back because I don't know if, at this particular time, we could execute across the chain. Maybe it's something where you take a specific store, you give it a shot, and then you roll it out. But until we know we can make the program work successfully, I don't know when we're going to really look at digital.

WISNER: There are some programs now where, in effect, you can sublease the equipment with a guaranteed rate of return. But you're right, capital expenditure will kill you if you don't get to the minimum buy-in.

HOFFMEYER: We missed the digital lab piece of the business when that came out, and the drug stores were all over it. Now this may be the time to get on digital, and I think for the retailers that want to invest in it, it's now or never. We've been in over a year, the technology wasn't perfect and the service calls were there, but the fact of the matter is, if you don't get in and get your feet wet, then I'm afraid you're going to miss it all together. So we decided we're going to be in it, whether it's right or wrong, we're going to figure it out. The cost has come down dramatically in the last six months; there have been dramatic decreases in both the equipment and the media. I've been feeling that it might not be a very wide window to get into digital right now.

WHITE: So you are saying if you are not in it, then you've essentially sacrificed the photography department?

HOFFMEYER: Not only that, you've sacrificed a shopping trip.

WHITE: Worse yet.

SN: Prices are going lower and lower on digital printing, mostly among the major players. What would that mean to you if you had to go down to 17 cents a print?

HOFFMEYER: If you're managing that category, and if you're seeing your film business go away, then it's your job to go find out how you're going to make that up.

McCONNELL: Would any of you guys like to jump into this new Apple product where they have the little mini iPod for $99? They call it the Shuffle. It's like a memory stick with headphones.

LOWE: It's small, and it's $100. It's going to move but not through the register.

SN: Shrink is an issue?

LOWE: Shrink is a huge, huge part of the conversation with every retailer. We don't hesitate to sell a $150 27-inch TV. We'll do that because they can't put it in their pocket, like the small items. That's another reason ink cartridges aren't carried by everybody -- there's a pilferage factor.

HOFFMEYER: It's a big concern of independents out there, but it really varies by demographics and where they are.

SN: Let's talk about batteries. There are lithium batteries, re-chargeables, other new products. They were a focus of GMDC's "Merchandising for Success" study last year.

WHITE: It was our recommendation that many touchpoints throughout the store might be more effective for batteries than an in-line set in an aisle that may not be that heavily trafficked.

SN: Have any of you acted on the recommendations of that study?

URGO: We're concerned about pilferage. We're cautious, but we went through a period of time where we were so focused on theft, we took our eyes off of sales. During a recent fourth quarter, our [chief financial officer] challenged us on how much battery inventory we had on the floor, because we had secondary displays, clipstrips and what have you. We need to be careful with it during promotional periods, but we've actually been able to grow our battery business. It's been one of our more successful categories as we've given it more exposure up at the checkstand every day, and also at endcaps. As our film sales decline, we've expanded with the new battery items, such as photo lithiums, hearing aid batteries and, although we're late, we're now getting into rechargeables.