WORLDWIDE WORRIES

China, fuel and the economy each had a drastic impact on import-dependent seasonal products categories in 2007. The same difficult trifecta is expected to affect sales again this year. As a result, many retailers plan to carry only proven sellers, like back-to-school gear and traditional holiday trinkets. Some are considering buying their inexpensive impulse items from suppliers in countries like

China, fuel and the economy — each had a drastic impact on import-dependent seasonal products categories in 2007. The same difficult trifecta is expected to affect sales again this year.

As a result, many retailers plan to carry only proven sellers, like back-to-school gear and traditional holiday trinkets. Some are considering buying their inexpensive impulse items from suppliers in countries like Vietnam, India and South Korea.

A select few will stock pricier domestic-made products to attract shoppers wary of the quality and safety of overseas goods. Whatever the strategy, supermarkets are bracing for a year of trying times in the seasonal category, retailers told SN.

“Most retailers are going to have to look at their selections and cut way back to the best of the best,” said Nick Barainca, director of nonfood for Sparks, Nev.-based Scolari's Food & Drug Co. “Some stores are drastically discounting to try to clean up what they bought in 2007.”

Barainca attributes some of the fallout to a sluggish U.S. economy. That, coupled with increased fuel costs, has rendered frivolous purchases unaffordable for most.

The effect of pumped up per-barrel prices goes well beyond fuel surcharges, however, he noted.

“If [a manufacturer] offers an unbelievable cost on goods from overseas, chances are they are cutting corners, and safety and quality might be compromised,” said Barainca. “I expect consumers to slow way down on purchasing anything they think might harm their children. If our No. 1 shopper — the female consumer — is concerned about the safety of overseas products, there will be tremendous sales losses.”

Safety is a great concern amongst retailer members of Unified Grocers, Commerce, Calif. According to Larry Ishii, general manager, GM/HBC, categories that have drawn the most attention in recent years are housewares and toys. Edibles from overseas have also raised eyebrows. Consumers are worried about the ingredients as well as packaging materials, he said.

“Any product is fair game for concern,” Ishii told SN. “Ingestion of lead is one of the biggest fears. There are great concerns on the part of consumers about this and, in the end, they will control what sells and what does not.”

CHINA COSTS

Ishii agrees that fuel costs are a problem too. But he sees China's abundant use of electricity, concrete, steel and human resources as bigger inhibitors to the production of affordably priced seasonal goods in the future. Ultimately, he predicts the rising standards of living there will force U.S. buyers to look elsewhere for such products.

“Companies that source products off-shore must look at other emerging countries and look to work with partners to create efficiencies that drive costs down,” said Ishii. “Safety concerns could also cause a certain level of business to be directed to domestic makers, but that would be a relatively small portion, especially in general merchandise.”

Indeed, it's doubtful that supermarkets will turn to local producers anytime soon, said Ted Zittell, partner, McMillan Doolittle, Chicago. While many would prefer to buy American, the cost structure doesn't allow for such a switch, especially with seasonal goods, he said.

Zittell has his eye on South Korea, Vietnam and India, three countries that haven't had safety and quality scares like China, but share the low costs of production and access to raw materials.

“Retailers can bring in seasonal products from these emerging countries in the same way they have from China in years past,” he told SN. “China is responding, although not in a linear way that is fast enough for the U.S., and anything done might meet our standards, but will certainly add to the overall cost of products.”

Such dilemmas will prompt retailers to get creative as they seek new sources. Logistics must be considered, said Zittell. He challenges retailers to only import full cargo containers packed with a wide variety of items to be sold on a short-term basis.

Create Excitement

“International retailers like Aldi drive tremendous excitement with seasonal goods in limited supply,” he said. “They promote and trumpet them in local fliers and throughout their stores, pushing the idea that when they are gone, they're gone. Other retailers should be doing the same.”

Ishii expects shoppers to cut back on spontaneous purchases this year due to the stale economy. “As a result, retailers will need to selectively assemble seasonal item mixes,” he said.

Many will nix things like high-dollar patio sets and grills. In their place will be smaller, more affordable items such as camping chairs, bug-repelling candles and grilling utensils, he added.

Tim Cummiskey, grocery manager for Highland Park Markets, Glastonbury, Conn., disagrees. He believes that seasonal goods don't have to be low-priced knick-knacks, even when the economy is struggling.

The upscale retailer bypassed the run-of-the-mill China-made toys, utensils, chairs and other nonfood products in 2007. Instead, its stores stocked items like plush teddy bears for Valentine's Day, high-quality kites for kids in the summer, and elegantly designed hot chocolate mugs during late fall and winter.

“Shoppers always want something that is unique, more of a specialty item that they couldn't run out and purchase at their local mass store,” said Cummiskey. “We're an upscale retailer, so it wouldn't make sense for us to carry a lot of low-quality products. Our shoppers just wouldn't buy them.”

Plus, offering finer items eliminates the shopper's anxiety about quality and safety, and in turn strengthens their trust in the retailer, he added.

TAKING ACTION

There are many steps retailers and industry participants can take to reassure shoppers about their seasonal goods, said Bill Mansfield, president and chief executive officer, VIP International, Garland, Texas.

“Some type of information labeling from the retailer to the customer guaranteeing the quality and/or safety of certain products could help address these problems,” he suggested. “A U.S. quality/safety rating system, identified on each product, could also help.”

For those who choose to forego such measures, aggressive markdowns should stimulate a satisfactory sell-through. Other retailers might consider turning their attention to technological gadgets and accessories instead of kids' toys and other potentially problematic products, he added.

Mansfield recommends stocking iPod accessories and small gadgets with GPS technology built in.

“These products have seen good growth numbers in recent years despite problems with other overseas products, high fuel costs and the slow economy,” Mansfield told SN. “Some of the more expensive items in the electronics category might be a way to keep sales in a high-growth position.”

Don Stuart, managing director, Cannondale Associates, a Wilton, Conn. sales and marketing consulting firm, agrees that retailers will have to provide more product information in 2008. He expects shoppers to begin demanding proof of origin.

“The carbon footprint of an item will become standard nomenclature in 2008 and beyond,” he said. “Local may be better or it may not. If the best place to produce a product due to cost or raw material sourcing is in China, it may be less impactful overall to buy products from there, even if transportation charges are higher.”

Stuart warns retailers to weigh product choices carefully. Retailers should not focus solely on price, he said. Instead, they must consider price as well as quality — which also includes the environmental impact of production, product safety and other socially conscious concerns.

Some seasonal goods, like back-to-school products, should continue to thrive in the future as shoppers view them as must-haves, he added.

“Sales of other products, like holiday-oriented items, are more likely to be affected as they have a stronger discretionary component,” said Stuart. “Overall, we anticipate that seasonal goods will be affected by the same potential softness in the economy and the same potential pressures on fuel and raw material costs.”

In short, 2008 is shaping up to be a challenging year in which only the fittest will survive, he added.