Spring 2000
Time for a Change?

If your concept has seen a decline in sales, or if it’s too similar to others in the mall, it’s probably wise to start looking for new concepts for this year’s summer and holiday seasons. Choosing a new product is more than just finding one with a good reputation and good margins—it’s something you should carefully think out and strategically plan. As more shopping malls look to fill all their common area units year-round, with preference for the holiday season given to the year-round merchant, it will become necessary to find year-round products. It’s also possible to change concepts seasonally to keep a strong location in the mall and to maintain profitability.

Your first step is to visit as many shopping centers as you can, even those outside the demographic area in which you operate. Find out what sells in other malls that is not currently represented in your mall. Go to as many fairs, festivals and trade shows as possible. This will help you scope out the trends before they make it to the malls. Long before Magic Pen™ was a cart product, it was in state fairs throughout the country. Watch how the product sells and who purchases it before building your enthusiasm. Many concepts will not translate well from fairs or regular retail stores to a common-area product.

Trade shows will also help you identify a trend in the industry specific to that category of merchandise. There are many types of trade shows, from gift shows to apparel. Once in a while, try to go to a show in a merchandise category different from your product line. If you sell watches, going to an apparel show might broaden your idea of what the next trend in watches might be. Read as many trade publications as you can find. If you are interested in a gift item, many gift magazines are out there to help you in your search.

The following are some of the specific parameters to help make a strategic decision on a new product. All of these should be taken into consideration, and can be used as a checklist to guarantee that the decision is carefully thought out, and not based on impulse.

Manufacturer and Distributor

A manufacturer is a company that either makes the product directly or assembles the product from pieces. A distributor is a company that acts as a middle agent, selling product for the manufacturer directly to the retailer and taking a percentage of the cost of the sales from the manufacturer. Most retailers assume it’s better to purchase directly from the manufacturer because the costs will be lower. That may be true, but a distributor can often add value to the purchase through display offerings, pre-packs and assistance in financing and packaging.

Mark-up and Margin

A product may meet all of the other criteria on this checklist, but if it does not meet the challenge of having high margins for the operator, then profitability disappears. Margin is the difference between the amount you purchase the item for and the amount you sell it for at retail. It is important to consider the overall mark-up (or “mark-on,” as it was called in retail’s olden days). If you have steep mark-downs due to poor product performance or overpricing, then the reduction in selling price will affect your margin.

The big question is, what should your margin be to be profitable? There’s no simple answer, because other costs will affect this dramatically. Rent, break-point and percentage rent, payroll and other overhead all reduce your margin, so you need to determine what those are before negotiating cost of goods. But also consider other factors that can help with your margins. For example, many companies offer a reduction if you pay for product in cash, or sooner than the normal “net 30” terms (i.e, 30 days to pay). If you can afford doing this on some or all of your orders, use it to negotiate a lower cost price.

Supply

The ability of the manufacturer or distributor to supply product in the quantities you need when you need it is crucial. It is worth your time to check out the supplier with other retailers, and certainly important to know the company’s background and credentials. Asking “investigative” questions is valid: ask how long they have been in business; whom they currently supply; and where their raw materials originate. Case in point: Many years ago, there was a national franchise business, ACA Joe, with more than 250 stores. The franchisees were so caught up in the tales of success from the company that there was no due diligence for supply of the product. All of the merchandise was assembled and stored in one factory in Mexico City. But there were no back-up factories in place when Mexico City had a tremendous earthquake. Obviously, this was not only the end of ACA Joe’s ability to supply its franchisees—it was also the end of the franchises (but not the end of their mall leases, some with another five or seven years to run).

The shipping methods and costs of the product are also important elements not to be overlooked. Many products are fragile and difficult to ship without breakage, while some are heavy and require shipment by common carrier, which can be costly and time-consuming. Again, ask questions: What is the supplier’s policy on return to vendor (“RTV”)? Will they take back any or all of the product, and if so, is there a re-stocking fee? Sometimes in the excitement over a new, “hot” product, retailers forget to ask. But the answers are often the difference between a retailer making a large profit or none at all.

Variety and Depth

The product you decide on needs both variety and depth to sustain sales. The variety may be in color, or size, or price points. The depth should be in the quantity that can be displayed and sold, to create credibility. One of the most successful cart concepts this past year has been the Pokémon™ program. It is successful not only because the character is movie- and TV-based, and extremely popular with children, but also because when represented well on a cart, it has variety and depth. Pokémon cards sell individually and in packs at price points ranging from $5 to more than $100. There are items for toddlers, such as stuffed animals, and items for older children, such as action figures. And because of the collectibility of some of the items, adults are more comfortable with their purchases.

Longevity

How long will a merchandise trend last? This, of course, is the hardest question to answer when you’re choosing new product. Everyone agrees that it’s always better to start selling a product when the concept is relatively new, so that the highest peak in the sales curve hasn’t yet occurred. Picking a product that’s just starting to be a trend is one way to ensure longevity in sales. The other way is to find a product that’s necessary and/or consumable—where the sale is not a one-time satisfaction of need. Metabolife™ has both new and repeat sales, which is built into the nature of the product. Because it’s a consumable, the seller must continually reorder product to maintain supply.

Common Area Appeal

This is what you create when the product you choose has instant recognition for the customer, or is easily identifiable and interesting. Analyzing whether the product has “curb appeal” is easier to do when you see the product in a retail environment, rather than ordering it from a catalog.

Customer Appeal

This is ultimately the most crucial piece of the decision. A strong product will have appeal across age and gender lines and, if possible, over demographic lines. Everyone comments on the sustained success of silver carts in malls. A strong silver cart has product for all ages across gender lines, and at all price points. The cart might have a small chain bracelet that suits a teenage girl (and her budget), a larger, bulkier bracelet for a man, and a higher-end bangle bracelet for the more affluent woman. The broader the customer base, the greater the chance for the sale.

It is not always possible to find product that will appeal to everyone. But with careful investigation now, you’re likely to find new products and concepts for new profits later.

Deborah Kravitz

Deborah S. Kravitz is a partner in Provenzano Resources, Inc, (PRI) a retail real estate consulting firm providing specialty leasing programs, management, leasing, training seminars, and retail development for shopping centers, lifestyle and entertainment venues, airports and retailers. PRI owns and manages the high profile Third Street Promenade Specialty Retail Program, redeveloped in winter of 2005.
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