Category management's missing link

Discount Store News, March 17, 1997 by Mike Troy

Last year',s launch of the smoking cessation brands Nicorette and NicoDerm CQ was an event eagerly anticipated by retailers. Available for the first time without a prescription, the products were expected to unleash pent up consumer demand and faced stellar sales projections. For retailers, staying in stock on the high-ticket, high-margin brands would be crucial. For manufacturer SmithKline Beecham, making sure retail displays arrived at stores and were properly set up on launch day was equally important. To ensure the store-level execution went smoothly, SmithKline Beecham relied on its in-store merchandising partner, National Retail Services.

"The market share war is still won at the shelf and we needed arms and legs in stores," said Clark Brown, SmithKline Beecham's senior category promotions manager. With the launch of an Rx-to-OTC switch, the iinportant thing is getting the product on the shelf, and rusing an in-store merchandising servicel was very helpful in executing our launch plans.,

Today, after less than a year on the market, the two brands account for roughly 87% of sales in the $369 million smoking cessation category, according to Information Resources Inc. While not entirely responsible for that success, the story of SmithKline Beecham's experience with in-store merchandising offers a snapshot of a service industry whose role in the retailerlmanufacturer equation has expanded greatly. In fact, in@store merchandising companies are now being viewed as the final component of category management. Their ability to execute retaillmanufacturer strategies at store level, combined with emerging information collection abilities, pose interesting opportunities.

"The industry is still in its infancy and I say that even though we were doing merchandising nationwide as early as 1979," said Paul Memahon, chairman and chief executive officer of National Retail Services.

In the case of Nicorette and Nicoderm CQ, McMahon said, it's like a mini D-Day when Rx-to-R ROTC products are launched. You have to have a lot of people in the stores, and vendors are realizing there are huge costs savings."

Those savings, combined with new retailing realities and challenges that have emerged during the past decade, have spawned a booming industry.

"Retailers are competing against each other on a larger scale and face a greater need to control costs. There is also a greater recognition of the fact that people make buying decisions in stores, so the vendor community is now more focused on the shelf. Resources that used to be devoted to other areas are now devoted to shelf activities. I don't see those factors changing. They are macro trends that will continue for the foreseeable future."

Sales of in-store merchandising services are already pegged at $5 billion, with instore merchandising companies accounting for about $2 billion; third-party temp agencies, $1 billion; and broker/rack jobbers, about $2 billion. Accurate figures on the size of the market are difficult to come by. Only one major player is publicly held and many operators in the industry are smaller, more highly specialized companies.

Nonetheless, as retailers defer greater responsibility to vendors, demand from manufacturers has many of the leading providers operating full tilt.

There is an exploding amount of work and `everyone is very busy, is what I have been hearing from our members," said Gary Ebben, executive director of the fledgling National Association for Retail Merchandising Services (NARMS). "This industry, along with our membership, is growing rapidly. As of today we have 115 members, and we are adding members weekly."

The scope of in-store merchandising is also evolving rapidly. It's not just merchandising anymore. As the industry moves forward, there is an opportunity for data collection," Ebben said. "Our members have people in stores all across the country all the time. Merchandising is the core, but more and more services will spin off of that."

It's a point not lost on Mike Henties, customer business development manager Procter & Gamble. At NARMS' fall conference, Henties told attendees P&G is looking for in-store merchandising companies to develop more technological sophistication so they can serve as a retailer or manufacturer's eyes and ears, in addition to their arms and legs.

Last year, P&G spent about 3 million hours in customers, retail outlets, of which one-third of the hours were provided by 40 different retail merchandising companies, Henties said.

With that type of presence in stores, Henties would like to see the development of a compatible system that would record daily in-store data from each of the service company's retail forces, and then "manipulate this data so that it becomes diagnostic in nature and provides manufacturers with predictive capabilities in a timely format at an efficient cost."

Henties may offer a vision of the future capabilities of in-store merchandising, but for now companies are providing services that in the past were difficult if not cost prohibitive for manufacturers to perform on their own. One example: auditing in-stock positions. If a retailer's scanner data indicates a product isn't selling, an in-store audit can determine whether there are other problems, such as improperly displayed product or high shrinkage.