The Real Cost of Retail
The death of brick and mortar retail has been pounded into our heads since web2.0. The failing of major retailers (Circuit City, Blockbuster, Kmart, etc.) with Amazon’s continuous domination has the whole world assuming retail is in its dying days. I agree, online purchasing will continue to rise, forcing retail to change in significant ways. But it doesn’t mean it’s going away.
So if you are making a physical product, what should you do about retail?
Staying out of retail is the first answer. Post your Kickstarter campaign, selling exclusively through your website and e-comm channels, is a great way to build a healthy margin businesses and figure out which initial marketing tactics are working. Once these sales channels are exhausted, retail is still a real option. Whether you make your own stores like Warby Parker and Chrome Industries, or sell through existing retailers, it can offer a touch-and-see experience that online can never provide.
The following is a short guide about what it takes to be ready, to succeed, and to fund your retail dreams.
Retailers Are Not Marketing
Retailers are not marketing vehicles, they are order-takers for the demand you have already created. So before you enter the door, understand this…creating customer demand is entirely up to you.
Gaining distribution doesn’t mean that more people know who you are, it just means your device is available for sale in more locations. Understanding your brand promise and hitting your marketing stride is critical BEFORE you think about retail.
When you are ready, every retailer will tell you they can help you create more awareness. Disguising programs such as email blasts, website placement, better store real-estate, training events, etc., all in an attempt to maximize their margin. But despite the marketing story they sell you, just recognize that the more consumer demand you have the easier their job is to sell your product.
Creating “national” awareness is not easy and nor can it be done with a few advertising campaigns. True brand awareness takes years and costs money. Controlling your retail growth to match the awareness of your brand is super important because having product sitting on shelves that doesn’t sell is the fastest way to bankruptcy. If it doesn’t sell fast enough retailers will ask for more marketing dollars, discount the price, and if all else fails return the product.
Focus first on awareness, second on growing distribution. If not, you risk losing all the leverage in the relationship, turning retail partners into cash eating machines.
Retail Ready Product
Every time I pick up an Apple product, I am blown away by the packaging. The simplicity is amazing, but even more impressive is the level of detail they deliver on, which I can tell you is painstakingly difficult. Being retail ready doesn’t mean just slapping your logo on a box, it comes with a full list of requirements and expectations. The bigger the retailer, the longer the list.
Before you can even start with the box you need to find both a designer and a vendor. If you are going to retail for the first time I highly recommend working with a design firm or a freelancer who has designed packaging for retail. No substitute for experience, a quality new box design will run you $20-40K, including all the imagery, copy, and material selection. The right person or group will save you time and thousands of dollars in mistakes. They will also have a network of suppliers you can work with both in the US and Asia.
Designing the box is hard. You will spend hours debating what should and should not be on the box. Regardless of how much the box is expected to influence the purchase decision, I recommend going with something simple. Make sure the box stands out on the shelf, people can understand what the product is, and your logo is subtle. Also make sure you have plenty of room on the back to explain how it works and why they want it. When it comes to copy, less is better than more.
The out-of-box experience matters and the right designer will help you make it thoughtful as well as compact. The smaller the box the cheaper the product is to ship (very important) and the better it fits on the retail shelf. Just remember, the fancier the inside of the box is the more expensive it is, and don’t be shocked when you get quoted the price for recyclable materials. Saving the earth is expensive.
The most painful part is nailing the user manual. Not everyone is part of the internet generation, which means they do expect a manual in the box, no matter how easy your product is to use. If you can get through v35 on the manual without killing each other, completing the legal jargon and sku information is a breeze.
And oh yeah, make sure your product is theft proof. You may think that is the retailer’s problem, but when your product gets stolen and the retailer returns their inventory, you will be reminded whose problem it really is. Taping the box doesn’t count. If it can be ripped off the peg, opened with keys, or anything in between you will have a big problem. Even Apple stores aren’t safe from theft.
In Store Expectations
I like to think of retail as an extension of your team. The people in the store represent you, which means that if they don’t use your product, understand its differences, or prefer it, you will have a hard time succeeding.
Seeing your product on the shelf at Best Buy is really cool, until you realize there are some 3,000 blue shirts you have to train. To make matters worse, employee turnover at retail is high, which means that training is an ongoing experience, not a once-a-year event. Growing retail at the speed you can train is important and if your staff can’t cover this, you can hire firms that can help. At the end of the day you need them to successfully answer the question, “So what’s the difference between these two?”
Training can carry you a long way, even without Point of Purchase (aka POP) materials in the retailer. Flyers and crappy counter top stands are a waste of time, so if that’s all you can afford then wait on producing POP. If you are really going after retail you will need to design POP that stands out, doesn’t break, and requires minimal maintenance. Even more expensive than packaging, POP design can run you up to $100K. It’s not the messaging that costs so much, the right vendor will help you make POP that is light, cheapest to ship, updatable, easier to manufacture, and less likely to break.
Get the POP wrong and it is incredibly expensive to update, or worse they get thrown away because they don’t work.
Big Box is Really Big
Getting your feet wet with smaller, specialized retailers is a great way to start. Because the larger the retailer, the more you need to make them succeed.
By the time you hit national retailers your marketing awareness and retail formula needs to be dialed. Learning with thousands of stores is a recipe for disaster. And generally when you get there you will need a designated person to manage the account, a strong channel marketing person who knows which programs to maximize, POP that is working in smaller retailers, and capital to fund the growth. Net 90 payment terms are painful and if you can’t keep their shelves full, you will get the boot, faster than you got in the door.
International Is a Multiplier
Being able to say your product is available worldwide is great for the ego and terrible on your bottom line. International partners will help your start-up cash flows by pre-paying for product, but the margin expectations as well as the retail demands are significantly higher. Succeeding in English is hard enough, multiplying that to Europe or Asia, is just that, a serious multiplication in costs, time, and expectations.
On top of what we already discussed, you will need even more to succeed internationally. Hiring a designated product manager is imperative because getting the product and packaging ready is a full-time job. Time from your engineers and designers will be necessary to make sure your experience doesn’t suck in different languages. Translating the product, support documents, and website can cost you $10-25K, even with grammar errors. Hiring a designated support person is preferred to spreading out your existing team, especially if you want to deliver a great customer experience. Lastly, traveling is important to understanding the market and ensuring that proper training is happening.
Going global can be a strategic advantage, just understand that it is a multiplier in costs, not simply an addition.
Retail is not a cheap game. Once it gets cranking, it provides thousands of points of distribution, while exploding the number of people talking to consumers on your behalf. Before you enter, make sure you get your pricing right, so you understand what it takes to be profitable. Unprofitable retail channels don’t work.
Here is a cheat sheet to help you during the planning process.
Brick and mortar retail is slowing, but it’s not going away anytime soon. Smaller, high touch focused stores are working to educate consumers, which means you can build a successful retail channel. It can also provide powerful, category leading, real-estate. Reminding everyone which is “the” product to buy.
Retail is not a burning fire you want to run into, especially if you have zero experience. Most of the mistakes start-ups make are scaling distribution too early, before they have all of the kinks worked out. Spending time to get the experience right and the in-store formula working, is the difference between stardom and failure.
If retail is where you are heading, just be ready to play the game necessary to succeed.
Image Credit: JavaColleen via Creative Commons