American Society of Magazine Editors

Quantifying and Leveraging the True Value of General Merchandise at Retail

By Karlene LukovitzIPDA Daily Publishing & Retail News

Contrary to common perceptions, industry-wide scanned-based data/analyses available for the first time for the general merchandise (GM) category show that GM sales are experiencing overall growth, including positive sales in the food channel and most other channels.

The data also show that publishing category sales (magazines, books, newspapers and maps/atlases) are up within GM’s largest retail segment–the mass or “all other” channel–and that the publishing category ranks within the top five most important GM categories in both food and drug retail channels in terms of GM sales contribution.

Further, they confirm the significant top- and bottom-line contributions of magazines, and document the sales advantages being realized by retailers that that are leaders in managing the category.  

These were among the key insights presented at Retail Marketplace 2013 by Mark Deuschle, VP business development and chief marketing officer for the Global Marketing Development Center (GMDC).

Lack of Benchmarking Data Has Created GM Challenges
Before offering specifics about the performance of magazines and the publishing category, Deuschle summarized overall GM trends, based on a groundbreaking new category data structure and data access/analysis tool developed by GMDC and Nielsen.

In recent years, GM has in many cases seen reductions in category store space, as supermarkets and other formats have expanded space devoted to fresh foods, in particular, Deuschle said.

Contracting GM space has become a kind of “easy button” when retailers seek to expand other departments, he said, adding that GM categories that have substantial amounts of space–including magazines and greeting cards–are particularly vulnerable to having some of that space reallocated.

Food retailers, in particular, have in many cases “walked away from general merchandise–they’ve let certain categories go,” he noted, citing batteries as one example. (Home/hardware retailers are now the #1 sales channel for batteries.)

The core reason behind GM’s space challenge has been that it has lacked the consistent, industry-wide GM data needed to track category performance, identify opportunities and enable retailer benchmarking, Deuschle explained–whereas all other major product categories have had historical, third-party syndicated data.

With no consistent category data structure–each retailer has its own structure and definitions for managing GM category data–GM hasn’t been able to quantify, in hard numbers, the category’s true marketplace performance, he said. Further,  lacking access to GM performance data for their peer group and the overall industry, individual retailers have instead been benchmarking the category against its performance within their own stores.

The Answer: A New GM Hierarchy Tool
To address this overall marketplace challenge–and in particular to provide food retailer executives with GM oversight with the hard data they need to make strong business cases for protecting or arguing for more GM space with C-level retail executives–GMDC set out two years ago to enable industry access to consistently structured GM data.  

After eight large food retailers shared all scan data for three years with GMDC, it was confirmed that no two retailers manage or organize their GM data in the same way, Deuschle reported. GMDC turned to Nielsen, which also lacked a consistent hierarchy or structure for organizing GM data, but had been capturing scan data for 30 million SKUs or UPCs for five years.

The two organizations then worked with major retailers and other key industry players to create a hierarchy to enable retailers, wholesalers and suppliers to access GM data organized and analyzed within a consistent framework, with common language and definitions. The core objective was to enable the industry to use the data and insights to enhance category growth-driving collaboration among the partners, Deuschle said.

The hierarchy sorts GM data into 18 core or “mega” categories based on how consumers shop for GM, plus subcategories, for a total of about 700 categories for which data/analytics are now available.

The hierarchy is being used to prioritize “deep-dive” research studies into specific categories, and serves as the backbone for a new data/analytics delivery tool–the GM Hierarchy Tool. Those data/analytics are delivered through  Nielsen’s Answers, the data-management platform used widely across the retailing  industry.

The Hierarchy Tool will be launched during GMDC’s 2013 GM Conference in September. Currently, the tool focuses on higher-level category data, but it has the capability to incorporate item or brand data going forward, Deuschle said.

Quantifying GM’s Performance, Value
The work has already enabled critical metrics that demonstrate the GM category’s value to retailers, Deuschle reported:

Contrary to the myth that GM sales are down, the category’s sales trends are positive.*Industry-wide performance:  For the 52 weeks ended September 25, 2012, total, all-outlet GM sales across the retail formats tracked by Nielsen were up 3%, to $209 billion.

That $209 billion represents a 25.7% share of the total, all-category $814 billion in all-outlet sales across retail formats. “Clearly, GM is still a very significant part of the overall [retail] business,” Deuschle said.

*Food channel performance:  Food-channel GM sales were up 2.6%, to $32.8 billion. That translates to a 15.2% of total, all-outlet GM sales for the food channel.

In comparison, just 6.1% of total GM sales are generated in the drug, dollar and club store channels.

Whereas some have asked whether “the food channel has lost the GM consumer,” this is clearly not the case, said Deuschle.

In addition to GM’s nearly $33 billion in sales, it represents a bottom-line contribution that’s significantly higher than other categories in the food channel, he said. While gross margin varies by GM category, the gross margin for GM as a whole is generally nearly two times higher than the gross margin of other categories in the store.

“Fresh and center store tend to get all the attention, but the GM category is generating more and more profits,” Deuschle observed. “Margins and profitability are down for supermarket retailers, and GM is one of the ways to dig themselves out of that hole.”

*”All other” channel performance:  The lion’s share (78%) of GM sales continue to be generated in the mass or “other” retail channels–pointing to a significant GM growth opportunity for food retailers, Deuschle pointed out. In “all other” outlets, GM sales were up 2.1%, to $163.5 billion.

*Drug store channel performance:  This channel (which has a 6% share of total GM sales) saw a 1.9% decline in GM sales. Some of this is attributable to drug retailers having reallocated space from the front end to expanding fresh departments, noted Deuschle.

Retailers’ GM Performance Varies Significantly
Importantly, the 3% industry-wide overall average sales increase for the GM category doesn’t  tell the whole story, Deuschle stressed. Both in terms of GM as a whole, and in looking at the magazines and publications subcategories, performance varies significantly for retailers that are “leaders” versus “laggards” in these categories.

Among all retailers tracked by Nielsen, GM sales among the highest-performing GM retailers were up nearly 6%–and their average number of GM UPCs were up 3%, showing that they’re growing the category’s presence in their stores.

In contrast, the worst-performing GM retailers were down nearly 4.5% in GM sales, although these retailers have more or less maintained their numbers of GM SKUs.

Looking at performance in five key GM categories, best-performing retailers have realized a 10.2% gain in candy sales (versus 6.5% for worst-performing retailers); a 4.9% gain in kitchen (versus the laggards’ -2.2%); a 2.3% gain in pet (versus laggards’  -3.6%); and a 2.2% gain in household (versus laggards’ 0.2%). In the baby category, which has been hard-hit by online purchases, the sales for best- and worst- GM performers were down 2.3% and 8.4%, respectively.

One critical best practice revealed by the analyses is that retailers need to make a clear decision about/commitment to how they position themselves within the GM category, Deuschle said. Positioning options include basic/core (minimal set of basic GM categories); traditional (basic/core plus extended around seasonal); extended (broader presence in many categories); targeted (focus on “signature” GM categories); and destination (broad and deep in most GM categories).

Whichever positioning is employed, retailers’ GM performance benefits when they ensure that they’re offering the right product mix to maximize results from that overall positioning, rather than just cutting or adding items based on short-term sales trends, Deuschle reported.

Publishing Category Performance Stats
Deuschle stressed that despite sales declines challenges since the recession, the data confirm that publishing continues to be a significant, profitable category for retailers.

For the 52-week period ending September 2012, the publishing category as a whole (again, comprising magazines, books, newspapers and maps/atlases) generated $4 billion in all outlets among retailers tracked by Nielsen.

The food channel generated 41%, or $1.7 billion, of total category sales; mass/”all other” outlets generated 45%, or $1.8 billion; and the drug store channel generated 14%, or $0.5 billion.

The food channel (with 360 average publishing-category UPCs) saw an average category sales decline of 6% in 2012. The drug store channel (with 150 average category UPCs) saw a 2% decline. However, the “all other” channel (with an average 260 category UPCs) realized a 2% increase in publishing category sales.

Publishing is the food channel’s fifth most important GM category in terms of sales contribution (5% of all GM sales).

In the drug store channel, publishing ranks ninth among all GM categories, generating 4% of total GM sales. In “all other” channels, publishing ranks 18th among GM categories, representing 1% of total GM sales.

The publishing’s category is exactly paralleling overall GM trends in both the “all other” and drug channels sales. Both publishing and GM as a whole are up 2% in “all other” channels, and down 2% in the drug channel. In the food channel, the category’s 6% decline underperformed versus the 3% increase in overall GM sales. 

Looking at subcategories within publishing, in the food channel, magazines, with 61% of category sales, were down 8%, to $1.02 billion. Books (20% of category sales) were up 1% to $327 million; newspapers (19% of category) were down 6% to $321.6 million; and maps/atlases (just 0.1% of category) were down 26% to $1.8 million.

The average number of magazine UPCs, as well as overall publishing category UPCs, offered in the food channel declined by 3%. The average unit price for magazines in this channel is $4.24.

In the drug store channel, magazines, with 53% of publishing category sales, were down 7% to $292.6 million last year. Books (28% of category sales) were up 11%, to $153.4 million; newspapers (18% of category sales) were down 1%, to $101.6 million; and maps/atlases (0.4% of category) were down 41%, to $2.2 million.

The average number of magazine UPCs offered in the drug store channel declined by 6%, while overall publishing category UPCs offered declined by 8%. The average unit price for magazines in this channel is $4.55.

Data Point to Retail Magazine Opportunities
Focusing specifically on magazines, Deuschle stressed that a category that produces $1.7 billion in sales for the food channel–as well as exceptional profitability (two-to-three times higher margin than most store categories)–is  ”very, very important”  to these retailers.

Further, fully one-quarter of food channel shoppers continue to buy magazines. The category’s conversion rates were 25.3%, 25.9% and 24.9% in 2010, 2011 and 2012, respectively.

Magazine category prices in the food channel have seen a steady 2% increase per year since 2010. Among highest-performing food retailers, 2012 sales per unit were $4.27; among the lowest-performing, they were $4.16.

Magazine dollars per shopper in the food channel were $14 in both 2010 and 2011, and $13 in 2012.

“When food retailers’ fifth-most important GM category is under pressure, they should be motivated to have conversations [with category players] that might be different than in the past,” Deuschle noted. It’s in retailers’ best interest to manage the magazine category proactively and collaborate with category partners to innovate to drive improved sales performance, he added. (The dynamic is similar in drug chains, where magazines’ nearly $300 million in high-margin sales would seem to warrant retailers’ attention to working with the category to drive sales.)

The key driver of magazine sales declines is frequency of purchase (number of trips in which magazines are purchased).  Shopper trips including magazines declined 11% in the food channel in 2011-2012 (and 12% in non-food channels).

Deuschle pointed out that large variations in magazine category performance between the leaders and “laggards” in this category among food-channel retailers point up opportunities for growing the category.Among best-performing magazine-category food retailers (those that fell within the 3rd and 4th quartiles in the analysis), magazine sales have been down 5.8% to 6% on average over the past two years–and there are a number of retailers within these best-performing groups that have seen magazine sales increases. In contrast, the worst-performing (1st quartile) food retailers saw an average category decline of 10%.

Food retailers in the two best-performing magazine-category quartiles–which offer  534 to 538 magazine SKUs on average–are realizing $71,000 to $75,500 per store per year in magazine sales.

In contrast, lowest-performing retailers, which offer an average of 459 magazines SKUs, are realizing about $39,000 per store per year in magazine sales–performance that has dragged down the category’s average sales numbers, Deuschle pointed out.

Conclusion: “There are a lot of opportunities for retailers that are doing creative things” with magazines, Deuschle said.

Further, while all the largest magazine subcategories are seeing sales declines to one degree or another, smaller-volume/niche titles and new titles showed 6% growth last year–indicating that retailers’ support of magazine assortment updates and regular category refinements is critical.

Recommendations for Suppliers
Deuschle offered the following recommendations for magazine publishers and their channel partners:

*Refine the category’s go-to-market strategies and supply chain to maintain profitability.

*Work closely with food and other channel retailers on assortment refinements and titles updates to drive sales.

*Engage retailers in dialogue about category management and innovation to drive sales. Because the magazine category “does all the work” for retailers (delivery, returns, SKU management), it sometimes doesn’t get the “attention and love” received by categories in which retailers own the inventory and manage day-to-day logistics, Deuschle said.

*Identify retailer best practices that are mitigating decline, such as magazine outposting in synergistic, high-traffic areas of the store and seasonal opportunities, and implement these in larger-scale programs. “Magazines need to be put in front of the consumer in new and different ways,” said Deuschle.

*Improve overall data elements to capture a clearer picture of the category, including breakdowns for mainline versus checkout. IPDA is working with the organizations to address this. 

*Renew emphasis on margin contribution. Magazines’ margin and real profitability are strong because they perform the labor and absorb those costs–and at a time when the supermarket industry has seen seven years of declining profit, driving the category’s profitability home is more important than ever, Deuschle said. “The category’s bottom line, as well top line contribution, can’t be emphasized enough.”

He concluded by stressing that GMDC has no interest in promoting any specific category; its mission is simply to enable accurate data about all of the categories and GM as a whole out into the marketplace.