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March 22, 2021

Selling to Retailers Phase 3: Hitting the Big Time

The ultimate goal for many companies is to sell their products in large retailers and big-box stores. Businesses that get a product onto the shelves in any store—from mom-and-pop shops and boutiques to mid-sized retail stores—deserve a pat on the back. It is a big step to go from selling directly to consumers to retail. Making the next leap to big retailers can be intimidating.  


As we discussed in Selling to Retailers Phase 2, the challenges involved in wholesaling to mid-sized retail stores were different than getting into local boutiques. That move forces the wholesaler to improve the speed and accuracy of their operations and the overall efficiency in the warehouse. With large retail, those concerns not only still exist, they’re amplified. Companies must reevaluate their performance on nearly every front if they hope to be successful in the big-box world.

Defining Big-Box Stores

According to Wikipedia, a big-box store is a physically large, free-standing retail establishment that is often part of a chain. But there is not really any clear-cut square footage or revenue requirement that separates mid-range retailers from large retailers. 

For our purposes, when we mention large retailers or big-box stores, we’re referring to the way they do business more than how much space they occupy (although that’s a factor, too). We are mainly talking about stores that are big enough corporations to dictate the rules their vendors must follow in order to do business with them. 

Big-box retail stores fall into two main categories. General merchandise stores—think Walmart, Target, and Costco—are comparable to old-time department stores that sold a little bit of everything. Specialty stores sell items within a specific category. Some examples are Home Depot, Dick’s Sporting Goods, Whole Foods, Bed Bath and Beyond, or Ulta Beauty.

Getting onto large retailers’ shelves can give wholesalers a national audience for their product. They’ll benefit from increased brand awareness and higher sales volume. These rewards come at a significant price of time, effort, and money, especially if a wholesaler isn’t prepared. 

There are characteristics of large retail organizations that a wholesaler needs to pay attention to when scaling a wholesale operation to the next level from mid-sized retail partners. By knowing what’s in store and planning accordingly, wholesalers can make the most of their resources. 

Getting a Foot in the Door—and Staying There

Competition for shelf space in large retail stores is brutal. Wholesalers need to prove their products stand out and sell well. If they can’t demonstrate that they are flexible and can deliver, they’ll have trouble even getting in the door.

Remember Charlie Awesome from Part 1 and Part 2 of this series? Charlie is the owner of Awesome Block Company (ABC), makers of artisanal wood building blocks. He started out selling them from his garage. He first entered the retail market in a few local shops. Moving up to mid-sized retailers, Charlie had to make some changes. He added new equipment to keep up with increased demand and re-evaluated some of his suppliers. 

Things are going well at ABC, and Charlie has decided the time is right to approach some big-box stores with his product line of blocks. He has learned a lot about how to adapt to his mid-sized retail customers’ needs. He has automated several processes and studies his analytics and KPIs to stay on top of things. 

One big difference between small and large retailers is how they choose what products to buy from wholesalers. With large corporate retailers, there are entire departments of buyers working under very strict parameters about which products to carry. Buyers for big-box stores may travel to trade shows and conventions to pick the latest an industry has to offer. Charlie may want to make the rounds at regional or national toy and educational product events. He will also need to find out if his targeted stores hold monthly, quarterly, or annual “open vendor” days. Many only accept new products according to this schedule.

A buyer’s primary concern will be data showing that a company can deliver. They are also searching for something new and different. Charlie makes his pitch armed with analytics proving his warehouse is capable of meeting demands. He also demonstrates his uniqueness by offering not only his plain set of blocks, but also a kit containing a set of blocks, a storage bin, and a playmat.

Charlie knows his numbers and has found a way to differentiate his product. He wins a contract! Once in the store, though, if his products don’t meet quality standards, arrive late, or are constantly on backorder, there are plenty of other wholesalers eager to replace him.

Meeting Increased Demand

Can the wholesaler’s facilities accommodate the increased volume that the big-box stores demand? They must thoroughly examine how much more product their operation can handle. Will they need more space, equipment, or employees? Or can they modify their processes to be more efficient? This might be the time to consider outsourcing, co-packing, or other methods of delegating some of the workload.

The right WMS can help make the most of available resources by directing the flow and processes. Software that can provide inventory numbers in real-time and process returns will be essential. Automating receiving, storage, picking methods, packing, and shipping can be the difference between success and failure for wholesalers selling to large retailers. 

Moving into large retailers means every link in the supply chain must be running properly. For example, one of Charlie’s wood suppliers might not be able to keep up. He may also need a new shipper who can better handle the size and frequency of his new bigger orders.

Some wholesalers may discover some things that they can’t—or shouldn’t—do themselves anymore. For example, a food brand might discover that finding a co-packer is the best way to fulfill their orders.

Accepting Shrinking Margins

Getting into a big-box store could turn a product into a household name. Volume can soar, but profit margins will be sliced even thinner than with smaller retailers. Big-box stores will expect discounts for volume orders. At the same time, some stores’ entire business model is built on offering deeply discounted products to their customers. This can mean a double whammy to the wholesaler’s bottom line.

With slim margins, every penny counts. Wholesalers must find ways to reduce cost while maintaining product quality. Automation and a proper warehouse layout will improve efficiency. Data tracking and WMS integration throughout the operation can pinpoint where money can be saved, or more importantly, where it is being wasted.

In Part 2, Charlie’s time-on-task analytics indicated that purchasing a second sander for his blocks might be a good idea. With the addition of a big-box store’s orders, he can justify the cost. Even with the smaller than usual margin, the machine will pay for itself...plus, he won’t be able to meet the new demand without it.

Every decision at this point must be made through the filter of the new margins. For example, Charlie scaled back his production of black-and-white block sets due to poor sales. If sticking to colored blocks will be faster and cheaper, it is probably time to stop making them altogether.

Adapting to Proprietary Systems

Working with a large retailer often means adapting to their unique proprietary system. Whether this is an operating system, a software program, or a special file format, big-box retailers make it a requirement that their vendors follow suit. 

If a wholesaler is working with several big-box customers, they could potentially have to deal with a different EDI (electronic data interchange) or VAN (value-added network) with each one. If those systems can’t “talk” to their WMS, they may need to spend money on additional software.

Charlie chose a WMS that worked great while he was only in a few local stores. As his business grew, he was surprised to discover that it couldn’t communicate with some of his new, larger retail customers. This meant countless hours of work trying to come up with a custom integration solution. In the meantime, many orders had to be processed manually in part—which runs counter to the idea of having a WMS in the first place.

And without proper integration, real-time updates, and order tracking, keeping up with those massive orders (and any problems with them!) meant he was vulnerable to losing some prime accounts.

It is important to find a WMS that will grow along with the company and adapt to new needs. Infoplus, for example, could set up Charlie with a WMS that is compatible with any VAN. He would be good to go, no matter what type of system his clients have—now or in the future.

Finding a system that is compatible across the board is essential, especially if sales are multi-channel. When every customer’s system is different, multiple add-ons and plug-ins are time-consuming, confusing, and expensive. And it’s best to invest in the right one from the start. Switching to a new system is almost never as seamless and foolproof as one thinks it will be.

Complying with Service-Level Agreements

Tying everything together for a big-box retailer is a service-level agreement or SLA. This contract will spell out the responsibilities of both parties in detail. It will typically cover payment terms, delivery methods and schedules, quality benchmarks, carrier requirements, return policies, reporting methods, and software (EDI and VAN) needed.

Depending on the large retailer, the SLA can also be very specific about certain aspects of the products they buy. For example, they may insist that products be made in the USA, organic, non-GMO, or contain a certain percentage of recyclable materials. If they’re not already doing so, a wholesaler might need to change part of the manufacturing process if they hope to do business with the store. (On the flip side, if these requirements aren’t built into an SLA, being able to say a product is organic or American made could be a selling point.)  

Complying with an SLA might be the biggest adjustment that a wholesaler makes when selling to a large retailer. Things that business owners could once decide for themselves are now dictated by the contract. And since this is likely the first time the wholesaler has had to produce on such a large scale, there is a bit of uncertainty about how well they will be able to keep up the pace.

The answer lies in automation, integration, and data tracking. The more successful they are in implementing all of these to optimize their efficiency and accuracy, the better they will be at partnering with a large retailer or big-box store.

A Bright Future in the Big Box

Wholesalers must be ready for big changes when they get their products into big-box stores, but the work is far from done. In Part 2 of our series we listed four questions that selling to smaller retail shops will answer:

  1. Which items are selling, and how quickly?
  2. Are we fulfilling our orders correctly and on time?
  3. Are the margins we’ve set acceptable?
  4. Is the number of returns tolerable and manageable?

Not only are these questions still relevant when a wholesaler has “hit the big time,” they’re being asked and answered constantly and in real-time. With the help of advanced data analytics provided by an efficient WMS, wholesalers can successfully satisfy their large retail customers.

 

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