Category Management – Stock Your Deck With Aces
Category management can provide a new view of the trading card category. “In the pre-category management world, most grocery accounts probably just dabbled in our category,” says Brochhausen. “They put some cards in the candy racks or locked them up at the courtesy desk. When you do that, it’s difficult to sell cards. You turn a box every two to three months, if that. Our category responds to high-traffic locations. Everybody makes the same claim, but this category really does. It’s a high-margin, high-dollar profit ring category. The average pack of cards can turn anywhere from $1 to $2 in profit ring.”
The challenge, he says, is in the merchandising of the product and keeping up with the number of brands. “Inventory management has really become the biggest challenge for most of the retailers,” Brochhausen says.
To address these inventory management/category management issues, Pinnacle turned to a consultant, Meridian Corp., Westport, Conn., about three years ago. “They were very focused on the various space management systems that are out there,” Brochhausen says. “But we found a couple of problems with traditional space/category management. Because these items change every four to six months, and the box sizes and price points are different, it became almost impossible to use a system like Apollo.”
Related issues, such as quick response and just-in-time replenishment, don’t really apply to the trading card section because the products are considered collectibles. “What you [as a retailer] want to do is sell out [a current offering] and move along to the next brand,” he says. “If all you do is continuously replenish [current] hot brands, you’ll invariably guess wrong, and you’ll have inventory problems.”
The reason retailers err so often is because they are used to replenishing like items. Collectors, however, aren’t seeking to replenish the same cards; they’re looking for different cards. “In most consumer packaged goods categories we say, `Stack it high and watch it fly.’ In this industry we say, `Stack it high and watch it die,”‘ says Brochhausen. Collectors, he says, buy on perception. “While supermarket buyers are buying cases, they should be buying boxes. Collectors want to see new stuff continuously replenished. If they think a display has been there too long, they’ll move on to the hobby shops or mass merchandisers, who do very good jobs managing their inventories.”
At the same time, Brochhausen recognizes that retailers are concerned with issues like return on inventory, inventory investment and theft, all of which necessitate some form of category management. “We lay out all of the brands that are upcoming in a specific sport 90 days out and recommend which brands should be promoted and which shouldn’t be promoted, both ours and our competitors’,” he says. “I think everybody should promote the total category. If you don’t, you’re not helping the category. The bottom line is that we need retailers to establish the category and get collectors to the section.”
If ensuring variety is the key to successful category management in the supermarket channel, it’s the bane of mass merchandisers. “Mass merchandisers like to be way out there,” Brochhausen says. “But for us to realistically predict what will happen past 90 days out is almost impossible. So they [mass merchandisers] plan so many inventory dollars against the total category, and as the choices become available, they make their selections. Because we’re based in sports and in collectibility, you don’t plan the same way, say, a Nestle would.”
That doesn’t mean all traditional category management tools have to be scrapped. “We use Nielsen to determine when the best time is to promote, that is, which are the key consumption months to promote certain sports,” Brochhausen says. “Most people would be surprised to find the best month to promote hockey cards is January. In fact, 55% of all hockey cards are sold between January and May.”
How does Pinnacle’s category management program work? “If you’re a grocery chain, you’re probably not [heavily involved in the trading card] business today,” says Brochhausen. “So the first thing we’re going to do is get you in the business. Next, we’ll talk to you about the proper square footage and the potential profit per square foot. There’s usually a five- or 10-store test. I don’t think there’s been a test that’s failed yet. If retailers put in somewhere around a 30-SKU card program, they should be looking at generating a $5,000 per store profit per month per location.”
The next question, says Brochhausen, is how do you service this category? Many chains use a magazine distributor. “That way they have very small exposure in terms of inventory dollars, and it also gives them a lot more flexibility as to taking products out, so it really becomes a turnkey opportunity for them,” he says.
Brochhausen says effective, involved category management can also deliver benefits across the entire store. Citing a recent Pinnacle hockey theme promotion at Stop & Shop, Quincy, Mass., he says, “If Stop & Shop wanted to get involved directly with the National Hockey League to promote the NHL All Star Game, it would be expensive–in fact, you’re probably looking at a six-figure licensing agreement. By working with us on NHL FanTasy and promoting the fact that customers would win tickets to the Stanley Cup or NHL All Star Game, you create a whole interactive big event, especially in a big hockey town like Boston.”
Asked how Pinnacle’s approach to category management varies by channel, Brochhausen says, “Convenience stores can’t carry as many SKUs as a supermarket can for obvious reasons. So there’s a lower number of products per SKU. The way they promote is also different. C-stores like to cross-promote with different categories.”