The game changes
July 19, 2004-- Home Textiles Today,
Sex and the City's Carrie Bradshaw always began her essays on life and love with a philosophical query. "Is there such a thing as relationship karma?" "Can you really forgive if you can't forget?" "Why gamble if we know the house always wins?"
If Carrie covered retailing, this is how she would begin this week's column: "Can't retailers make money from retailing anymore?" (Aside from Wal-Mart.)
Recent events rather beg the question.
Kmart appears to be morphing into a real estate operation — snapping up $365 million in cash from Home Depot for 24 stores, and bagging somewhere north of $400 million from Sears for 54 units. Comps may slide into oblivion, but like Scarlett O'Hara's father told her, sometimes land is the only thing that matters.
Elsewhere in the Midwest, Target Corp. is rapidly evolving into a credit card operation — at least as far as profitability goes. During the first quarter ended May 1, earnings from the credit card business jumped 9.9 percent to $166 million. Credit revenue now accounts for almost 38 percent of Target's total profit, but only 9 percent of its sales.
And for all others, well, there are chargebacks, allowances and direct sourcing.
Last week's announcement from Linen 'n Things once again underscored the uplift vendor allowances bring to a retailer's bottom line. Due a shift in accounting rules governing how such allowances are noted on the ledger, LNT's fully diluted 2Q earnings per share will be 9 cents lower than they would have been prior to the shift — or, as of last week, 1 cent to 2 cents per share.
As to chargebacks, vendors have long complained that retailers use them as a source of interest-free loans. Ominously, word on the street has it that retailers have been ratcheting back up on the practice over the summer.
Finally, direct sourcing — this year's battle cry in the ever-escalating scramble to beef margins fatter, fatter and fatter still. There is hardly a chain retailer in the country that hasn't pledged to do more product development and sourcing itself on a far grander scale in the coming quarters — the sagacity of which remains to be proven.
So what's the end game for brand suppliers? Dump them before they dump you? Go direct to consumers? One could potentially hook up with Amazon and eBay to build a bridge into the homes of America. One could potentially follow the early Tuesday Morning model by hosting limited run "special events" in major markets to build an operation.
Or as Carrie Bradshaw once asked: "Denial: friend or foe?"
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