How low can they go?
January 5, 2004,
The faint sound of crunching you hear is coming from HTT's New York office, where editors have spent the past few weeks collecting sales figures for the publication's annual report on the industry's Top 15 U.S. Suppliers overall, and Top 5 Suppliers in 18 product categories.
I was in the midst of poring through the data, when the weekly Seidman News Bulletin arrived. For those unfamiliar with it, the two-sided newsletter is published by Seymour Seidman, formerly a merchandise manager at Wamsutta when it was an independent mill. Once in a great while, Seymour includes along with his newsletter a few tartly phrased, fictional anecdotes to point up certain shifts in the industry.
Last week was one of those times, and one story stood out in particular against the series of flabby sales gains that were rolling in from the industry. In this ditty, an observer queries a major retailer about the progress his company is making in delivering luxury constructions at mass-market prices.
He notes that the retailer could soon be selling Egyptian cotton towels for as little as $1.50 and 300-count sheets priced as low as $2.50. Where, the observer asks, will the retailer find vendors "to furnish such uncommon values?"
There has never been a time, the retailer huffs, when the company has been unable to find suppliers for its needs.
"I notice that," remarks the observer. "I also note that each time you accomplish that, there are fewer suppliers remaining in the marketplace."
Although Wal-Mart is the driving force in the tale — as it is in nearly aspect of retailing these days — it is not alone in the practice of relentless price deflation. The truth is, this kind of thing can go only so far. It is impossible to mash the pricing without squeezing a good deal of the juice out of higher-end goods.
After that, the big question is what do you do for an encore?
Even as vendors acknowledge flat sales — and this year's report may come close to setting a record for them — several said that their unit sales, in fact, increased. Again, it's worth noting that this kind of thing can go only so far, as the number of dead bodies littering the supplier community attests.
The constant pummeling of price points isn't the only disconnect in the current retailer/vendor model. Consider the fact that at several major retail companies, the role of the buyer is to steadily bang down price levels — while the role of his or her divisional and gmm is to consistently boost sales volumes. Talk about alchemy.
The upshot: while the current business model has wrought a number of vital and positive changes in terms of streamlined costs, efficient production and a boat-load of prettily priced goods for consumers, it may have gone just about as far as it can go.
The industry may not have reached the end of its tether, but the bands sure are starting to fray.