May 2, 2018
Sneakernomics: Managing the Marketplace
One of the most difficult tasks in sports retail is managing the marketplace, especially with hot items. Brands that do this effectively have a steadier growth pattern and higher profits.
A retailer’s job is to buy what’s hot and trending in the market. Retailers want to buy as much of what’s hot as they can. If they buy too much, the retailer typically leans back on the brand for help.
Today’s retail metrics are driven as much by liquidation rates as by growth. As long as an item maintains an acceptable sell through rate, the retailer is happy. A low liquidation rate will trigger markdown optimization programs which will suggest price action. Sometimes an item is a slow seller simply because the retailer has stocked too great a quantity.
With the advent of these markdown optimization tools, too often retailers grow impatient around introducing new products and brands. Often if a new product does not immediately meet the accepted sell through, retailers abandon the new initiative. It is incumbent on the brand to manage the retailers’ expectations. Retailers need patience when evaluating the success of new items and brands.
Brands see the entire marketplace. They know how much of an item is sold in it and therefore must control the marketplace. Brands must use sales and velocity data to make sure an item does not get either overheated or oversaturated. NPD can help frame the market for new or emerging items, and help the brand to understand the market potential.
The fastest way to kill a hot item is to allow too much of it to be sold into the market. Retailers will lose their interest and push for price action. The sports industry is littered with items that died due to oversupply. Once an item is killed off due to oversaturation, it can take years to build back the credibility and demand.
It is an important lesson that the last sale is often the least profitable. Brands that try to squeeze every last sale out of an item will often be disappointed in the profitability of the late sales.
Scarcity remains an effective tool in building consumer interest and retail confidence. No one ever went broke from selling an item out too fast.
Brands that effectively manage the marketplace will attain steady growth and healthy profit.