CAN’T BEAT ’EM?JOIN ’ EM
CAN’T BEAT ’EM?JOIN ’ EM
2004-01-25 at 9:39:00 am #4816
Headline: can’t beat ‘em? join ‘em
There are signs that a new battlefront could be opening up in the office products retail arena, as the superstores constantly strive for new growth opportunities
Branding is a topic that is never far away from the office products agenda. While the rise of private label has been grabbing most of the headlines, co-branding is also having an increasing affect on the industry today.
Resellers and vendors are looking at ways of uniting their brand strengths. And instead of fighting toe to toe, retailers are also investigating the possibilities and opportunities presented by joining forces to some degree.
Co-branding initiatives can take form in different guises. Industry consultant Tom Stockwell of US-based Stockwell Associates comments: “As we see it today, there are really two definitions of co-branding. One is co-branding which is a venture between a manufacturer and a reseller designed to advance the interests of both parties. For example, Hewlett-Packard (HP) keyboards and mice by RCA. I must say that this type of co-branding is in its early stages as it appears to us.”
Stockwell says that these alliances bring their own concerns and considerations for the manufacturer. “For one thing,” he says, “it might degrade or cheapen the image and equity of the manufacturer’s main brand, and secondly it’s only going to work with two strong brands. And it could cause channel conflicts. In other words, if you do it for one customer, and then don’t offer it to the others, doesn’t that cause a conflict because the others are going to want it too?”
And Stockwell points out that the resellers are pretty choosy too. “The fact is resellers are looking for that clear opportunity from a vendor that has a very strong brand recognition and where it adds credibility in a particular product category.”
Stockwell also highlights the work being done by Costco and the swift rise in prominence of its Kirkland brand. “Costco is making a very strong statement and it’s doing extremely well with it,” he says. “I ask you this, is Costco’s co-branding strategy the beginning of what will eventually become a widespread practice by retailers?”
But perhaps some of the most interesting co-branding opportunities at the moment are being taken up by retailers joining forces with one another.
“Co-branding a store-within-a-store is a reality, beyond the thinking stages,” says Stockwell. “This is a retailer with a unique brand identity teaming up with another to create better profits and better sales.
“Who’s doing this? Recently Starbucks joined up with Staples. Target, Circuit City and Office Depot joined the online brigade with Amazon.com. And most recently, Office Depot landing a store-within-a-store in the Albertsons’ grocery store chain throughout the western United States. This is big.”
But while the store-within-a-store concept is not unique in the retail marketplace in general, it is still relatively new to the office products sector. The OP superstores have been slow on the uptake, but there are signs that this is changing fast.
It is becoming more and more competitive on the retail side with more and more non-traditional OP retailers starting to sell office supplies in their increasing desire to become a ‘one-stop shop’. In a sense, for OP retailers it is becoming a case of ‘if you can’t beat them, join them’. If a grocer is going to start selling office products, why not sell them for him in his store?
Office Depot appears to be leading this store-within-a-store drive in the office products industry, although its first foray was not until September of last year, when it announced its partnership with Amazon.com. And with brand strength and positioning being an important consideration of any such deal, a relationship between the world’s largest online retailer (Amazon) and the second largest was seen as the perfect match for both parties.
Depot does $2.5 billion worth of business on the internet and unlike many e-tailers is profitable, so it clearly saw the deal as a good opportunity. CEO Bruce Nelson said at the time: “We believe this large and rapidly growing market segment of customers that do not traditionally purchase their office product needs from office supplies superstores exceeds $90 billion in annual office product purchases.” A market share clearly worth pursuing.
A month later Office Depot unveiled details of a store-within-a-store trial with the Stop & Shop grocery chain, for an initial roll-out in 15 outlets. While at the time the initiative was something new for Depot, Stop & Shop already has similar co-branding arrangements in place with the likes of Deli Express, Citizens Bank and Dunkin’ Donuts.
Depot’s director of business development Joel Hilbun says: “We started the roll-out in November of last year and opened up a few more in June and July. Both sides have been evaluating a test programme and that is where we are at now.” He says it is too early to give a true evaluation as to how well the initiative has been going, but seems quietly confident. “I think the results that we have been seeing are encouraging in some places but when you are testing a brand new concept like this you need the time to really evaluate with a larger group of stores.”
Grocery giant Albertsons’ pilot scheme announced in September with Depot, will roll out in an initial 18 stores in Los Angeles, Phoenix and Chicago.
“We’ve currently rolled out in six of the stores,” says Hilbun. “We’ll probably test this for a good six months to a year as we are doing with Stop & Shop and then, like any testing process, both parties will look at it and see if it’s something we’ll go on with.”
It is a concept however, that Depot looks keen to investigate to the full. Hilbun adds: “The importance is to look at external venues where we can continue to drive our sales and business and maybe reach a different type of customer than we typically see at our retail stores. And it is important to understand the models well enough and test them to find out whether they are a viable approach to reaching these customers.”
This is still very much a learning process for Depot and Hilbun admits it is too early to say which type of company makes the ideal partnership. “That’s a very good question, but also a very tough question,” he says. “What we’re doing is really so new within this sector. Part of the evaluation that comes from testing with these two chains (Albertsons and Stop & Shop) is that we’re still understanding what we need from a partner and obviously what another entity would want from a partnership with us.
“We’re always looking at different partnerships and innovative ways of reaching out to new consumers. So these pilot programmes really achieve that and give us a chance to evaluate ways to move forward.”
But again the potential of these deals is clear. Albertsons for example, has a massive 2,287 stores across the USA, and observers are speculating whether Staples will now strike similar deals with other grocery giants such as Kroger or Safeway, or whether Wal-Mart (which seems to sell everything under the sun) will end up eating them all for lunch anyway.
Compared to Office Depot, Staples has been a relative stranger to co-branding opportunities although it did announce an interesting hook-up with global coffee shop Starbucks in the summer.
As brand awareness and strategy goes, it is generally conceded that Starbucks is ahead of the game, particularly in brand loyalty. A recent study showed that a typical Starbucks customer visits 18 times a month on average.
Under the terms of the agreement, Staples is offering a variety of whole bean and ground coffees as well as Tazo teas and merchandise.
While refusing to go into details, Staples’ SVP of brands Jevin Eagle does allude that there could be more such initiatives on the way and says: “From a strategy point of view, we are constantly looking out for opportunities to build our brand that meet our customers’ needs and that build from our corporate strategy – especially when these opportunities differentiate us from the competition.”
He remarks: “Starbucks is a great idea for us because more coffee is consumed in offices than anywhere else – and because our stores are the only place where this Starbucks offering can be found in the office superstore channel.”
Initially Starbucks products have been made available in 150 Staples stores, but that is rapidly being ramped up. No limited outlet, year-long testing programme here: “We are in the midst of a US rollout and will be complete by the end of the year,” says Eagle. “We believe in having broad sets of conversations with our strategic partners about opportunities to expand our relationship.”
The current agreement stops well short of the store-within-a-store concept, so could this be on the horizon? Eagle remains coy as to the possibilities: “At this time,” he remarks, “I can’t comment on any additional conversations we might be having with Starbucks.
“Our plan for building our brand is robust and we are looking out into the future. At this time, my number one priority is on the quality and value of Staples branded products.”
It is clear however, that we have not seen the last of strategic partnerships between retailers. For a short while now, many analysts have considered the OP retail space to be saturated, but it does not seem to be deterring them from searching out fresh avenues of growth.
gateweay closes on ‘Max
Inevitably co-branding initiatives have not always worked out as hoped. OfficeMax for example, had one particularly short-lived experience with Gateway Computers in 2000.
Faced with mounting losses from its personal computer departments, ’Max understandably phased them out and instead rapidly rolled out a Gateway store-within-a-store concept.
Under the terms of the agreement, ’Max did not own any of the computer inventory and Gateway staffed all the departments itself. At the time, ’Max CEO Mike Feuer said the relationship would enable the retailer to “better serve our small and medium-sized business customer, as well as individual customers, giving them the opportunity to buy built-to-order computers from a company which we believe is the country’s premier computer make and marketer”.
And he continued: “In addition to being a major vehicle for us to differentiate our stores from other office superstore operators, this change in computer strategy will enable OfficeMax to continue to focus on our more productive core office supply, furniture, CopyMax printing and business machine merchandise categories”.
It looked like a win-win for both companies. Not only would ’Max rid itself of a unit that cost it $0.10 a share in 1999, but it would benefit from the foot-fall that Gateway stores would bring and the hoped for knock-on increased sales in peripherals and consumables.
However, against a backdrop of a dramatic slowdown in computer spending, the arrangement was dead within a year. Following a profits warning, Gateway soon pulled the plug on the deal