A Rising Tide?

Don't independent retailers have enough to worry about? With competition from big box stores, catalogs, the Internet, home sales and other specialty retailers, store-owners have enough difficulties moving product. For many, when vendors start trying to get a piece of the pie it feels like the last straw. Mention vendors who open their own stores and you're likely to draw accusations of disloyalty, or even flat statements of resentment: "If they do that, I'll drop the line."

So why do they keep doing it? Their reasons and experiences are all over the map — sometimes literally — but one thing is certain: it's not just about making money at retail. Gifts & Decorative Accessories spoke with several manufacturers that also own stores, and in only a few cases did retail sales make up a large proportion of the company's bottom line.

The reason most often cited for opening a manufacturer-owned shop is the idea of the retail store as a test lab. Having a retail location allows a manufacturer to try new products, packaging, price points and fixtures before rolling them out nationwide.

Says Edward Vanegas, principal of Suburban Silk, Boulder, CO, "As a joke, we almost named the store the Retail Laboratory. We had so much interest in seeing what [consumers] are interested in. We test products in a real store before we roll them out wholesale."

Gary Briggs, co-owner of Aunt Sadie's Inc., Boston, agrees. "Some of our best product ideas come from people coming in and saying, 'I wish you guys would do this.' It's like doing a mini-focus group."

Ben Wall, marketing manager of For Every Body, Provo, UT, goes one step further. "We grab people out of there to do focus groups. We conduct surveys there," he says of the company's stores.

To ensure that data is representative, Vanegas and Wall are careful to choose store locations whose results will be meaningful to wholesale customers. Says Vanegas, "For research purposes, we'd like [additional stores] to stay pretty much in the Midwest, South or maybe New England. We'll lose credibility with our retailer partners if we stay on the West Coast."

Wall used similar considerations in selecting the site of For Every Body's first store outside the locality of Provo. "We looked for areas that are growing, with the type of demographic that we liked. We didn't want to be downtown. Our key has a median income above $50,000 and lives in the suburbs."

With 420 retail locations, The Yankee Candle Co., S. Deerfield, MA, doesn't have to worry about finding the single representative spot. The company seems most concerned with time, not space. "Our retail stores provide us with access to 'real-time' learning on what's selling, what's working and what's not," says Rick Ruffolo, senior vice president of brand, marketing and innovation. "That 'real-time' market research allows us to transfer our best retail insights to our wholesale customers."

Another reason that manufacturers own stores is to build the brand recognition. Retail locations are an affordable way to teach consumers the manufacturer's name and what it stands for. Barry Moore, vice president of San Francisco Music Box, Austin, TX, notes that Hallmark stores and other independent retailers don't build brands, they take advantage of brands. "[Vendors] have got to do that somehow," says Moore. "Consumer advertising is not something we do a lot of in our industry."

Ruffalo agrees. "Yankee Candle stores help create awareness, increase loyalty, and enhance the brand's emotional connection with our consumers. We think an investment in a new Yankee Candle retail store has more broad-reaching, lasting impact than a major TV ad campaign."

And manufacturers often hope that their retail presentation will inspire wholesale customers. Safa Hummel, U.S. CEO of Moonachie, NJ-based Lladró says, "We show our products with the best merchandising vision of the brand to inspire outside presentations of the brand. We set the example of what the brand image and vision should be."

Most manufacturers that own stores maintain that they do something different from what independents can achieve by themselves, and that the resulting rising tide will lift all ships.

"We don't compete with our retailers," says Jan Vingerhoets, executive vice president of Alessi USA, New York. "Our flagships are a tool to promote the brand. We show the whole line of products (over 3,000 SKUs) so the public sees that Alessi is more than just the bestsellers that most retailers carry. This creates an environment to experience the Alessi lifestyle."

Lladró also points out that its flagships carry more SKUs than most independents can manage. "We don't see our stores as competition to our partner retailers," says Hummel. "Image wise, assortment wise, environment wise, we offer more options in style and taste than our partners for the obvious reason of space availability. Their customers will appreciate the value of our brand once they are exposed to its highest representation."

Similarly, Yankee draws a distinction between how customers shop its stores versus wholesale accounts. "Yankee Candle stores tend to be 'destination-locations,' which sell only candles and home fragrance products," says Ruffalo. "Yankee products are incremental, add-on, and oftentimes impulse purchases at many of our wholesale customer stores." In answer to the "commonly asked" question of whether Yankee's wholesale customers are concerned about competition, Ruffalo says "Having a Yankee Candle retail store in a market actually increases the brand awareness and strength of the brand in a given market."

Wall, on the other hand, admits that retailers may not see it that way. "We don't have a lot of wholesale customers in Utah, and that's probably part of it." But that's a trade-off For Every Body is willing to make. "It's more important for us to increase public awareness locally than to have the few accounts in Utah."

One sometimes overlooked aspect of manufacturer-owned stores is that they don't necessarily sell only their own lines. For instance, For Every Body owns a store for scrapbookers that doesn't sell any of its own products. Another, a home decor store, sells only about 20 percent For Every Body products — the other 80 percent are sourced from other vendors. Even in the company's candle outlets, 15 percent of the product is sourced from other vendors.

Sourcing product from other vendors was actually the inspiration for the Aunt Sadie's store. "We'd go to the gift shows and see all these cool things, and be frustrated that we couldn't buy any of it," says Briggs. Aunt Sadie's now buys from more than 200 vendors, including 10 or 12 competing candle lines, as well as home accessories, baby, pillows and throws, body care and fashion accents. "We thought, 'It costs a lot to go to the shows. Why not combine costs and buy product to put in a store?'" Briggs adds.

The experience has paid off for both kinds of Aunt Sadie's customers. "As wholesalers it's really good to experience the retail side of [the business]," says Briggs. "We have to receive product from other retailers, so we experience things like 'where the hell's the packing slip, and why doesn't it have any prices on it?"

As a result of their in-store experience, Aunt Sadie's redesigned its own materials to make sure they're easy to understand and contain necessary information. And some store experiences have taught Briggs to do more than what was needed. "Simple things like putting a thank-you note in the box," he says. "We never thought of that until we got one from someone else."

That experience of having to find, order, receive, unpack, return and sell-through product — just like any other retailer — may do more than anything else to teach vendors what their customers really need.

So, do independent retailers really have a problem with vendors owning stores? Apparently not, according to the vendors we talked to. Several said that, on the contrary, their wholesale customers actually like it, because it means the vendor has "been there, done that."

"Flagships increase the visibility, and give you more credibility with consumers as well as retailers," says Vingerhoets.

"I say, 'This is what's selling in my store,'" notes Vanegas, who also makes a point of telling buyers when an item gets a three-time margin in his store.

Briggs has had the same experience. "It comes in handy to be able to say, 'I have a store, and this candle works well for us, this one doesn't.' Retailers like to hear that manufacturers have their own store; there's a greater understanding [of what the retailer needs]."

Aunt Sadie's store also effectively doubles as the company's only permanent showroom, allowing wholesale customers see the entire line and drawing potential new accounts every other week. (The Carol Boyes store, in New York's Soho district, does a similar double duty.)

Of course, there are more direct benefits for the vendor. Even a small increase in revenue can make a difference, and a retail outlet can also reduce expenses. Every vendor has inventory to clear, and doing so near factory or warehouse space minimizes shipping costs, while selling direct to the consumer both maximizes return and creates goodwill.

Outlets are also less likely to dilute the brand's reputation than dumping excess inventory into discount stores. Far from resenting the competition, For Every Body reports that some retailers come to its semiannual sales to stock up, thus saving on shipping charges and matching, if not bettering, the wholesale price.

Still, vendors that own stores are not unmindful of the potential for complaints. Many choose locations where they won't go head-to-head with existing accounts. (As Vanegas points out, Suburban Silk "protects" zip codes even from other wholesale accounts.) San Francisco Music Box follows the same philosophy. "We only open seasonal stores where we do not have distribution," Moore says. "It helps our dealers in the trading area, because it keeps the brand in front of the consumer."

Some vendors also make a point of selling at full price to avoid undercutting independents. Others may offer discounts, but only on discontinued or imperfect merchandise. Briggs and Vanegas see price as the defining factor. When asked whether he'd gotten a negative response from wholesale customers, Briggs replied, "Not at all, because we sell at suggested retail price. If we didn't, all our retailers would hate us."

Vanegas agreed. "Suburban Silk items are at full retail price. We're not undercutting them. I haven't heard many negatives, but I only have one store and it's far from them. I hope you call me back when we get to number 50."

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