linda hefner

Stepping Things Up

In her latest article for the International Licensing Industry Merchandiser's Association (LIMA), Carol Spieckerman riffs on why step change planning is right for the retail times. Sequels and already-in-the-pipeline products can't be the only answers.

In her presentation in Bentonville last week, Sam’s Club’s SVP and chief merchandising officer, Linda Hefner, lamented that some suppliers treat the club channel as an afterthought, taking a product that they sold to the drug or grocery channels, putting it in a bigger pack size, shrink wrapping it on a pallet, and calling it a “club pack.” It wasn’t that long ago that such derivative strategies worked just fine – retailers were happy with semi-customized versions of something that worked somewhere else. 

What really grabbed me about Hefner’s presentation, though, is where she went from there. Hefner encouraged suppliers to focus their efforts on “step change” opportunities in areas such as brand, price, sustainability, and packaging functionality, which increase the value brought to members. 

The concept of step change is a powerful one at this particular moment in retail, when the journey from early adoption to obsolescence seems to happen at the speed of light, and as social media, digital marketing, and omni-channel options turn brand program debuts into multi-touch-point, make-or-break mega-launches. 

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Ahead of the Curve and Staying the Course: Insights from Sam’s Club EVP Linda Hefner (Part II)

Last week, I shared my first take on Linda Hefner's presentation as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series. Today, I wrap it up with Part II.

Read Part I

Read our coverage of Linda Hefner's 2010 presentation to the Chamber in which she outlined Sam's merchandising transformation initiatives.

Hefner’s presentation made it clear that Sam’s three key strategies have not changed: offer a relevant and unique merchandising portfolio, deliver superior member value, and create a preferred club experience. At the same time, she added quite a bit more color to these initiatives and brought in some interesting updates and examples. Part I addressed ways that Sam's is offering a unique merchandising portfolio, Part II below continues with the remaining initiatives and more...

Deliver  superior member value

One way to drive value perception without the burden of literal comparison is through exclusive brands. When club retailers compete national brand to national brand, value is defined by price and pack size. Exclusive brands blur the comparison, and give retailers the added benefit of owning the value context. Hefner made the point by calling out a new item that already enjoys a cult following – Olive Garden salad dressing. Sam’s now offers it as a retail exclusive, and at a 40% value over the restaurant price. Of course, creating their own brands gives retailers the ultimate exclusive, and Sam’s has made some significant headway on that front. Hefner is always quick to point out that Sam’s does not set private brand penetration goals, but that doesn’t mean that Sam’s isn’t all about private brands when it makes sense. In grocery, for example, Sam’s launched two brands late last year, Artisan Fresh and Daily Chef, and it continues to expand product selection in health and wellness under its Simply Right brand which was launched at the same time. Sam’s focus for its proprietary brands is on delivering quality as well as value, and it is building a quality team to reinforce the former. I found it particularly interesting that Hefner referred to these brands as “proprietary” brands rather than “private,” or even “owned,” brands. Clearly, exclusivity is top-of-mind.

When Hefner mentioned, almost parenthetically, that Sam’s is the only warehouse club where Apple is on the floor every day, she wasn’t talking about fruit tumbling off of pallets. In 2010, Costco unceremoniously ousted Apple from its stores, giving Sam’s a warehouse club exclusive on the brand. This would seem to be auspicious timing to go all-in with Apple as Best Buy attempts to find its sea legs in the wake of business struggles and executive turmoil. I can’t think of a brand more compelling to Sam’s business and individual members and one with more potential to drive dwell time into the stratosphere. (As an aside, just last week, pictures of gorgeous Apple shop-in-shop displays at a Walmart store in Arkansas hit the internet. During my visit, associates revealed that iPad sales have been on the uptick since the displays were installed.)

Store layouts and category strategies aren’t the only places where Sam’s is getting granular. The retailer has clarified its price gap targets, the difference between the value it can bring in relation to competitors, and is bringing that information to its buyers through “constant reporting.” According to Hefner, this “double down” strategy, which includes adding headcount to create a centralized pricing team, will ensure merchant focus on member value and an understanding of price elasticity down through the club, category, sub-category, and seasonal levels.

Create the preferred club experience

As part of its merchandising transformation, Sam’s is leveraging new tools that allow it to analyze space allocation and layout by category and by club, with a renewed focus on “all-important” feature planning. When marketing plans are developed months in advance and store features are tied to them, Sam’s is determined to execute these features in stores. This is one area where Hefner clearly expects a focus on fundamentals at the supplier level. In her presentation, she noted that while some features will be tailored to local club conditions, the company’s number one job is to ensure that they are placed to begin with, and she encouraged suppliers or their third-party auditors to call out any anomalies to store managers during walkthroughs.

In early 2010, Sam’s consolidated and outsourced its in-store demo program under the Tastes and Tips moniker. This week, Hefner reiterated that demos are a “big deal” at Sam’s. In-store demos consistently rank in the top five member-preferred perks, and next-stage iterations of the program will include advanced capabilities for tracking and measuring sales lift generated by the demos.

In her previous presentation, Hefner outlined three “enablers” for Sam’s strategy: merchandising capabilities, organizational alignment, and supplier collaboration. These remain intact, but on the merchandising capabilities front, Sam’s has made some significant moves in its approach to headquarters employees’ career paths. Previously, buyers had to take “big steps” in order to advance, but Sam’s has now created a series of logical steps, including director-level roles that will build a stronger pipeline to VP- and DM-level positions. Hefner hinted that additional changes would be on the way within a couple of weeks, with the goal of reducing “churn” and creating training programs that are targeted to each level. Clearly Sam’s is focused on employee retention and not just member retention, and I found Hefner’s statement that category expertise is “invaluable” at the buyer level refreshingly retro at a time when break-neck buyer transitions are par for the course for most retailers. If other retailers follow in this path, it will be great news for suppliers, who have had to get used to their stories, and programs, getting “lost in translation” in the wake of multiple buyer shifts.

With quite a bit of history building up behind Sam’s clearly-articulated vision, you would think that its suppliers would be in lock-step by now. According to Hefner, some suppliers (though she acknowledged “fewer and fewer”) are still treating the club channel as an afterthought and building “derivative” strategies. She made it clear that simplistic, bigger and cheaper approaches aren’t going to cut it, and that joint business planning and “step change” plans for brand, price, sustainability, packaging functionality, and pack size innovation will be the standard for suppliers who want to grow with the fourth-largest grocer and eighth-largest retailer in the U.S. (a gentle volume-potential reminder for those who missed it in Part I). Hefner took things a step further by suggesting that suppliers should build their strategies around Sam’s first. Considering the nuances that Sam’s has continued to master in setting and staying its customer-centric course, any supplier who follows suit is likely to be better prepared for other opportunities. 

Ahead of the Curve and Staying the Course: Insights from Sam’s Club EVP Linda Hefner (Part I)

I was recently trying to remember when Sam’s Club EVP and chief merchandising officer, Linda Hefner, last addressed the supplier community at a Bentonville Bella Vista Chamber event, when, lo and behold, she opened her presentation this week by filling in the blanks for me.

It’s been about a year and a half since Hefner last spoke to the group, and the overarching themes in her latest presentation were consistent with the last, in which she outlined multiple new initiatives and approaches. In fact, according to Hefner, upon reviewing Sam's business, newly-minted CEO, Rosalind Brewer, issued a simple three-word directive: stay the course. That bears a bit of consideration at a time when so many majors, including Best Buy, J.C. Penney, Kohl’s, Lowe’s, and Tesco are embarking on partial or total reinventions. 

Sam’s may stand out by sticking to its story but it isn’t lost on me that it got ahead of change by setting its transformational course early on. Now, it has the advantage of adding layers to a well-built foundation while many of its competitors are revamping or tearing down and rebuilding from scratch.

Impressive results have been rolling in since Hefner’s 2010 presentation, with Sam’s two-year stacked comp growth sitting at over 8%. I should note that its U.S. ranking has gone up a notch as well. Hefner was quick to emphasize that Sam’s is now the eighth-largest retailer in the U.S., and the fourth-largest grocery store. The latter ranking is particularly impressive as Target continues its grocery-focused PFresh format rollout and as convenience retailers, dollar and drug stores continue to expand and refine their food programs.

Whether convenience stores morphing into restaurants, grocers pushing health, wellness, and beauty, or drug stores expanding their food offerings,  retailers in every tier have continued to opportunistically jump into new categories, rendering traditional boundaries all but obsolete and making the competitive landscape less than straightforward. Wholesale clubs have always operated in this everyone-is-the-competition position, since product offerings have traditionally been determined based on margin and customer value perception rather than limited by category. Wholesale clubs compete with grocers, drug stores, pharmacies, department and specialty stores, consumer electronics retailers, furniture stores, and basically everyone else, doing so under fairly daunting constraints.

As Ms. Hefner pointed out, every item in the store has to drive critical mass in order to earn its place on the shelf, since maintaining its value premise requires Sam’s to work on razor-thin margins, with limited SKUs across a broad range of categories, and in space-hogging pack sizes. Sam’s doesn’t have the luxury of endless testing and course correcting. If its buyers don’t do their homework and get it right from the get-go, productivity plummets. Adding to the pressure, members are paying for the privilege of shopping there and so expect thoughtfully-curated selections and extreme value. On average, Sam’s prices are 30% below those of grocers, according to Hefner, and day-in and day-out, they compete favorably against mass retailers, club competitors, and even food service providers. With so many competitors to be compared to, Sam’s can’t offer its members implied value. It’s got to be obvious.

Hefner’s presentation made it clear that Sam’s three key strategies have not changed: offer a relevant and unique merchandising portfolio, deliver superior member value, and create a preferred club experience. At the same time, she added quite a bit more color to these initiatives and brought in some interesting updates and examples.

Offer a relevant and unique merchandise portfolio

The next stage of Sam’s Project Portfolio project, launched back in 2010, has it taking a granular look at space decisions, adjacencies, and category shifts. Hefner cited ongoing expansion in the fresh category and additional investments in health and wellness as primary examples. With everyone from drug to dollar stores ramping up both categories, Sam’s has to offer more than great prices to resonate with choice- and convenience-spoiled shoppers. On the fresh front, Sam’s is taking pains to message expansive selection while ensuring that each store’s unique layout isn’t compromised in the process. In her presentation, Hefner hinted at localization without using the term, stating that the communities in which stores reside are being taken into consideration. During Q&A, she also referred to the creation of some kind of regional buying structure as an opportunity that Sam’s is exploring. To me, that points to Sam’s potentially creating a localization-enabling framework similar to those leveraged by Macy’s and Costco.

In his presentation to the Chamber last May, Dr. John Agwuonobi, Walmart’s president of U.S. health and wellness, provided great insights into the company’s wellness mission. Sam’s is also making considerable investments in health and wellness by providing free health screenings for chronic conditions, with the logic that they will drive awareness, not only for Sam’s pharmacies and health-related products, but also adjacent categories such as baby products and health and beauty. Given that drug and grocery stores continue to expand their health service offerings, and the recent announcements that dollar stores are waking up to the pharmacy opportunity, around-the-corner convenience will be an ongoing competitive reality for Sam's. Once members are in the store, however, Sam’s enjoys a captive audience in a comparatively focused and less cluttered environment, and its free screenings, in addition to acting as a lure, offer members an instant and unambiguous return on their membership investment.

Matching the right investment to the right category, based on customer demand drivers, is one of Sam’s key points of differentiation. Let others have their across-the-board margin rules; Sam’s is willing to drop margin requirements in order to drive value perception in key traffic-driving categories such as fresh. In pharmacy, on the other hand, resources are being directed toward driving outreach and awareness, which will in turn promote adjacent categories.

Part II will reveal some interesting updates to Sam’s merchandising structure and brand strategies, (including a sneak peek at a groovy new brand boutique).

Read Carol's coverage of Linda Hefner's last presentation to the Chamber. The initiatives that she outlined then are still guiding Sam's strategy.

Read Part II

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