The Company Store
How to test market for fun and profit
Today's pop quiz: describe the typical research center. You got it. Design sketches and prototypes all over the place. Lots of people walking around carrying computer printouts. And over in the corner, somebody is trying to figure out if Phoenix or Minneapolis would make the better test market.
Now keep that image in mind and meander with us to Faneuil Hall Marketplace, an urban shopping mall in the center of Boston. Take a look over there, just across from The Sharper Image store, at the shop called Peacock Papers. Even though there's a picture of a peacock etched on its glass doors, it's easy to miss. It looks just like all the other upscale stores that fill the mall. The shop sells fancy stationery by the pound, expensive party goods and invitations, gift wrap, and a few T-shirts with slogans like "A great mom is worth her weight in chocolate chip cookies."
And, oh yes, the store is a research center.
Peacock Papers Inc., with sales estimated at $8 million, is located in the warehouse district of Boston and makes most of the things found in the store. That wouldn't be unusual if Peacock were like Hallmark, Gucci, or Ralph Lauren, companies that traditionally manufacture and sell the things they make. But it isn't. Peacock is just a manufacturer. It supplies customers ranging from Waldenbooks and Marshall Fields to mom-and-pop stationery stores. With this one major exception, Peacock isn't in the retail business. The 600-square-foot store is there to garner market research and help the company figure out ways to better serve its customers, the nation's retailers.
"The store lets us show our customers ways to merchandise our products," says company founder and president Sharon P. Cavanaugh. "Normally a retailer will mix our stuff in with similar products from other suppliers. By having our own store, we can bring buyers in and show them that having all of our products together -- as we do in our store -- is an effective way to display our goods."
It's also an effective way for a manufacturer to figure out what will sell. Manufacturers, like everybody else today, talk about getting close to the customer. But Cavanaugh, 41, who used to develop shopping malls before she started Peacock Papers seven years ago, has actually done it.
"The store gives us a window through which we can figure out what works," she says. "When you're selling through reps or to store buyers, you can get removed from what is happening in the marketplace. The store allows us to stay on top of what is going on and lets us steer our customers -- the buyers -- toward products that are best-sellers."
It's one thing to tell a buyer you think a button that says, "Trust me, I'm a mother" will do well. It's quite another to back up that claim with sales results from a representative store.
And the store is representative. That's one of the keys to Cavanaugh's approach. The Peacock Papers retail store carries the same mix of merchandise and targets the same people her customers do: women aged 20 to 40. Equally important, Cavanaugh treats the store exactly as she would any of the mom-and-pop operations that account for 65% to 70% of her revenues. And there are plenty of reasons for Cavanaugh -- or anyone else -- to make the test store as similar to customers' outlets as possible.
First, of course, it allows you to test new products. Daily planning diaries might seem to be a logical product for Peacock to sell. They're not. Customers of the retail store just weren't interested, so the idea was killed before the company made a major investment in it.
Conversely, the store let Cavanaugh quickly confirm another of her ideas. She'd always thought her message buttons -- "I don't want to grow up" is typical -- would sell even better if she placed each one on a piece of cardboard and hung them from a pegboard, instead of just letting them lie in a bin. She put them on display, and sales soared.
In addition, having a store allows you to keep a closer eye on competition and spot potential areas for expansion. For example, some 20% of the merchandise in Peacock's test store comes from other companies. "We had to add items that customers would expect to find but we don't make," says Cavanaugh. "We don't have a full line of greeting cards, so we stocked some cards, along with things like pens, products that are complementary to our line." While she says there are no plans to copy non-Peacock best-sellers, carrying complementary products is an easy way to find out if customers want them.
But perhaps the most basic reason for opening a store is that it makes money. "It has to," says Cavanaugh. "For a company our size, profitability of the store is important. It has to at least hold its own."
So far it's doing much better than that. "We chose an excellent piece of real estate, where the shoppers are exactly the people we are trying to reach," says Cavanaugh. The location is so good that the test store is now one of Cavanaugh's largest customers, with about $1,000 per square foot in sales. Now in its third year, it will probably record about $600,000 in revenues this year and will be "extremely profitable."
So instead of losing money on research, Cavanaugh actually turns a profit. That's not a bad way to learn what's going on in your market.
THE TEST SITE
One way to do retail research -- and make money
Sharon P. Cavanaugh's decision to do market research by opening a retail store has a lot to recommend it. In essence, she's turned research, typically a cost center, into a money-making operation. At the same time she's figured out a way to get a better handle on what her best-sellers are likely to be. She doesn't have to wait until her sales reps or retailers tell her what's hot. She can wander down to her own store and find out.
If the idea sounds appealing, here are a few things to keep in mind:
* Location. Location. Location. The key to setting up your test store is the same as it is for any other retail operation. You must be where your potential customers are. Peacock Papers Inc.'s products are upscale and appeal primarily to women. Who shops at Faneuil Hall Marketplace? Upscale women.
* Don't just sell your own products. Here's a chance to do research on your entire market. Thinking of adding to your line? Why not take a competitor's version of your potential product and see if it sells in your store? Some 20% of the merchandise in the Peacock Papers retail store is made by somebody else.
* This isn't a factory outlet. Your store shouldn't be the place where you dump your unsold merchandise. If you want to do that, sell to a closeout specialist or open a store at the back of your factory. Your test store is supposed to be the place where you find out what merchandise -- your first-run merchandise -- sells.
* No special treatment. If you really want to know what will sell, you can't give your own store better terms or merchandise. If you do, the test results -- that is, your store's sales -- may not be representative.
* Money is good. Remember, besides trying to find out what sells, the whole idea of this exercise is to make money. Look for ways to turn inventory faster or to get more shoppers into the store. Not only will that boost your margins, but you can then pass along those ideas to your traditional customers -- the people who run "real" stores.