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Marketing: Selling the Superstores

A 15-week, nationwide campaign is followed to learn how to get shelf space at the country's hottest retail chains.

The giant chains are the hottest channel in retail, and they can take even tiny consumer-product makers national overnight. But getting onto their shelves isn't easy, and staying there is harder still. How do you do it? Here's an inside look at one company's 15-week campaign

Las Vegas, January 7 -- It's Saturday, the second day of the Consumer Electronics Show. In the wake of an unpredictable holiday season, John Koss Jr., sales vice-president of Koss Corp., is receiving mixed signals from the major retail buyers here. Home entertainment has been white-hot for the big stores, but lately sales of some Koss audio products have turned cold.

Koss is anxious as he enters a cramped exhibit room for a 5:15 meeting with Target, a $13-billion chain of more than 600 stores. This is one of his biggest mass-merchant accounts, carrying 10 stock-keeping units (SKUs), or models, worth $2 million.

The tension is palpable. Teri Kohler is an influential buyer who has championed Koss headphones back at Target's Minneapolis headquarters, but you'd never know that at this meeting. She smiles rarely and squelches small talk. Koss, for his part, keeps his arms crossed. He'll admit afterward, "I'm still not as comfortable with her as I'd like."

Koss knows that Koss Corp.'s revenues and margins are down, owing in part to disappointing sales to some large retailers. So Kohler's receptiveness is crucial. Will she go for the new products displayed in the Koss booth? Will she at least keep the current Koss mix? Will she continue to force Koss's prices down?

Koss listens closely for clues. If the Koss line fared well over the holidays, he'll survive the downturn and come back strong in 1995. And if not, well, he's in trouble.

Koss Corp.'s five largest customers, including Target, kick in about 40% of annual sales. A powerful group of megaretailers -- comprising electronics superstores, discount department stores, and catalog showrooms -- accounts for well over 75% of Koss Corp.'s revenues.

Koss will meet with many of those accounts at the Consumer Electronics Show (known as CES), the inauguration of the year's whirlwind sales campaign. By April the buyers will have locked in their choices and completed their storewide "planagrams," the master merchandising diagrams that top retailers use to maintain chainwide consistency.

Koss's success at CES will affect Koss Corp.'s sales, brand visibility, and efficiencies on the factory floor -- not to mention the company's ability to retain quality sales reps, fund product development, and keep its bankers happy.

* * *

Koss Corp., a second-generation family business, had for many years concentrated its sales efforts on independent hi-fi stores. But when, eight years ago, the company emerged from Chapter 11, it set off with a distribution blueprint that focused on the biggest mass merchants.

The move was a calculated gamble. The Koss brothers, sales vice-president John, 38, and chief executive Michael, 41, mapped out the strategy together. Oh, they had to deal with objections from Dad (John Koss Sr., inventor of stereo headphones) and with the exacting demands of the so-called power retailers, but the brothers have not regretted their decision. "It puts our 'phones on more people's heads," says Michael.

Koss Corp. is profitable, has plenty of cash, and recently surpassed $35 million in annual sales, up from $26 million two years ago. Thanks in part to accounts like Wal-Mart and Target, each worth an easy million or two, "The Chapter" -- as employees refer to that period in bankruptcy court -- is ancient history.

"I cannot imagine starting fresh without these accounts," says John Koss. "If you don't get a Wal-Mart or a Kmart, you have to go regional."

* * *

Valley of the Giants
They don't call 'em power retailers for nothing.

Today mass merchandisers book about 40% of all U.S. retail sales, and none of them cast a longer shadow than the discount retailers. By popular estimates, the top discounters -- chains with 50 stores or more -- book 11% to 13% of all retail sales (second only to supermarkets) even though they account for less than 3% of all retail establishments. Discount-store sales have grown two to three times faster than the retail industry as a whole.

Discount retailers define themselves by just one rule: Bigger is better. The average store covers more than 86,000 square feet. And Wal-Mart, with some of the biggest stores, is in every state but Vermont, has more than 2,100 stores, and rang up $83 billion in 1994 sales. Having conquered many of America's small towns, Sam Walton's creation is now moving into the big cities -- along with Target, Kmart, and such specialty stores, or "category killers," as Office Depot, Toys 'R' Us, and Home Depot. Winning shelf space from any of those giants is cause for celebration. Business with the chains, easily worth hundreds of thousands of dollars to several million dollars in sales, can take you national overnight.

But it's not the potentially huge sales alone that make the power retailers so attractive. As Koss points out, their numerous outlets "are the best product advertising. People can see your product and try it." Koss Corp. is betting that customers who have its low-end headphones will trade up during a visit to, say, Tower Records, where music lovers check out Koss headphones at the listening stations. Couple that experience with Koss's guarantee, and chances are, Koss wins customers for life. And it all begins at . . . Wal-Mart or Sears or Target.

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