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by txcwpalpha 2053 days ago

>No they don't. Stores buy their stock. They can choose to stock other brands or to make their own products, but they invariably have to purchase what they sell.

This is incorrect. I wish people would stop repeating this in this thread. Some stores purchase their stock. But the really big players do not operate like that.

When you go into Target and go to the cracker aisle, Target has not actually purchased all of the cookies and crackers that you see on the shelf. Target effectively rents out shelf space to Nabisco, who then comes in and puts their items on the shelf (or will pay Target to take the product and put it on the shelf for them). The pricing agreement can get quite complicated and depends on the amount of shelf space, location in the store, and can also depend on number of items eventually sold... but the takeaway is that Target does not just outright buy boxes of Oreos and then try to resell them. If the Oreos don't sell (say perhaps because the customers opted to buy the Target brand sandwich cookies instead), Target isn't out any money, because they still got their shelf rental fees from Nabisco.

Going even further, Target also engages in the same type of activity Amazon does with their analytics (including sales volume, margins, customer profiles etc) and use that information to decide who gets to rent how much shelf space and where. Target et al spend incredible amounts of money optimizing this stuff, which isn't far off from what Amazon does.

People have this old rusty view of brick & mortar stores, but the reality is that they've been masters of this stuff far longer than Amazon has even been around. Amazon championed bringing these practices to the online space and became the most obvious juggernaut, but that doesn't mean these other companies are angels.

2 comments

gamblor956 2053 days ago

I used to have customers in both retail and on the supplier side. What you have deacribed is not at all how Target operates.

You've inverted the dependency of the relationship. People don't buy Nabisco because it's at Target; they go to Target because it has Nabisco products, hopefully for cheaper than other stores.

Thus, stores absolutely pay for every item of inventory that appears on their shelves except for some new products that might have special consignment arrangements.

Suppliers do not pay for better shelf placement. Stores determine that based on sell through and margin; the products that generate the best overall revenue get the best placement on the shelves.

Suppliers will pay for in store marketing, like displays, etc. This is usually a separate term for which no money changes hands or which offsets part of the invoice. They may also pay stores for analytics, but most stores provide that for free since it is in their interests to have better selling products.

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txcwpalpha 2053 days ago

>You've inverted the dependency of the relationship. People don't buy Nabisco because it's at Target; they go to Target because it has Nabisco products, hopefully for cheaper than other stores.

This is true for smaller stores (eg the mom-and-pop corner store or even large stores), but once retailers get to the super-large sizes, eg Target/Walmart, the relationship flips. People go to Target first and buy Nabisco because its at Target. If Nabisco wasn't there, they buy something else, but they don't stop shopping at Target.

>Thus, stores absolutely pay for every item of inventory that appears on their shelves except for some new products that might have special consignment arrangements.

>Suppliers do not pay for better shelf placement. Stores determine that based on sell through and margin; the products that generate the best overall revenue get the best placement on the shelves.

This is 100% incorrect. As I mentioned in my previous comment, some stores may operate like this, but not all. I can tell you from personal expertise in this space, but also just from a simple Google search about how retailers operate (do a search for the terms: slotting allowance, shelf-space rental, pay-to-stay, pay-to-display). See below for some links to get you started. Big retailers do not own all of the products on its shelves, and they certainly do make arrangements where manufacturers can pay extra fees to get preferential endcap placement, shelf placement, and shelf space. I have even seen agreements where a manufacturer will literally own (rather than rent) a specific shelf in an important store and can do whatever they want with it, as long as they pay recurrent fees (it reminds me of someone owning a condo in a building and paying HOA fees).

Big retailers may of course choose to not sell a certain shelf placement to a specific product because they want to reserve it for another purpose (like another competing product), but as a general rule of the thumb, if you're willing to pay enough, you can have whatever shelf spot you want.

Big retailers will also charge fees to manufacturers for the transportation and storage of the product for when the product is being stored in the retailer's warehouses or being moved by the retailer's trucks (sound familiar to what Amazon does?). The reason they can do this is because the retailer doesn't own the product, the manufacturer still does. The retailer profits by facilitating the sale of the product.

In some situations, big retailers may indeed purchase a block of products, but in every scenario I have personal experience with, the agreement was always one in which the manufacturer was obligated to buy back any product which did not successfully sell in the store, which ultimately has the same effect as just renting shelf space.