Friday 27 October 2017
At present, it seems like all retail eyes are focused on the online world, however physical retail also continues to develop. The market was turned upside down by the so-called ‘category killers’: retailers who focus entirely on one product group, such as electronics. Through specialisation and economies of scale, they can combine an extremely deep range with low prices. The common wisdom was: you can’t compete with a category killer. Until now, because there is an answer to the category killer: the ‘non-food king’.
MediaMarkt in Europe and Best Buy in the United States are known category killers who managed to capture a huge market share in recent years. Ikea, Staples and the Home Depot also make life miserable for other retailers. They offer consumers an extremely deep range: all electronics, office supplies, homewares or construction materials under one roof, at prices that smaller independent retailers cannot possibly offer.
Meanwhile, almost every product group has its own category killer. The roles appear to be distributed, yet there are always assertive newcomers looking for new ways to conquer the market. In this case, the challengers do not choose a specialisation, but rather, they focus on an extremely wide range - a completely different business model. The newcomers combine the purchasing power and economies of scale of the category killer, with the variety of the traditional retail sector. We call these new idiosyncratic retailers the ‘non-food kings’.
Action and Flying Tiger
The absolute non-food king in Western Europe is Action, a Dutch concept that tripled its turnover in the last five years to an impressive two billion in 2015. Each year, the number of stores increases by almost 30%. Unlike category killers, Action stores are located at B or C locations, but customers manage to find them easily. Action offers a wide and extremely inexpensive assortment of non-food items, from detergent to picture frames, from brushes to baby clothes. And both the fixed range and the surprising seasonal range change extremely quickly.
Scandinavian brand Flying Tiger is also transforming the non-food market. Besides offering a broad, shallow assortment, this concept also plays heavily on the ‘gift’ nature of the products, which all carry the distinctive Flying Tiger stamp. The round prices give consumers the extra feeling that they are bargain hunting. Flying Tiger stores can be found at A-locations.
The key to success
What makes these non-food kings such a huge success?
The non-food kings use the strategy of changing assortments on non-food - the same approach that made fashion chains like H&M, Zara and Primark huge. In addition to a limited number of permanent items, they generate traffic with an assortment that changes extremely quickly. Action, for example, offers new products once a week. Non-food kings thereby seduce customers into visiting the store regularly, looking for the latest offers.
Traditional retailers base their prices on a product’s market value. They look at suppliers’ prices and adapt accordingly. Non-food kings don’t do that, instead they employ the cost-plus model. In this model, the cost of production, storage and logistics determine the price, with some product prices dropping dramatically as a result. Flying Tiger currently sells a robot with remote for fifthy euros, but also nail clippers for one euro. Action’s most expensive product is a garden chair set for 159 euros, its cheapest: an eraser for 19 cents. The result is products with which customers previously encountered a price barrier are suddenly selling like hotcakes at non-food kings.
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