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Through
the years, some research studies have found that when consumers have too many
choices, that can leave them feeling frustrated or indecisive. However, a recently
published meta-analysis of 50 published and unpublished
experiments that investigated "choice overload" actually came to a
different conclusion: consumers generally respond positively to having many
choices.
Of
course, that's all well and good when people have plenty of money to spend,
businesses are seeing a steady stream of paying customers, and profitablity
is not being constantly undermined by aggressive competition, higher
financing costs, and other pressures. Under those circumstances, as CNNMoney.com reports
in "Dumped! Brand Names Fight to Stay in Stores," some
merchants are deciding that less is better.
Don't
be shocked if you can't find your favorite salad dressing or mouthwash on your
next trip to Wal-Mart.
Large
retailers -- including Wal-Mart, the world's biggest -- are wrestling with
having too many types of brand-name products. At the same time, shoppers are
buying less and looking for bargains.
So
unless a particular brand is a top seller in its category, it's getting
knocked off the shelf -- and sometimes getting replaced by a cheaper store
brand.
For
example, Wal-Mart recently removed Glad and Hefty-branded storage bags from
shelves, replacing them with its own lower-priced Great Value brand,
according to the parent companies of both products.
In the
case of Hefty, parent Pactiv Corp. (PTV) told CNNMoney.com that Wal-Mart
reversed its decision, and will return its products to shelves this spring --
after Pactiv agreed to make the Great Value bags that will sell alongside the
competing Hefty product.
"Hefty
was off Wal-Mart's shelves, but we are being brought back," said Matt
Gonring, spokesman for Pactiv Corp.
Bill
Pecoriello, CEO of market research firm ConsumerEdge Research, expects
Wal-Mart and other sellers will trim several name-brands across categories in
coming months, or negotiate deals to get better pricing.
According
to Pecoriello, those categories at greatest risk of losing brands are
everyday-type purchases such as household products, toiletries and food
staples.
These
are also categories in which retailers have aggressively pushed their own
house brands.
"If
you consider the economics of this, if Wal-Mart can build customer loyalty
for its own brand, which is also cheaper-priced and cheaper to stock than
name-brands, then it will," he said.
Heavyweight
Moves
such as this are significant given Wal-Mart's heavyweight status in the
retail industry.
"Any
change that Wal-Mart makes with its product assortment has enormous
implications for the entire industry," said Ali Dibadj, senior analyst
with Sanford C. Bernstein & Co.
Wal-Mart
declined comment for this story.
Wal-Mart
is not the only one doing this, according to Dibadj. He says leading drug
store chains, including CVS and Walgreens, grocers such as Kroger (KR, Fortune
500), and Wal-Mart's rival discounter, Target (TGT, Fortune 500), are also
looking to simplify their store shelves.
In
good economic times, product variety is a must for retailers. But in down
times, when shoppers aren't buying much, variety can be a burden.
"Wal-Mart's
a little fed up," said Lora Cecera, retail expert and partner at
strategy consulting firm Altimeter Group. "I think the feeling is that
as these companies keep extending their [product] lines, it's only causing
confusion for shoppers and not really driving them to buy more
products."
As a
consumer, she asked, "Do I really need to decide between 15 different
types of toothpaste when I go to a store?"
Dawn
Willoughby, vice president-general manager of Glad brand for the Clorox Co.
(CLX, Fortune 500), agreed.
"On
an industry level, we've been talking about simplifying product assortment
for a long time," said Willoughby. "If you walk into a Wal-Mart or
another large retail chain, there are so many products on shelves that it
does make it harder to shop."
Let's
make a deal
Besides
cutting clutter, industry experts say Wal-Mart and other retailers are
looking for more lucrative deals from suppliers on both prices and
advertising.
In one
recent example, according to published reports, Wal-Mart removed Arm &
Hammer liquid laundry detergent from most of its stores. But the discounter
brought back the product after Arm & Hammer boosted its advertising for
the product at Wal-Mart.
Arm
& Hammer parent Church & Dwight (CHD) did not return calls for
comment. Other consumer product makers -- including Colgate-Palmolive and
Procter & Gamble -- either declined comment or did not return calls.
Said
Dibadj, "Perhaps one consideration in which product to cut is based on
which company gives [Wal-Mart] the best deal."
Citing
the Hefty example, he said "these threats can become quite aggressive,
such as delisting and subsequent relisting after a compromise.
Altimeter
Group's Cecera believes consumers stand to win from the retailers' moves.
"In
this recession, consumers have certainly become less discriminating with what
they buy," said Cecera. "Consumers have rushed to value prices, and
they are buying generic brands."
She
said retailers' own brands have grown their market share by between 2% to 6%.
This
newfound affection for store brands is "sticking," said Dibadj. He
cites his firm's recent survey finding that 77% of consumers who traded down
to less expensive private label products are happy with their decision.
Michael
J. Panzner
Editor, Financialarmageddon.com
Michael J. Panzner is a 25-year
veteran of the global stock, bond, and currency markets and the author of
Financial Armageddon: Protecting Your Future from Four Impending
Catastrophes, published by Kaplan Publishing.
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