Last week I read that Walmart and Costco were the two largest retailers in the USA.  Can’t say that I am surprised.  I had the privilege of selling to both companies when I worked for manufacturing companies and have studied both for many years.

Both companies are very successful because they do many things well, but both have also been pioneers in a couple of “Big Ideas” that they implemented while their competitors were asleep. I admit that I am a customer and a fan of both companies and frequently take “field trips” to see what new things I can learn and apply at Braxton-Bragg.

The following “Big Ideas” certainly apply to us as a stone tools retailer, but you may find application for these ideas in your business as well.

Walmart:  Two really big ideas were to eliminate middlemen and to use information technology to understand customer behavior.

When Walmart was started most retailers bought goods for resale from importers, distributors or wholesalers. Sam Walton went to manufacturers and gave them the opportunity to sell directly to him at a wholesale price; in return he purchased large quantities. He also eliminated much of the complex promotional money that wholesalers extracted from manufacturers.  He wrung out the waste of excess transportation costs and extra layers of margin created by middlemen.  

The second innovation was the use of information technology to determine what customers wanted. Prior to Walmart, retail buyers relied on sales pitches, anecdotal information, personal preference, and advertisements to figure out what products to offer. Walmart pioneered using real data and testing to determine what people really wanted, not what the pundits, salesmen, and “experts” thought they should want.  

Costco: Two big ideas of Costco were the “Quality Off-Set,” and Simplification.  

“Quality Off-Set” is a fancy term that is meant to explain that Costco wants to sell higher quality product at the same or lower prices than their competitors.  They typically go to manufacturers and either require that the branded product be offered at a lower price packaged in higher quantities, or that the manufacturer makes a higher quality product that they can label as a Kirkland brand and sell for the same price. The big idea is that most manufacturers really don’t know much about marketing, so why not take the marketing spend and use it to increase the quality of the product? The consumer wins. Kirkland as a brand is simply the name of a town in Washington State. Costco did not use an army of management consultants to come up with the name. Costco buyers are really focused on providing their customers the best value for their money.

The other big idea is simplification.  Costco has two grades of gasoline instead of three. Three grades of gasoline is a meaningless differentiation thought up by some marketing person. The typical Costco has less than 20% of the number of items as your neighborhood grocery store, yet generates many times more in sales. Inventory turns are a religious experience at Costco (contemplating them gives one a sense of awe). Costco has packaging and handling specifications, which eliminate huge amounts of labor and compliance is not optional.  These guys are really, really focused.

So how do these lessons from the worlds most successful retailers apply to the stone industry?  Write me at publisher@slipperyrockgazette.net and let me know if any of these ideas are driving your business. Also, let me know if I can share your ideas in future editions of the Slippery Rock Gazette. 

Have a good read.

– Rich Hassert