What Is Your Retail Leverage Factor?
What in the world is a RLF Rating?
We now have over 40 articles here at RetailLeverage.com detailing many examples on vendors utilizing retailers successfully to achieve their own ends. Because the amount of retail leverage a particular company holds is a highly subjective matter of discussion, the experts at RetailLeverage.com are introducing a way to measure this “power” in terms of a 1-10 rating scale, which we call a Retail Leverage Factor, or “RLF” rating for short.
Is Your Retail Leverage Factor A Fear Factor?
A RLF-10 rating represents the highest amount of retail leverage possible that a particular vendor may possess vis-à-vis the largest retailers. In these rare cases, retailer make very little if any margin but must feature aggressively in order to steer the strong consumer foot traffic through their doors. Conversely, a RLF-1 rating is indicative of a company with little to no leverage to conduct business at main-stream, big box retail. You will not find these products at retail and they have no consumer pull whatsoever, barely making them exist at all but for perhaps some tax shelter benefits.
Some ratings may be obvious, others may surprise you. This is because there are many factors being considered when generating a retailer’s RLF score. Let’s take a look at some of these factors.
Here Are The 5 Components Of The Retail Leverage Factor:
- Overall Size of Business of Vendor to Retailer: Obviously, when a company does hundreds of millions of annual dollars of business or more with a particular retailer, the vendor and retailer often feel the necessity to work collaboratively together to hold those significant dollars “in situ”. However, sheer size of business is not enough to generate a perfect “10” score since sometimes large companies can fall asleep at the wheel and let new upstarts quickly become retailer darlings and get the premium features in ad and on the floor over the big guys.
- Growth Categories of Participation with the Retailer: The higher the growth curve of the category, the more interested a retailer becomes in giving those vendors what they want. Consumers are asking store associates for the product and are pulling this product through retail shelves and off retail endcaps without much selling effort on behalf of the retailer. Consequently, retailers want to feature these categories aggressively so that they can establish themselves as a category destination.
- Innovation Level of Company: Certain companies consistently bring new innovations to market helping participating retailers capture new, incremental sales early and at the highest retail price points. Beyond the direct revenue and margin benefits of showcasing new products, offering new innovations also helps solidify the image of said retailer as a destination for the uber-new, hot items.
- Margin Dollars and Rate Given to Retailer: When growth, innovation or sheer vendor size is not in a particular manufacturer’s favor, often margin dollars can compensate for this and work to garner attention and support by the retailer for rather obvious reasons. Throwing money at a retailer in various forms can produce results in the short run if spent correctly. Quality defects or dismal results however will usually trump margin dollars every time.
- Consignment or Other Retailer-Incented Sell Through Incentives: Similar to #4 above, providing other go-to-market financial incentives such as consignment can effectively add to a retailer’s bottom line and go a long way to compensate for lack of substance in topics discussed in numbers 1-4 above.
Stay tuned to RetailLeveragec.om as we rate some of your favorite companies and assign them their first RLF score.
UNDERSTANDING THE SCALE RATINGS
As with any scale, the meaning of the rating is best interpreted when one understands the what the boundaries of the scale really mean. Therefore, the retail leverage consultants have unanimously assigned Apple with a “RLF-10” rating. Retailers make very little selling Apple products vis-à-vis other manufacturers. But the foot traffic and thus the opportunity for other market-basket filling items (i.e. high margin accessories) that featuring Apple can generate is quite considerable. Retailers sit by the phone and just hope they will receive allocations commensurate with their forecasted demand on the latest Apple widget. If Apple even has “sales persons” employed , they must be fully trained in the art of telling retailers “no” in hundreds of creative ways. That is, Apple decides when and how high to turn the retailer faucet among its vast array of innovative products.
Since a “RLF-1” rating means a company is completely irrelevant to retail, it is not necessary to name an example. By definition, it would be an oxymoron to even be able to do so. We will not spend much if any time on companies with a score of RLF-1 since you most likely would not be able to find them at retail anyway.
Here are a few examples of our RLF scores for various manufacturers.
- HP: RLF-8
- Samsung: RLF-8
- Vizio: RLF-6
- Panasonic: RLF-6
- Brother: RLF-5
We’re trying to quantify the intangibles that we’ve all recognized when it comes to competing with other brands. We haven’t patented the algorithm yet but we think we’ve got a unique angle that can help provide reference within categories and among vendors at a retailer. If you are interested in obtaining an RLF rating for your company, please reach out to us.