Jul 16, 2008

The Lost Lesson of Rubbermaid

Rubbermaid announced today that their "scale-driven low cost operations and discount retailer strategy" has lost steam and is finally puttering out. It's about time.

Stephanie Chen of the Wall Street Journal (7/16/08) quotes Steve Pawl, vice president of marketing for Rubbermaid as saying..."we're developing more innovative solutions that are more value-added to the consumer...".

This is a welcome strategic shift that should have been pursued decades ago, instead of the ill-fated decision to climb on the commodity bandwagon.

Let's start by turning the clock back fifteen years and hearing what Wolfgang R. Schmitt, then CEO of Rubbermaid, said about Rubbermaid's strategic distribution decision to rely increasingly on a small number of more commodity-oriented mega-retailers (in December of 1992):

..."In addition, it's typically the bigger suppliers that can form the sort of close partnerships that retailing's behemoths are increasingly demanding. The goal is to boost sales and reduce costs for both sides by slashing inventories, shortening lead times, and eliminating error: ''There is a healthy interdependence between us and people like Wal-Mart. We need them; they need us,''
And then we start to see the damage ten years later. As any student of strategy knows, exceptional volume gains at ever lower profitability is a fool's game. Here's what Jim Hopkins wrote about Rubbermaid's go-to-market decision in USA Today over four years ago (in January of 2003):

..."History has shown that suppliers suffer if they run afoul of Wal-Mart. Rubbermaid raised the prices it charged Wal-Mart in the mid-1990s because of an 80% jump in the cost of a key ingredient in its plastic containers. The retailer responded by giving more shelf space to lower-priced competitors, helping drive Rubbermaid into a 1999 merger with rival Newell, says John Mariotti, a former Rubbermaid executive. Rubbermaid earned Wal-Mart's wrath by not giving it the best deal," he says..."
So the lesson that students of consumer market growth need to focus on is the often disastrous effect that short-term go-to-market distribution decisions can have on longer-term branded product health. Don't let the seduction of big orders and plant utilization over-take reasoned strategic judgement about sustainable profitability. Don't get on a commoditization treadmill that moves inexorably in only one direction.

Winning retail go-to-market strategy serves one dominant master - end consumers. Low price, stripped down customer experience, commoditized retailing solutions may indeed win for a certain segment. History has shown, with exceptionally unique economic times aside, that the segment does not typically offer as attractive and profitable a growth path as independent national brands deserve.

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