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To what degree is your company beholden to its major customers and are there rather too few of them for comfort? In markets that have matured and been subject to consolidation, buyer power can have an enormous impact.

Starting in Newport, Arkansas in 1962, the United States’ Wal-Mart now has current sales of over $300 billion, and has enormous power over its suppliers, even though its dominance is finally leading to some significant reactions by both worker and consumer groups. In Finland, just three retailers have a combined market share of 91 per cent, and in the much bigger UK and Netherlands grocery markets, four major players now dominate, each with over 60 per cent combined share (Figures 8.3 and 8.4).

A key part of Marks & Spencer’s recovery in the UK market has been a reap-praisal of its suppliers, with devastating consequences for those who lost contracts. Lambert Howarth was until recently the most important shoe supplier to M&S, but after it lost its major contract for comfort shoes, sales fell from £46.2 million to £26.6 million, resulting in a half-year loss of £13 million

and the workforce having to be cut by 28 per cent. The company never recov-ered from this mortal blow and went into administration in October 2007.

Companies supplying to these customers, and fearful of losing valuable contracts, find themselves under pressure from every angle that a buyer’s ingenuity can conceive. They face demands for ever-lower prices, bigger listing and display fees, larger promotional contributions to joint advertising and promotions, and the requirement to purchase from the retailer’s own inventory of advertising media such as posters, customer magazines, state-ment inserts, and now in-store TV (Figure 8.5).

So the leading manufacturers’ brands across a whole range of categories have been put under enormous pressure to reduce prices and profitability by being squeezed between the ‘rock’ of de-listing and the ‘hard place’ of competi-tion from value brands and the retailer’s own brand. How can your brand escape such pressures? Are there alternative channels of distribution that could be opened up? Does the internet enable a direct relationship with end users without threatening existing buyer relationships, perhaps through a new brand? What about wholly owned retail outlets such as Nike and Apple which Porter’s Five Forces 63

United Kingdom % share 2005

Tesco 28.2%

Asda 15.7%

Sainsbury’s 14.6%

Morrisons 11.2%

Netherlands % share 2005

Albert Heijn (Ahold) 26.9%

C1000 15.6%

Super de Boer 8.9%

Aldi/Lidl 9.3%

Figure 8.3 UK % market share of supermarkets 2005

Source: AC Nielsen Homescan Total Till. Reproduced by kind permission of AC Nielsen

Figure 8.4 Netherlands % market share of supermarkets

Source: Information Resources Inc 2005. Reproduced by kind permission of Information Resources Inc

have developed so successfully? The first Niketown was a sensation when it launched in Portland, Oregon in 1990 (Figure 8.6) and its successors have continued to be hugely impressive temples to sportswear and equipment.

The architect of Apple’s retail strategy, Ron Johnson, made a key decision right at the outset. This was to eschew the idea of co-locating with the out-of-town computer ‘sheds’ and car dealers and instead establish its stores in town centres.

As Johnson said in an interview with the UK’s Daily Telegraph in 2007, ‘The stores were as much about reinvigorating the Apple brand as they were about piling stuff on shelves in a big room. They’re all in busy urban centres where there’s substantial passing trade. Steve Jobs’ view was they’ll never drive 10 miles to look at us, but they will walk 10 feet.’ Apple’s upper-floor Genius Bars, where people can get trained in using their Apple equipment, are part of a fundamental shift in the role of retail outlets in the online era. As Johnson points out:

Over half the space in London’s Regent Street store is given over to people who have already bought Apple products. We want to make sure that they have such a great experience of owning them that they will stay with us for a lifetime and become promoters to their friends. It’s basically another way Apple can increase its market share – not just with the products and software, but with the owner-ship experience. The front line of that is our store.

Figure 8.5 Tesco’s in-store TV

Reproduced by kind permission of Tesco

Apple has innovated throughout its retail design: its award-winning glass stair-case by structural engineer James O’Callaghan makes the upper floor much more inviting without the need to install a bulky escalator (Figure 8.7).

In both these cases and others like them, the brand is able to create the ideal environment in which to stock Apple merchandise. So not only is it displayed to best advantage, but it is also presented through the total retail experience in the context of the brand idea. Abercrombie & Fitch, the famous US clothing brand, took this to a new level when it opened its first-ever store outside North America in London, and garnered acres of media coverage with an aspirational line-up of beautiful staff who were all (or certainly looked like) actors or models.