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January 25, 2005

Excerpts: Category Killers - Category Management

By: 800-CEO-READ @ 4:00 PM – Filed under: Management & Workplace Culture

For the past couple of years, the term category management has entered the retail lexicon in virtually every merchandise category. Category management began in the supermarket business, where big retailers of packaged goods learned that they could improve sales and profits if they could more efficiently administer all their different product classifications. The idea was to oversee the store not as aggregation of products, but rather as an amalgam of categories, with each category unique it how it is priced and how it is expected to perform over time.
One vendor is designated as category captain and charged with helping the retailer define the category; determine its place within the store; evaluate its performance by setting goals; identify the target consumer; divine the best way to merchandise, stock, and display the category; and then influence the implementation of the plan. Becoming a captain is obviously an important position because it offers that supplier an opportunity to sway a retailers buying decisions.
Sure, you say, category management would work with pet food or shaving cream or lawn furniture, but certainly not books. Gregory Josefowicz, the chairman and chief executive officer of the Borders Group, the parent company of Borders Books & Music, begs to differ with you. As a teenager in the 1980s, Josefowicz started his career in the supermarket business as a grocery bagger at what eventually became the Jewel-Osco Division of the Albertsons chain of food-and-drug stores. Thats where he absorbed the lessons of category management. Twenty-two years later, he became president of Jewel-Osco before resigning in 1999 to join Borders.
In 2002, Josefowicz brought category management to Borders. Publishers were selected to co-manage some 250 categories in their special areacookbooks, business, childrens, computer, how-to, sports, etc.to identify the titles that the store would stock, how many of those titles would be in each store; even how they would be displayed, grouped together, placed in the store, allocated space, and so on. Category managers pay about $110,000 annually to help defray the initial costs of marketing research associated with the program.
Whats in it for publishers? A seat at the table at which the major decisions are being made. While category managers cant pick all of their titles, they have the opportunity to shape a department. Borders insists that it has the final say over the titles it carries and that all publishers will share the benefits of the market research.
As you can imagine, this approach did not sit well with some members of the literary community. In the summer of 2002, Ralph Nader, Noam Chomsky, and twenty-six other prominent authors, signed a letter to Josefowicz, arguing that category management would hurt small publishers and narrow the stores selection. There is a difference between books and Pop-Tarts, the letter warned. Leave the category management to the soap merchants.
But the defenders and stakeholders of category killers and other big-box retailers will tell you that they must closely manage their costs and their prices by whatever means necessary. As consumer products continue to become low-priced commodities, as savvy consumers easily comparison-shop prices on the Internet, and as profit margins become thinner, only the smartest retailers, employing the best systems and technologies, will be able to survive. Everyone along the line pays for the costs of everyday low prices.
Reprinted by permission of Harvard Business School Press. Excerpt from Category Killers: The Retail Revolution and its Impact on Consumer Culture by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.