Differentiation is ever-more vital to success
Having unique, exclusive products that differentiates a retailer from its rivals will be the most powerful way to achieve success in the future and will likely result in a reduction in the number of brands owned by manufacturers.
By Glynn Davis in Berlin
Speaking at the World Retail Congress in Berlin this week Anders Dahlvig, non-executive director of H&M and Kingfisher and former chief executive of Ikea, told delegates: “Differentiation is the key to success. Retailers often have to succeed on only thin margins or better store locations [from selling branded goods] whereas substantial success can only be achieved with unique products and having control over the supply chain.”
This was the path taken by Ikea that differentiated itself by creating its own contemporary brand and exclusively designed products. This enabled the company to directly link product development with the sales channel, which is often missing with many retailers as they are pitted against brand owners.
As more merchants seek to develop their own, private brands/labels Dahlvig predicts: “We’ll see a reduction in the number of low and mid-price brands owned by the FMCG companies.”
He also highlighted the importance of price, suggesting Ikea was “obsessed with low prices that were at least 20 per cent below those of comparable products”. Unlike many other retailers he said the drive to reduce costs and prices was a result of its focus on top-line revenues rather than improving gross margins.
“It’s a very different model to other retailers who typically reduce their buying costs and charge premium prices in order to increase the returns for their shareholders,” said Dahlvig.
Such a strategy was made possible as a result of the ownership being in the hands of the founder who took a long-term view and was not driven by short term profitability demands.
He suggested this type of ownership also makes it more possible for businesses to take a strong stance on sustainability – while also still delivering strong profits. Alongside Ikea, he suggested both H&M and Inditex were firmly in this camp.
