Aus,
re: "as a retailer would one risk relying more heavily on one leading supplier or play the field ready to switch to the low cost producer at the drop of a hat?"
Depends. I may be wrong, but I think that SanDisk is the primary vendor, for what that is worth. Back up a year, and it looked like there was going to be a shortage of CF, so I imagine a good buyer would decide to establish business relationships with as many vendors as they could. From the retailers perspective, low cost producer isn't an issue, low cost seller is the issue.
The problem with retail buyers is the same with many positions, they have suffered from increased workloads, they are incredibly busy. So there is a momentum factor, once a planogram is established, it's pretty hard to change. SanDisk could, and probably has, come to the Best Buys, and said we can be your exclusive supplier, and maybe give you a price cut to get that honor. The problem is, the buyers have fifteen categories that are not performing, and flash might not be a priority. So they look at things, and sure it could save them a few bucks, but in order to make the change you have to add or delete 30 sku numbers, get the merchadising department to change the planogram, coordinate with the advertising department, in some cases get approval from an executive committee, figure out what to do with the discontinued merchandise, get the changes implemented throughout 500 locations, build a new sales history through IT, get the warehouses on board, change the vendor agreements to reflect the new terms, contact the discontinued vendors to let them know they are out of luck, on and on. And these folks do not have a lot of spare time, they are working 60 hour weeks. The old program has momentum.
All that said, there is a LOT of value if you can have a single supplier in a category. Every supplier on the books cost a retailer X thousands of dollars every year, plus the time involved in reviewing programs and vendor agreements every quarter or every year. Every buyer would prefer to have a single supplier, review the category once a year by inviting in the competition, beat up your current supplier for a better price and advertising budget, and then keep the same program.
But my wild ass guess is that from a buyers perspective, this category is too new, the suppliers, even SanDisk unproven, and they don't want to get stuck with an out of stock situation. It takes years to build credibility, especially in a category that was threatened with shortages. And you have the momentum factor.
re: "John, do you think the established base of retailers...
...adds to the enterprise value of SanDisk?"
Yes. My guess is that SanDisk is number 1 in retail. And as the category evolves, and some of the smaller players screw up, SanDisk should gain retail real estate, and eventually have exclusives. If they are smart. And they can eventually raise retail gross margins, if they are smart.
And I agree that memory stick would be a good addition to their line, especially if they could undercut, even artificially, Sony's price.
John |
