Shelf Space cost…what is it and what’s its purpose?
Hello and welcome Retail CEO! Recently, I saw a video on @webuyblack Instagram’s account about the black-owned sunscreen brand Black Girl Sunscreen. This video was about the placement of Black Girl Sunscreen’s products that were positioned behind the pillar in a certain retailer. It was portrayed as “unacceptable” positioning and the comment section was full of agreement!
For people who don’t know how shelf space cost works in retail stores, this may come off as product discrimination. However, let me talk to you from the perspective of a 15+ yr. Corporate Retail Buyer because there may be more to this story that meets the eye.
LONG STORY SHORT, you have to fight for your spot in retail stores. When you walk into stores and see products in a certain section or space of the store, there’s a reason. If you want to learn how shelf space costs work, keep reading!
What is Shelf Space Cost?
Shelf space cost, or slotting fee, is the amount a supplier would pay a retailer to have its products featured on their shelves. This fee also includes the cost to enter product data in the retailer’s inventory system and to program it’s POS systems to recognize the product’s SKU number.
Slotting fees do not include fees associated with
- promotions (think of seasonal displays or aisle end promotions)
- failure fees
Each of these are separate costs that can be incurred by a vendor as a result of being granted retail shelf space.
Shelf space cost is also a one time charge and can vary based on
- the product
- CPG (consumer packaged goods) category
- or how many locations (of that specific retailer) will shelve that product.
A shelf space cost ensures vendors that they will be able to stock a new product until there is a sales performance established. Sales performance metrics usually are generated within four to six months.
Why do vendors even have to pay for shelf space positions?
So why does shelf space costs even exist? Doesn’t seem fair right? Well, depends on the way you look at it. It’s fact that many vendors hate the practice of paying shelf space costs or, paying at all. Most vendors claim these fees makes it harder for them to establish themselves as an emerging brand. It certainly doesn’t help that retailers sometimes earn more profit from vendors paying shelf space costs than the actual sales of the vendor’s products.
Now let’s take on the perspective of the retailer because these type of costs are necessary to them.
First, did you know that about 80 to 90% of products placed in stores fail?
So, retailers have to think about the financial risk they are taking by placing vendor’s products in their stores. Especially untested and emerging products! This is why shelf space costs have increased so that these retailers can protect themselves against sale losses.
Now let’s say your product doesn’t meet that financial performance requirement then, you don’t get premium placement. Simple as that. Now, I’m not saying this was the case for Black Girl Sunscreen but, retail buyers are responsible for thousands of products across thousands of vendors.
They manage and are responsible for the entire P & L (profit and loss) of several categories. Just understand that every single detail of a SKU is being analyzed to make sure these products benefit them.
So with the argument of the Black Girl Sunscreen products and their shelf placement behind the pillar;
- Maybe they didn’t have the budget?
- Is it because that slotting fees in specific retailers are so expensive that even having a space on the shelves is better than no exposure?
- Was it the exact spot of interest? Who knows?!
However, you can’t jump to the conclusion of product discrimination without knowing their agreement with the retailer. Today, space shelf costs remain an unpopular topic for most vendors. Unfortunately, shelf space costs are widely accepted to which vendors just must learn to adapt.
Is there a better option for brand awareness other than looking into shelf space costs at retailers?
Obviously, no brand wants to be behind a pillar but from a merchandising standpoint it doesn’t make sense for them to have only 1-2 SKUs in the front of an aisle because it doesn’t tell a full story.
A suggestion for the brand would be to get a corrugated display, or floor stack, to be placed in the main aisles, near checkout, and front end caps during peak season. The reason for this is to increase their product’s visibility.
Increased brand visibility and established products that tell a full story, in some cases, can waive the slotting fees entirely. For example, natural products might find a market at low-demand specialty stores, creating a sales story that reduces risk.
Some brands can also develop visibility through e-commerce marketing or social media channels that don’t require slotting fees. If customers reach a critical mass through non-CPG channels, the product will be far more valuable to retailers.
Did you learn something new?
In conclusion Retail CEO, everything is not “shots fired” at black businesses. It’s a simple matter of policies & procedures. Some things really are just the cost of doing business in big box retailers. As a formally educated corporate retail buyer, stylist, educator and boutique owner, I’ve had experience when working with shelf space cost and I had to share my two cents. I hope you learned something new!
Now, getting into your favorite retailer as a boutique brand owner is a bit different and if you want to get into major retail, you need to get inside the mind of a buyer.
Luckily for you, I’ve got that retail experience you need — 15 years of it. Better yet? I’m going to share some of my secrets with you in my Before The Shelf Masterclass. In this masterclass, you will learn all the steps you need to take before attempting going into retail and more!