030 - u.s. merchants club industry, as it has enabled the clubs to merchandise products more ......

U.S. Merchants 2009 WAREHOUSE CLUB INDUSTRY GUIDE

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U.S. Merchants Contract packagers are an integral part of the warehouse club industry. The contract packager’s experience and equipment allows manufacturers to efficiently and cost-effectively meet club packaging requirements. This chapter focuses on one contract packaging company, U.S. Merchants / Diversified Re-Packaging (USM). Jeff Green, founder and president of USM, has been in the club business since 1983. The insight and knowledge that Green has developed over the years, specifically in the warehouse club industry, is important for any manufacturer looking to do business with BJ’s, Costco and Sam’s Club.

Company Background In 1983, Green began supplying shoes, apparel and ladies’ handbags to one of the major warehouse clubs. Over the years, Green learned the club business from the executives and buyers with whom he dealt with every day. By gaining a complete understanding of club buyer needs, Green built a business that has become a virtual extension of the clubs (see picture below of Bushnell binoculars packaged by USM). Providing the right products and services enabled Green to build strong relationships with club buyers and executives. They relied upon Green not only for his packaging services, but also for advice about almost every aspect of club packaging and distribution. Green said, “As a company, we offer a turnkey solution. We do everything from package and graphic design to tooling and distribution. We really look at ourselves as an expert in the industry because our business has always been driven from the club side. We understand what the club buyer is looking for because working with club buyers is how we began. Additionally, we approach every project as a partner in helping vendors make the right decisions so their product is presented in the best possible light to the buyer and the member. Our competitors, in many cases, will farm out development components like printing, tooling or thermoforming. We don’t do that. When a vendor comes to USM, they know we will control all aspects of the packaging project.”

GreenPack TM – Bushnell Binoculars

As the industry grew and new buyers replaced those with whom he initially did business, Green also became a resource for those new buyers to learn about the club business. Green believes that the relationships he has built, and which he constantly works to maintain and improve, are his most valuable asset.

Today, USM’s (www.u-s-merchants.com) 1,500 employees operate out of a corporate office located in Beverly Hills, California and five packaging and distribution facilities. Each facility has a wide-range of packaging service capabilities, from thermoforming to packaging assembly. The benefit is the ability for manufacturers to lower delivery costs of final assembled merchandise by taking advantage of region specific facility locations. The majority of USM’s current business is in the apparel, health and beauty aids, cosmetics, eye wear, electronics, cameras, hardware, toys, pharmacy, videos, sporting goods, automotive, sundries, office supplies, jewelry, and computer accessories categories. However, according to Green, USM is equipped to handle the packaging, warehousing and distribution of virtually any food or non-food product.

Business Philosophy Green’s business philosophy is focused on the needs of his three main stakeholders, manufacturers, warehouse clubs and warehouse club members. Green said, “We treat your product as though it were our own. From the moment we receive your merchandise, to the moment it ships, we track your product with care and accuracy.” Jeff Green Standard – USM packages products right the first time and does it to the highest possible standard. Green has developed an in-house philosophy called the “Jeff Green Standard.” The components of his philosophy are:

1. Package an item correctly the first time. It is less costly than having to correct a problem later. 2. Package an item so that it is appropriate and of the highest standard. 3. Use colorful artwork and eye-catching designs (see Turtle Wax picture on the next page). 4. Engineer the package for the best stability, security and support. 5. Adapt business operations to meet the needs of the clubs and manufacturers. 6. Treat the manufacturers and clubs with honesty and integrity. 7. Serve as a conduit between the manufacturer and the club.



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Buyers accustomed to USM’s high standards and customer-oriented approach have recognized and learned to trust Green in developing products and packaging to meet their special needs. These buyers recognize that they can turn their talents and energies to other challenges because they need not be as involved in the packaging process. Because buyers give Green leeway to respond to and address situations when they arise, whether or not they are emergencies, USM is able to respond very quickly and directly. This enables USM and its customers to quickly get products to the marketplace, which is a key competitive advantage.

Pallet Program Philosophy

USM – Turtle Wax Ice USM developed the patented Pallet Program concept that has been so successful in the club industry. Green refers to the process as a “package system.” In its simplest terms, the Pallet Program can be defined as a massive product presentation on a pallet (see pallet display pictures below of a Bolle polarized glasses and a Motorola bluetooth headset).

Bolle Glasses and Motorola Bluetooth

The system includes the product/package, display cases, slip sheets, corner posts, pallet tops, shrink-wrap and GMA #1 hardwood pallets. The result of the package system is that the integrity of the product remains intact from USM’s warehouse to the club locations. Green's package system allows a product to be merchandised in the club on a pallet by simply removing some exterior packaging materials. Green has received a number of patents on his Pallet Program system. The patents serve to protect USM’s investment in the Pallet Program system, which it developed and which has become an industry standard. USM's Pallet Program system has been a significant factor in the continued growth of the warehouse club industry, as it has enabled the clubs to merchandise products more effectively with less handling costs and greater safety. Pallet Program products can be sold in a warehouse club environment without sales help. Green believes in matching the needs of the product with the pallet components to achieve distribution and merchandising integrity and efficiencies. Although he believes in producing a top-quality package, he will not spend more than is necessary to achieve an attractive and appropriate package. Unlike most packaging companies, USM assists its customers by suggesting and developing effective merchandising strategies for the club environment. By helping its customers avoid merchandising mistakes, USM adds an element of service that goes above and beyond that offered by its competitors.

Package Development USM has the advantage of being a vertically integrated packaging and distribution company. Although USM must rely on others to supply raw materials, all the work necessary to produce and deliver a package is done in-house. As a manufacturer of display cases, molds, blisters, insert cards and other necessary items, USM insulates its customers from the reliability problems of a multi-company supply chain. This also allows USM to cut costs and pass through the savings to its customers. Doug Farrell, director of sales at USM, commented on USM’s packaging development approach. Farrell said, “The client will ship us their product and we’ll start advising them on different package layout and design strategy options. We’ll take pictures of the product and place it against our different package sizes so the vendor can get a feel for the amount of room available for graphics. Once we get approval, it is just a matter of doing the CAD design work and thermoform programming. We’ll then create a sample and send it to the vendor and once that is approved, we move into production. Our project coordinators are the main point of contact for the vendor and the client’s window as to what is happening with their product. Historically, the whole process, from development to production can take three to four weeks.” Package Sizing – The first critical step in package development is identifying the packaging “footprint”. USM simplifies this process for customers by providing several standard packaging sizes ideally suited for the pallet display requirements of club operators. These many sizes provide an untold geometric flexibility in terms of form, fit, and function and allow for targeted pallet inventory investment analysis on the part of buyers. With the many options, buyers are better able to maximize pallet inventory while minimizing packaging budgets. For example, an oversize package might be desirable for a small electronics item even though the package may not be “right sized”. This strategy allows for a full pallet presentation but reduces the merchandise investment. This is a critical first step in package development and sets the tone for program success.



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Price Point – Green commented on how an item’s retail price point can affect the final package and SKU composition. Green said, “Our viewpoint, as well as the club’s, is to pass on as little packaging cost to the member as possible. There are times, when you are looking at a $10 retail price for an item and a $3 package cost that it makes sense to increase the package size to reduce the overall cost of the package or include extras like batteries, where needed, to offset the some of the packaging cost. In the end, it is always a balancing act between the cost of the package and the targeted retail price of the item.”

USM – Design Example

Product Testing – Recently, the clubs have been more receptive to testing merchandise in a select number of locations. Farrell commented on this fact and how vendors should approach product tests. Farrell said, “The last couple years we have seen a shift in how the clubs are going to market, especially with new vendors. They are not risking a lot of their open to buy on huge rollouts. From the vendor’s perspective, when it comes to product testing, the challenge is to scrutinize the financials and look at the test as a marketing expense and not a revenue generator because you just can’t make the price point that you want on these small runs due to the cost of packaging.”

Art and Design – USM offers a full in-house design staff for all packaging and insert cards (see picture above on the left). USM uses a state-of-the-art high speed printing press that offers a wide variety of output capabilities such as pressure sensitive labels, insert/backer cards, hang tags, instruction manuals and glossy magazine inserts. In addition, USM uses a digital press for small production runs. This has been a great benefit to vendors and the clubs as they can test a product in as few as 20 clubs without incurring the cost and risk of a chain-wide production run. Farrell said, “One of the challenges that we have … is there are some programs where the volume required does not allow us to achieve the type of cost efficiency to make it a viable option … In terms of achieving that cost reduction, we have invested in a brand new digital press for small runs. This has been a real boon for us. When it comes to new vendors or unique items that the clubs have not had any experience with, we can better control the packaging risk and test the item or vendor in as few as ten clubs. This gives us a huge competitive advantage.” Inventory Control – One of the issues that USM faces when developing a product’s package and engineering the pallet is the number of SKUs on that pallet. Farrell said, “Some vendors want to maximize the number of selling units on a pallet and I counsel them that may not be the right decision for the club channel even though they need a certain revenue number to make the program work. Unless the vendor is certain the club will sell-through the inventory, caution applies when considering the number of sell units on a pallet. The club can always reorder product but if the item does not sell well and sales are slow, the club will look to the vendor to help it move product. It is important to work with the buyer and understand the commitment they are willing to make and explain the financial implications of different sized pallet configurations. This is where USM really helps. We help the vendor and the club to maximize product visibility while managing the number of SKUs on a pallet. This is where our butterfly shroud comes in to play as well as the ability to massage the number of items in a display tray.” Development – Green provided a generic example of how a package is developed for a manufacturer. The development process typically takes less than three weeks.

1. The manufacturer describes the product, its use(s) and the targeted end user. 2. The manufacturer sends a product sample, product color brochure and a list of product features and benefits. 3. USM creates a mold from which the blister pack can be manufactured. This takes one-and-a-half weeks. 4. The molds are tailored with individual cavities to hold the product and its accessories in the package. 5. USM uses the color brochure and product features and benefits to create a full color insert. 6. Within two weeks, USM can send the customer a sample blister or GreenPack TM with the product and insert. 7. Packaging modifications are made by the customer and the final, revised package can be shown to the buyer. 8. Final modifications are made by the buyer. 9. The product is now ready for production and shipment.

GreenPack TM Sustainable packaging has become a very important issue for the club industry. USM’s sustainable packaging product is called GreenPack TM and it includes four packaging concepts: Blistercard, clampack, plastic folding carton and Duraseal. Blistercard – To create the Blistercard, USM “traps” a #1 RPET plastic blister between a 20pt coated Blistercard on top and a 250# B-Flute corrugated backer card (see Blistercard features on the next page). The resultant package offers the following benefits: a clean and stylish appearance, additional space for graphics and product information since the back of the E-Flute card can be used and all components are 100% recyclable. For an example, see the picture of the Revlon cosmetic SKU on the next page.



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Farrell said, “For the Blistercard, the item provides the same shrink-resistant, structurally-sound design found in the clamshell. The materials are the real difference. The Blistercard design, with fluted backer card, is an innovation that delivers a higher percentage of fiber board than plastic. In addition, we continue to evolve not only in the printing side of the equation, but also on the sealing side where we are working with different adhesives and different sealing processes … In the end, we provide a 100% SEALED trapped Blistercard. That’s how we differentiate ourselves maybe from some of the other trapped blister cards you’d see out there.” Clampack – A 100% recyclable design utilizing PETG material for a highly-impactful, sustainable package. The PETG material is post-consumer recyclable through many curbside pickup programs. The design frequently incorporates a USM innovation, Point Seals, which anchor product cavities eliminating product movement and providing for a higher security benefit resulting in shrink reduction. The multi-color insert card is also recyclable, as it uses vegetable/soy based inks. The corrugated trays used to hold the product on the pallet display or rack shelf is made from an estimated 20% to 25% pre-consumer and 30% to 35% post-consumer recycled pulp. Plastic Folding Carton – This highly flexible design uses clear, dyed, or printed RPET material for a premium department store appearance. It is very popular for use with high-end ornamentals (see picture below) or fragrances. Insert cards or folding cartons can be included to enhance cosmetic and merchandising appeal. UV sealing can be added for an additional security benefit. It also provides for simple stackability, too. This design makes a dynamite presentation.

USM – Blistercard Construction

Duraseal – USM is constantly researching and testing new environmentally friendly packaging options. One of those concepts is called Duraseal (see picture below on the right) which according to Farrell is a “high-density double wall with some unique combinations of liners and mediums to create a very substantial piece. In our Canadian facility we are using high-density chipboard as opposed to fluted board, which is a much stronger material. The piece is specifically designed for the warehouse club environment and for maximum life.”

USM Blistercard – Revlon

Plastic Folding Carton – Holiday Ornament

USM Duraseal – L’Oreal

Butterfly Shroud There are many items that the clubs stock whose sales volume does not require a full pallet display. For items like these, the vendor will create a half pallet merchandising display that sits on five empty pallets and is surrounded by a corrugated wrap promoting the item or vendor. The perception is created that a full pallet of product is being offered which creates an assumption in the member’s mind that the item is popular and successful. From the club and vendor perspective, the number of SKUs on the pallet is reduced which reduces inventory risk and maximizes inventory turns. To address this situation, USM developed the Butterfly Shroud. The picture on the next page details the shipping and merchandising aspects of the Butterfly Shroud. The product is shipped to the club in one contained unit and placed on top of five pallets. Once the stretch wrap and pallet cap are removed, the sides of the merchandising unit come down and cover the five empty pallets. Once the shroud is attached and the product stretch wrap removed, the item is ready for sale.

USM Advantages and Additional Services Variety of Services – Green said, “The success of our company is based on the fact that we offer a whole array of services, a whole array of different packaging, so we’re not just pigeon-toed into one type of a package and one type of a solution. We offer multiple solutions, and multiple opportunities for manufacturers to save money and to be able to cut costs. We explore all available options depending on what the vendors’ needs are and what the clubs’ desires are.”



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Greenline Transportation ™ – USM has its own fleet of short and long haul trucks under the Greenline Transportation banner. The trucks use state-of-the-art global positioning equipment (GPS) and satellite tracking via the Internet so a shipment’s exact location can be tracked from beginning to end. Distributor – One of the unique services USM offers vendors is the ability to act as product distributor. In certain situations, USM will buy merchandise from a manufacturer and sell it to a club themselves, acting as a vendor. Green said, “There are instances where a vendor offers a range of products each under its own UPC. However, the club wants to package those items together under a unique UPC but the vendor is not capable of meeting that request. We’ll act as a distributor and purchase the individual items, create a package for them and sell the bundled package as a unique UPC. We’ll pay the vendor for the product and the club will pay us for the order. USM becomes the vendor of record. The packaging may just reflect the manufacturer’s brand and logo and the USM name and logo may not even appear on the package. It makes it a picture-perfect program for the retailer and a picture-perfect program for the manufacturer.” An extension of its ability to act as distributor is a recent program USM did for Target. Green said, “We did a program for Target where we purchased two different items from two different manufacturers and put them into one package. The items were high value so we created a shrink-proof package to prevent loss from damages or theft. Target’s loss prevention people had to approve it. Neither one of the manufacturers wanted to do it themselves. It was very simple logistics-wise because Target set us up as a vendor for that particular item and bought it under one SKU number. We, of course, bought it from two different places, brought it in, packaged it and then we shipped it on to Target who paid us.”

USM – Butterfly Shroud

Speed – USM’s large, well-equipped and vertically integrated operation is a distinct advantage in responding to any situation. USM’s production and storage capacity can be critical for seasonal, "hot" or closeout merchandise. Product speed to market, especially when considering the high volume nature of the club business, is critical. For example, a few years ago, USM received a request from one customer to package 50,000 units of a holiday item in two business days. USM received the merchandise late on a Saturday and began shipping the product in specialized packages the following Tuesday morning. This three-day turnaround time also included the development and design of the packaging material.

USM – Quality Control

Quality Control – One of USM’s abiding principles is its focus on quality. At every step of the packaging process, USM is checking to make sure customer needs and specifications are exceeded (see quality control picture on the left). Inventory and Distribution – The following example illustrates how Green’s distribution services began in the 1980s. Green received a large shipment of product for one of the clubs. Green was authorized to repackage the product and ship it to all locations. However, doing so would have left each location with a large inventory of that product. To relieve his customer of that burden, Green decided to store the repackaged products in his facility and ship them out to each location as needed. Green’s understanding of the club’s need to manage inventory and increase turns helped the club better manage its business.

Green commented on USM’s storage capability. Green said, “A typical packager will just package a product and either send it back to the manufacturer or directly to the vendor. However, there are instances when a buyer says to a manufacturer that we want to buy your product at the current price but we do not need it for a few months. The vendor may tell the club that if they don’t buy it now, they will not get the current price. USM will step up for the vendor and the club and store the product until the club needs it. Again, it makes a perfect fit.” Knowledge and Contacts – The club buyer views the manufacturer in a less positive light if it is not fully prepared or does not fully understand the club's needs. A manufacturer needs to know what the club buyers want before they meet. Generally speaking, Green can supply that information to his customers. If a manufacturer works with USM, Green helps to make sure the manufacturer is prepared for that critical first meeting.



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Green said, “The most important tip that I can give to manufacturers is to know your customer. Be ready at the first meeting to present the best program and best price available and to show them what the item will look like in finished form. The last item requires a small nominal cost, but one worth spending. A manufacturer that lets small costs get in the way to make the right presentation makes a big mistake. Most buyers are too busy to go back and forth, they need answers and want immediate responses.” Security – USM has a 24/7 state-of-the-art security system at each facility managed by a security specialist with armed security personnel inside and outside the locations (see picture on the right). For example, its Ontario, California facility has over 150 video surveillance cameras monitoring activities in all areas. Additional Product Security – USM developed an added security measure. For smaller sized products, a metal wire is used to secure product to a sheet of plastic under the insert card. This added feature makes cutting and stealing the product virtually impossible.

USM – Security

Web Site – USM allows manufacturers and retailers to check the real-time status of merchandise that is being packaged via its web site. Once they are logged in, manufacturers and retailers have the opportunity to see item production, shipping, delivery and inventory information on a daily basis. Miscellaneous Services – USM offers a number of services outside its traditional contract packaging business. These include bar coding, product re-labeling, sorting, tagging, re-work of damaged product and sub-assembly as well as project management, import and export ability and warehousing. If you are interested in learning more about USM's packaging services, Jeff Green can be contacted at U.S. Merchants / Diversified Re-Packaging, Incorporated, 8737 Wilshire Boulevard, Beverly Hills, California, 90211, phone: 310-228-4000 and fax: 310-652-9905. The web site is www.u-s-merchants.com. If you are interested in learning more about USM's packaging services, Jeff Green can be contacted at U.S. Merchants / Diversified Re-Packaging, Incorporated, 8737 Wilshire Boulevard, Beverly Hills, California, 90211, phone: 310-228-4000 and fax: 310-652-9905. The web site is www.u-s-merchants.com.

030 - u.s. merchants club industry, as it has enabled the clubs to merchandise products more ......

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