DECEMBER 2005 :: COVER STORY : BIG BUSINESS

The Lucky 2%
Getting Your Invention on Wal-Mart's Shelves Is a Tough Task

By Gwendolyn Bounds
Staff Reporter of The Wall Street Journal

Getting into Wal-Mart is an entrepreneur's equivalent of making it to Broadway.

Even a short run on the shelves there can help transform an invention from niche product to household name. And while Wal-Mart certainly isn't the only retail path to commercial success, nor the right outlet for every product, for mass-market merchandise at a certain price point, no other brick-and-mortar retailer reaches so many shoppers. Today the company has 5,300 outlets world-wide, and gets more than 138 million customers a week.

An Upscale Wal-Mart? Wal-Mart Stores grew enormous by cramming its shelves with merchandise at the lowest prices possible. Now, responding to big shifts it sees in the American economy, it is changing the way it does business to reach out to more upscale shoppers.

How Wal-Mart Weathered the Storm: Wal-Mart Stores grew enormous by cramming its shelves with merchandise at the lowest prices possible. Now, responding to big shifts it sees in the American economy, it is changing the way it does business to reach out to more upscale shoppers.

Against the Wal: When Wal-Mart Stores became the world's biggest public company, it also became one of the world's biggest targets.

The Wal-Mart Effect: Wal-Mart, itself one of the largest grocery chains in America, is changing the way food is sold at other supermarkets as well. Bowing to busy consumers who are less willing to spend time searching for deals, some traditional grocery stores are cutting back on promotional discounts and moving toward the everyday low prices of Wal-Mart and other discounters.

The Lucky 2% Getting into Wal-Mart is an entrepreneur's equivalent of making it to Broadway. Even a short run on the shelves there can help transform an invention from niche product to household name.

But as with Broadway, there's more than enough talent to fill the stage. Last year about 10,000 new suppliers applied to become Wal-Mart vendors. Of those, only about 200, or 2%, were ultimately accepted. "We just don't have very many empty shelf spaces," says Excell La Fayette Jr., Wal-Mart's director of supplier development.

On a supplier's journey into Wal-Mart, Mr. La Fayette's office is often a first point of contact. In addition to taking solicitations by telephone and email, his staff of four sifts through hundreds of new online supplier queries submitted each week through the company's Web site, as well as those made through stores at a local level, before passing viable candidates on to one of Wal-Mart's hundreds of buyers.

"People come out of nowhere with all kinds of ideas that are not practical for our business," says Mr. La Fayette. "They see Wal-Mart and see dollar signs and think they can sell us anything."

Making matters trickier, in most established categories, there already is so much duplication that it's tough persuading a retailer to give shelf space to an unknown. "Unless there is something really unique that has a special advantage to help customers, a lot of 'me too' items just don't make it," Mr. La Fayette says.

But as the story of a company called PenAgain-and its founders, Colin Roche and Bobby Ronsse-shows, there are steps a small business can take to maximize the chance of getting its wares in front of a Wal-Mart buyer.

Serving Detention

Mr. Roche's path began in 1987 during a Saturday detention at his Palo Alto, Calif., high school. On a break, Mr. Roche wandered into a flea market where he purchased a toy robot that, when twisted a certain way, doubled as a pen. While fiddling with the robot and a lighter, he burned the writing tip off one leg and then reattached it to the robot's head. Writing with the tip in that position, he found he didn't need to grip so tightly because the design supported the natural weight of his hand. "I'd always had horrible writer's cramp, and this helped," he says.

Through college, he continued thinking about his invention. In June 2001, he teamed up with Mr. Ronsse, an engineer, and the two began plotting development of the PenAgain, which they envisioned as a futuristic wishbone design modeled after the robot. Putting in $5,000 each, they launched Pacific Writing Instruments in December 2001, filed for patent approval, launched a Web site and set up production in the Bay Area.

Had they first set their sights on selling to Wal-Mart, the results undoubtedly would have been disappointing. "We like companies to have a sales history and to be sold somewhere else first," says Wal-Mart's Mr. La Fayette.

Plus, PenAgain's design was radical. While ergonomic pens were popular, most traditional pen makers addressed this need by tweaking a pen's length or width or the texture of the grip-not by varying its basic stick design.

Even PenAgain supporters acknowledge the uphill battle it faces. Mickey Miladinov worked for 28 years at Kmart, her last stint as merchandise manager in the stationery category. While Ms. Miladinov sees opportunities for Pen-
Again, something new "doesn't always play to the masses," she says. "When I looked at an item at Kmart, I had to say, 'Does this hit the largest percentage of my shoppers?' And if not, I'd have to pass on that product."

Such thinking meant Mr. Roche had a tough task proving that buyers existed. First, he wooed smaller sellers, such as Edwards Luggage in San Francisco. "It was gimmicky, but it looked good," says the store's owner, Fred Ebert. The risk paid off: Today, he sells about 700 PenAgains annually at $12.95 apiece, making it his top seller of a single style pen. "This is different, yet it actually works," he says.

Meantime, Messrs. Roche and Ronsse pushed hard to get their product viewed alongside bigger companies at major trade shows. These shows got them hooked up with more buyers and distributors. Further, they worked less-obvious channels on a grass-roots level, including doctors who treated patients with hand troubles.

The business grew. Last year, PenAgain had $2 million in revenue across a wide swath of retailers, including 5,000 independent stationery and office-supply stores, 200 Staples in Canada and other chain outlets.

Still, to play with the big boys, the company needed to lower its prices and have high-volume manufacturing capacity-which meant moving production overseas. With backing from four outside investors, the PenAgain founders located manufacturers in China in late 2003 and have continued investing to have multiple molds for PenAgain produced. Having more molds ready to go means that if a big order comes in, they can ramp up production quickly.

It also helped them reduce PenAgain's retail price to as low as $3.99 on one model, something crucial for success at Wal-Mart. Simultaneously, Mr. Roche pushed to expand the line. The company now has 10 pieces in the PenAgain mix, including a pencil, highlighter, hobby knife, white-board marker and children's writing instrument, in a wide swath of colors and textures.

Game Face

Even with these pieces in place, Mr. Roche says the pair still wondered, "How the heck do you get into Wal-Mart?" Last September, they forked over a hefty $10,000 to attend an "arranged meeting" portion of a stationery trade show where vendors were promised individual meetings with major retailers. The Wal-Mart representative had to cancel. But PenAgain's founders and other jilted inventors were invited to company headquarters to meet with a buyer.

Messrs. Roche and Ronsse got their meeting a month and a half later, but upon seeing the
PenAgain, the buyer balked. "I've seen this design before and passed," she said, mentioning a competitor's product manufactured in Korea with a similar shape.

Mr. Roche kept his game face on. "The difference," he told her, "is that we are building a brand. Rather than going to you first, we've got a base of independent retailers and distributors world-wide who have already picked us up." He kept talking, showing her the testimonials, media write-ups, product extensions and everything else he and Mr. Ronsse had assembled over the previous few years.

Finally, with their time allotment nearly up, the buyer closed her notebook. "OK, we will give you a trial period for a certain amount of time," Mr. Roche recalls her saying. Some 500 stores would carry the product for six weeks, with the expectation that PenAgain would have to sell at least 85% of the product displayed in that time to warrant more permanent shelf space.

Over the next 10 months, PenAgain's founders completed the intensive paperwork required to become an official Wal-Mart vendor. Finally, this past September, Mr. Ronsse opened his email box to find a note saying their supplier agreement had been approved. Wal-Mart says that on average, it takes six months to a year for a supplier to get a first purchase order because buyers must review categories and give suppliers time to gear up. "We've taken the path that a company like ours can take," Mr. Roche says. "No Wal-Mart buyer will call you out of the blue."

Says Ms. Miladinov, formerly of Kmart: "It's a big deal that Colin's gotten this far." Should a Wal-Mart order not ultimately happen, she says, "it's not the end of the world," but then adds, "Now let me flip it around-if it does, it might be the beginning of the world."