Retailers & Paula Deen: discontinue or pull products?

The recent news around Paula Deen demonstrates the bind retailers get into when making deals with celebrity product endorsers—what do you do if (or when) the celebrity finds herself or himself in a scandal?

Many brands, with the notable exception of QVC, have terminated their relationships with Paula Deen—or have at least appeared to sever their ties with her. But making press statements about ending partnerships is slightly different from the actual impact on retail operations. After all, there are still products sitting on the shelves.

Let’s take a look at the situation surrounding Paula Deen: as of June 29, 12 companies have ended their association with Paula Deen. These include Food Network, Walmart, Target, Home Depot, Random House’s Ballantine Books, Smithfield Hams, and others. Food Network is not renewing her TV show; Ballantine Books will not publish her upcoming book, and Smithfield Hams ended her endorsement deal.

The decisions around Paula Deen are very different for retailers. Why? They have existing products—which they have already invested in—sitting on the shelves. Walmart will not place “any new orders beyond what’s already been committed,” Target is phasing out the Paula Deen merchandise in stores and on the website; and Home Depot said it will stop carrying Paula Deen products.

One retailer, however, took a different approach to handling the Paula Deen scandal. Meijer didn’t just make an announcement about phasing out products—the company actually pulled Deen’s cookbooks from its stores’ shelves. That move is fundamentally different from those of the other retailers.

This difference may be subtle to the general public, but it is dramatic from an operations perspective. Those brands and retailers who are discontinuing, phasing out, and not placing new orders must factor this change into their sales forecasts for the next few quarters. They know what inventory they have and can easily predict the long-term financial impact of no longer offering Paula Deen products. (Interestingly, Paula Deen product sales are actually doing well—her supporters are voicing their opinions with their wallets.)

Meijer, on the other hand, is in a different situation. It has pulled product for which it has already forecasted sales. As Vivek Farias, Associate Professor of Operations Management at MIT Sloan mentions in his most recent operations research, “forecasts are rarely accurate, and retailers frequently witness demand shocks that are material to their revenues.”

It appears Meijer has more tolerance to absorb an immediate demand shock than those of the other brands and retailers dropping Paula Deen and her products.

Vivek Farias teaches in the MIT Sloan Executive Education course, Developing a Leading Edge Operations Strategy.

 

Comments (1)

Anonymous

Posted: 4 months and 28 days ago

Interesting Blog Post