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Saturday, September 13, 2008

Boxing clever

This is a great article. I especially call your attention to his point about technology. Technology may be hardware, but in our age we are familiar with software, such as MS Windows, as technology, too. IE-Networks is one such technology independent retailers can leverage for the development of their business. gt

By Neil Davey The last ten years or so in the retail world has been a grim time for smaller independents.

The march of the big box retailers and their relentless focus on scale, efficiency and cost cutting has left many smaller shop owners despairing that they can ever compete.
Of course this is crazy talk. After all Sam Walton began Wal-Mart’s journey by taking over a single franchise store and building from there. And as Uzi Yemen, CEO of the MAPCO Express C-store chain, explains elsewhere in these pages, US retail will always have room for entrepreneurs willing to take risks and build a business.
Of course the key in retail is to give customers something they want. The vast scale of the big boys means that smaller stores won’t succeed if they try to compete directly with supercenters – they don’t have the scale or logistics to make this feasible.

But all is not lost. One of the big buzz’s in retail in localization – how can assortments, and even stores be created to better serve the needs of local, unique markets. And while the heavyweights of the sector scratch their heads and wonder how to re-design supply chains, or take advantage of the reams of customer data they produce to meet these needs, it’s fair to say that smaller, local, stores have an inherent advantage in focusing their efforts on local needs.

To look at how smaller chains and stores can better compete ERS has spoken to Thomas Zaucha, the CEO of the National Grocers Association, and Marc Jacobs, author and CEO of Dollar Days. They explain how being small should be seen as an advantage – as long as you have the insight to offer something different.

Opportunity knocks

For independent retailers, the news that a big box retailer is to open up shop in their community is enough to send shivers down the spine. Yet evidence suggests that it needn’t be a death knell for small retailers. Indeed, research by DollarDays International has revealed that by undertaking various strategic changes, 42 percent of small retailers maintained their market share when a big box player opened up nearby – and a further 35 percent actually reported an increase in business.

Marc Joseph is CEO of DollarDays International, an internet-based product wholesaler to small businesses and local distributors. After being inundated with calls from entrepreneurs seeking advice, he decided to put his nearly 30 years of experience in retailing and wholesaling, to use in the form of a book. The ensuing tome, entitled “The Secrets of Retailing…Or How to Beat Wal-Mart” details how small businesses can compete with big box retailers that come to their towns, as well as providing advice on the nuts and bolts of setting up a successful retail chain. Marc divulges some of the secrets to ERS.

ERS. What are the main strengths of big box retailers?

MJ. There are two things that have made them strong. The number one is their ability to buy in bulk. There are certain commodity goods on which you can’t compete with chainstores – laundry detergent, for instance, or paper goods. They can just buy truckload after truckload and small stores have to buy it in pallet form, so the chainstores compete on price. The second thing is their efficiencies of distribution. Wal-Mart has a just-in-time inventory system where it can flow goods from manufacturers to the stores very quickly and very efficiently. So the whole distribution center that these chainstores have created for themselves is a competitive advantage.

ERS. According to survey results by DollarDays International, 99 percent of the small businesses have big box retailers located near their stores. Does this spell the end for these small businesses?

MJ. If you are an entrepreneur this is actually an opportune time to go into retail, because the chainstores have created so much opportunity for everybody else. There are a couple of factors that have come about in the last ten years that have made it such a good time. The first thing is technology. The cost of technology has come so far down that small stores can now have the same kind of technology as the chain stores. Independent stores can now track their inventory and track their customers. That has created the opportunity to have the knowledge you need to compete. The other thing that has arrived to give the independent stores a chance to compete is the internet. Small stores are not only selling across the street and across town, but now they can sell across the US and the world. So this has opened up a whole opportunity for bricks and mortar stores.

ERS. Interestingly, the survey results suggest that 72 percent of small businesses opened their stores after the chainstores arrived in town. This seems to tie in with your argument that these chainstores have created opportunities.

MJ. Lets take the coffee shop business as an example. Starbucks is on every corner of the US. They are everywhere. But there are 600 more independent coffee shops now in this country than there were six years ago. What happens is that it is kind of like when the tide comes in, all the ships rise. The awareness of the coffee industry has created a niche for these smaller independents to go out there and find their little piece of the action. So chainstores create opportunity for independent stores.

ERS. How can retailers translate this opportunity into big bucks?

MJ. We advise entrepreneurs to open a store right next to a chain store. The Targets and the Wal-Marts of the world are spending millions of dollars to drive customers into their stores, so smart entrepreneurs are opening up independent stores around that to play off the traffic, so they don’t have to pay for all the advertising. These chainstores have also opened up the opportunity for dollar stores. When you walk into any modern mall these days, you will see a dollar store. A place where everything is easy to understand and you don’t have to ask about pricing and you can buy what you want. Retail Forward predicts that there is going to be another 9000 more dollar stores in the US by 2009.

Another niche that opens up when chainstores arrive are gift stores, selling better kinds of unique interesting kinds of gifts. And then there are specialty retailers – none of these chainstores do large sizes well, and none of them do juniors well. So you see that these independent apparel stores are opening up all over the place. When you think about it, most major trends have started in independent stores, because they are the ones out there taking a little chance and trying something a little different. And then it is picked up by the chainstores. So we see that chainstores have opened up an opportunity for entrepreneurs to open up their own independent stores.

ERS. In your book you suggest that there are a number of secrets to competing with the big players. Can you divulge the secrets?

MJ. There are seven secrets; seven ways that you can compete. One is by selling close-outs. A true close-out is only a couple or three truckloads of product. Because it is small quantities, independent stores can buy what chainstores can’t, because they can’t fill all 500 of their stores with close-outs. So true close-outs give the independent the chance to have a lower price and show something different than the chainstore. The second thing is that there are plenty of manufacturers that are just too small to sell to chainstores – there are more and more places where they just don’t make enough product. So there are plenty of manufacturers with which you can create that relationship and buy unique product. We also have a whole level of manufacturing where they won’t sell to chainstores because it would take up 80 percent of their production to deal with them and then if the store takes their business offshore it will put the manufacturer out of business. So you have the opportunity to find those manufacturers who will do that for you.

Also, the small stores have an agility with their overhead costs – chainstores have got management super structures, teams of buyers, lawyers, store designers, public relations and so forth. If small stores need someone to do public relations they just outsource it. And you run your own store so you have got the ability to figure out when you need people in the store to service your customers and when you don’t. You have got the opportunity to get agility on the overhead. Another reason that small stores can compete is that they offer a much simpler shopping experience. I was in Target last weekend, and I had to park all the way out at the end of the parking lot, It took me ten minutes to get into the store; where I was going to was at the back of the store, so that took me another ten minutes; it took me another ten minutes to check out…it is an experience going in these chain stores! Independent stores are smaller, you can usually park close to them and you can get in and out.

Elsewhere, there are plenty of rural areas that are just too small to support chainstores. And there are inner cities where chainstores just don’t go. So there are independent stores being opened up by entrepreneurs because of their location. And the last thing is customer service. If you run an independent store you get to know the customer so that he/she feels at home. You go to a chainstore and sure they have a guy greeting you but that is really for security. They want to get you through the registers as fast as they can. The whole personal attention thing really works and is something that independents could run with.

ERS. Ultimately, is your message that small retailers need to understand that when a big box retailer opens in their community it’s not a death sentence?

MJ. It is more of an opportunity than a challenge.

So there you have it – for smaller stores the secret seems to be leveraging the best practice and technology that has been developed by the bigger boys, and utilizing their size and agility to offer a different customer experience to the supercenters. You might not be able to land a knock-out blow to the might of Wal-Mart et al, but clever retailers should at least be able to get to a points decision. Difficulties remain for sure, but if retail were easy then it wouldn’t be any fun.

Tips to compete with big box retailers

Think small?
Large chains can’t benefit from true closeouts, which are broken lots or leftover goods that a manufacturer needs to unload. This gives the smaller retailer a chance to show products of real value.

Be unique?
There are many new and unique products that, because the supply is limited, chains pass over them, giving the independent stores a chance.

Develop relationships with small manufacturers?
Many small manufacturers will not sell to chainstores.

Agility on overhead cost?
Small retailers can beat the giants in another price-related factor: their overheads can be significantly lower.

Simpler shopping experience for the customer?
A store that is 2000 square feet is much easier to shop than a 100,000 square foot giant.

Underserved neighborhoods are a real opportunity for independent stores to thrive. Be where the giants are not. Personal attention?Customer service is the backbone to the independent business. People like to shop where they feel comfortable and at home, where they feel the owner cares about their wants and needs.

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