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Are smaller retailers getting crushed by the supply chain mess?
Smaller retailers often count on speed, nimbleness and agility for an edge over larger competitors, but current supply chain disruptions are proving to be a high hurdle.
Ninety-one percent of SMB retailers believe larger companies have an advantage over them in the current supply chain crisis, according to a survey from Software Advice. Half of these attribute this advantage to the fact that they don’t have prioritized vendor status and 45 percent because they are limited in their ability to switch vendors. Forty-six percent have had at least one vendor drop them for reasons specifically related to being a small business.
The survey found 30 percent don’t have access to alternate or new shipping options (e.g., switching from ocean to air freight) and 41 percent are unable to pay premium shipping prices.
A Washington Post story from last November detailed how larger retailers have contracts that guarantee low freight prices while smaller importers compete for spot rates, which have been surging. The article documented how larger firms are able to offer incentives to jump ahead in securing production, raw materials and shipping containers.
Software Advice’s suggestions include forming deeper partnerships with current vendors and having at least one backup vendor. Partnering with nearby small businesses to secure product or sharing warehouse space and employees also can help.
Focusing on logistics spend was emphasized as a means to offset higher supply chain costs.
CBRE’s “Supply Chain Advisory” report that came out last December found transportation costs typically account for 50-to-70 percent of a company’s total logistics spend, while fixed facility costs (including real estate) account for only three to six percent. CBRE wrote, “It appears that increasing inventories by adding more warehouse and distribution space could significantly reduce transportation costs for many shippers.”
CBRE also advised smaller retailers to selectively raise prices, although larger firms often have better-known brands with higher customer loyalty that allow them to more easily pass through price increases as well as the scale to better absorb cost pressures without raising prices.
The NFIB (National Federation of Independent Business) “Small Business Optimism Index” in April reached the lowest level recorded in the 48-year-old survey with inflation concerns reaching their highest level since 1980.
- 91% of SMB Retailers Say Larger Companies Have an Advantage Over Them in the Supply Chain Inventory Crisis – Software Advice/Business Wire
- Small Businesses Are Being Left Behind in the Retail Supply Chain Crisis – Software Advice
- In the supply chain battle of 2021, small businesses are losing out to Walmart and Amazon – The Washington Post
- Supply Chain Disruptions Create New Opportunities for Industrial and Logistics Real Estate – CBRE
- Small Business Expectations for Better Business Conditions at Record, 48-year Low – NFIB
- Survey: 82 percent of Americans Scared That Supply Chain Issues Will Ruin Their Life Plans – Oracle
Discussion Questions
DISCUSSION QUESTIONS: Do small- to medium-sized retailers have a significant disadvantage versus larger chains in managing supply chain disruption? What advice would you have for smaller retailers for navigating supply chain instability?
Poll
Loading …BrainTrust
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Warren Thayer
Editor Emeritus & Co-Founder, Frozen & Refrigerated Buyer
I actually believe small and medium sized retailers have an advantage in the supply chain as there are (in many instances) fewer hoops to jump through to get product onto the shelf.
Agreed, Richard.
Small-to-medium-sized retailers are operating at a disadvantage in managing supply chain disruptions. Leaning into local suppliers offers a three-fold advantage for these retailers – circumventing long-haul supply chain snafus, supporting local businesses, and offering differentiated assortments.
Supply chain disruption plagues many business, large and small, yet the larger retailer has the advantage. Small to medium sized retailers don’t often have the buying power of a larger store. It’s common sense that the companies that buy more (larger chains) may get better treatment.
Smaller retailers can try and find alternative suppliers. Also, leverage the local relationships. Consider working with suppliers as partners in each other’s success, versus just the typical vendor relationship.
Vying for product availability against the bigger retailers when it comes to nationally-recognized name brands has indeed become a challenge for most. Although distributors are doing their best to level the playing field and manage the availability of key items, this all comes at a cost.
Looking at the situation from a glass half full perspective, smaller retailers remain better positioned and more nimble to manage local supply chains and niche products. This competitive advantage must not be overlooked nor underestimated in light of continued supply chain pressure. My advice is to create gateways of local products and encourage consumers to become familiar with the advantages of doing so.
This recent Forbes article underscores the benefits of local sourcing and other supply chain ideas for small business.
No doubt SMB retailers are at a disadvantage when competing against larger companies in the global supply chain. However SMB retailers have the advantage of being much closer to their communities and could perhaps mitigate some of the complex challenges of the global supply network by buying local. This approach is easier than it sounds, of course, and would require serious assortment analysis, but perhaps the financial incentives for going local are strong enough to warrant the shift.
Most smaller retailers will be using wholesale operations that have the scale and size to compete with larger retailers. If not then their best defense is to use their size to work with smaller local suppliers who cannot get into the large retailers. This will play well with customers, protect them against high shipping costs and if they build strong relationships give them a more secure future. This is not always possible but certainly is in many categories. And even if not possible over the whole range, it may enable them to stay in business. CBRE have a commercial interest in suggesting building larger stocks and I am not sure this is a wise move for cash strapped small retailers!
Carrier surges, bidding wars, and long term container commitments where large retailers are able to compete leave small and midsized retailers taking the leftovers when available. These smaller retailers base their model on being nimble and specialized but this environment is making that impossible without clarity to its consumers when goods will arrive.
There are exceptions, obviously, but I’ve long believed that the Golden Rule of Business applies. “He who has the gold, makes the rules.” The smaller guys have opportunities, most of them cited here, but in all honesty these opportunities don’t come close to creating a level playing field. Get real.
Smaller retailers are at a disadvantage when it comes to logistics and supply chain issues. This can not be fixed by increasing their storage capabilities, because it represents a lower cost to maintain as a part of their overall product cost. Instead, SMB must recognize that increased logistics and supply chain costs are a hurdle that they must overcome through nimble, more efficient, customer service oriented retail positioning, and a balanced inventory approach to better manage their product turns.
Small retailers have been impacted the hardest by the supply chain issue. And I don’t think they’ll be able to walk out of this situation unscathed. The solutions listed above are undoubtedly impractical for a small retailer.