RSR Research: Death of the Small Store Owner?
Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
A friend of mine who owns a store in a small mountain town in Colorado recently called me with a question that rocked me back on my heels: "Am I crazy to try to run a retail store in this day and age?"
Her store focusing on "green" baby products has been open for a little over a year now and, with basically no investment, has cleared about $1,000. And in that time, she moved from a tiny store in a not-so-heavily trafficked area to one almost twice as big — all with virtually no advertising.
Until owning up to her doubts, I’ve thought she’s done remarkably well. But her fears tell a somewhat scary story for the times we live in:
- She has no website. She’s older, as you may have guessed, and she’s a little afraid of technology. I told her she needs a website that sells products. Her son is now helping her. But she’s not happy about that. Considering her customers — young mothers with money to spend — I don’t think she has much choice in the matter.
- She must battle showrooming. I was surprised by this, because she sources a lot of her products from women who sew and craft. But, even with her unique mix, she’s finding herself comparison-shopped. Trying to counter this with events and classes, she found attendees taking pictures of the products with their phones and heading home without buying anything.
- She must battle vendors. One vendor, that has strict controls on how she can price merchandise, ran an online sale via their direct-to-consumer site that it never would have let her run. When she called to complain, she was told she could match the promotion. But the discount was so steep that she made no money off of it.
- She must battle segment blurring. As soon as she moved her store to the higher traffic area, a nearby gift shop and bookstore — already there at the time — immediately added her product categories to their assortments.
- No one will lend her money. She’s grown to the point where she really needs to be able to buy inventory on credit in order to stock up for the holiday season, but no bank will lend her money even with the inventory as collateral. She’s considering refinancing her home.
My heart goes out to my friend. To think that retailing has become so tough that someone with a good idea and a lot of passion can’t make it the traditional way truly speaks to the end of an era. It may not be "Goodbye, retail store," but it may very well be, "Goodbye, retail store owner."
Discussion Questions
Discussion Questions: What new challenges face mom & pops today? Is it becoming tougher for retail start-ups, or has it always been this tough?
The challenges facing small retailers (and large retailers, for that matter) have not really changed over the years. The following questions make sense today and would have made sense 30 years ago:
1. Do I have a clear cut merchandising strategy and point of difference?
2. Do I have the appropriate location for my business?
3. Do I have a marketing plan that will drive profitable sales?
4. Do I have access to financing, and to vendors who will partner in my success?
The questions remain the same, the differences are driven by technology (the need to use e-commerce and social networking) and changing demographics. Financing to support growth is a critical need for any retail business model…making it all the more vital to have a compelling plan.
I get the personal connection but no website? Seriously? With green products? As has been said time and time again, “Retail ain’t for sissies.”
I would suggest your friend has to approach her business as a business and hire a consultant like you or SCORE or her local chamber. There are a multitude of ways smaller retailers compete, but they can’t by burying their head in the sand and not do all they can to compete.
Nikki’s article reminds me of two movies. One is “You’ve Got Mail” with Tom Hanks and Meg Ryan. The typical story of the small bookstore forced to close when the mega bookstore opened across the street. This is the negative side of the story. On the positive side is a movie whose title escapes me (probably because I just saw it on TV last week) where a big city advertising exec loses her job and moves to Vermont (?) and begins selling baby food to yuppie upscale moms visiting the area. Obviously her business grows to a large scale and is pursued to be bought out by the company she left.
Unfortunately both of these are movies, but they are portraits of real life.
Walmart’s history is another example of not caring about the small store owner put out of business when the big giant decides to move in. Some small businesses will continue to survive. But the numbers are dwindling because the daily pressures are too much to withstand over the long haul of time.
Small independent retail stores have many inherent advantages and disadvantages. The key is to exploit the advantages. As a small independent you can be far more local in every possible way, you can offer boutique services, and you can be far more responsive than a national chain. However, if you try to compete on the same parameters as the national chains, you will not win. Know who you are, know your strengths, and exploit. Most small independent retail stores fail these days, but that’s because they don’t know their strengths.
These issues sound like some of the same challenges retailers have faced over time. Granted, technology has changed the process, especially the ease of comparison shopping. And a web site isn’t a “nice to have” option but rather a necessity. However, the issues of having a solid strategy, good financing, compelling marketing, the right location, and dealing with competitive dynamics remain consistent over time.
I believe Americans have started to recognize that supporting local businesses is a good thing. I actually think it was more challenging 10 years ago, when consumers were still fascinated by the mammoth boxes like Walmart.
I can say for myself that last weekend I was luggage shopping and started out at a traditional big box retailer. I tend to find the crowds too jarring, so I left without buying. My friend brought me to an independent luggage retailer. His prices were “close enough” if not slightly less than the large retailer, and I got exceptional customer service. It is true this retailer has been around for 25 years. But I was really happy to buy from him.
You know, I’m a bit prejudiced here. My father was an independent retailer who put 2 kids through college and supported us all well with his sweat equity. So I really hope Nikki’s friend can get her business kick-started.
The continued appearance of small specialty retail stores seems to still be alive, but is it well? Having an online component baked into the strategy and execution from the start is important, and shouldn’t be an afterthought. Having a healthy percentage of online sales is key, and I wouldn’t be surprised to see an increase in the number of small retailers who start online and expand to physical stores.
Tough issues and tough questions. I attended the NY Times American Express Small Business Summit yesterday and heard from many of the brightest and best entrepreneurs who have been extremely successful in their online businesses. One was the co-founder of BirchBox, a discovery commerce (sampling) company that is changing the way woman and now men shop for beauty, grooming and lifestyle products. They still keep inventory with the goal of selling the full size product to the customer. BirchBox deals with the competition from Sephora and other stores by offering loyalty points.
I also heard from Orabrush, a company that made their mark via comical videos and multivariate testing on YouTube — the videos gained more than 15 million views and helped the company become the third most subscribed channel on YouTube. For them, online sales were reliable enough, but what really changed their business was expanding into retail. They convinced Walmart to carry their product after running an ad on Facebook targeted to senior level Walmart executives that claimed “Walmart employees have bad breath.” This got their attention and now Orabrush is available at Walmart stores nationwide.
The co-founder of Warby Parker (a transformational force in the eyewear industry that mails prospective buyer 5 eyeglass frames to try on before choosing a pair to be filled with prescription lenses) is now opening up retail centers so that people can get adjustments and fine tuning. Their focus on brand honesty and customer service is something that is more frequently associated with small town stores than large mail order companies. It seems to me that consumers want the best of both worlds.
I think the future will continue to be an integration of on and off-line components to meet the needs of the shopper and consumer.
Nikki’s friend may not be nuts — but she is sure “pushing water up hill” as grandpa would say.
The principal benefit of retail stores is and always has been to provide availability and accessibility. Today that benefit is almost totally usurped, regardless of how remote the store or unique the benefit.
The small mountain cove where my farm now sits used to house over 40 families, two churches and a general store. It now is home to four permanent residences and a couple of summer cottages. Everyone in the cove uses solar or other power sources to drive computers and smart phones with which they order regularly online, content to wait for the UPS truck to deliver their needs. Sure, they still frequent the local grocery store. And they patronize the local market days and craft bazaars. But you wouldn’t want to try to live on what they spend there.
The point of my hillbilly parable is that brick and mortar retailers are rapidly losing their primary reason for being (accessibility) in all but the most frequent and immediate of purchases (basic food needs and impulse immediate consumption being the best examples). Even in small town Colorado.
Nikki’s friend has a customer base, some hundreds of miles away, and she’s made a profit in a difficult economy. She’s got a credible value prop and she’s willing to try new ideas. Richard provided a good framework. Here are a few more ideas pertinent to point #3, marketing:
1. How can her e-commerce site grow her reach AND shorten her cash flow cycle to address credit needs? She can broaden her selection, charge customers in advance, and drop ship from vendors.
2. How can her e-commerce presence open up new ways to battle showrooming? Can she carry more exclusive items? With the time she’s not spending on in-store events, she/her son can test paid search, social media, local blogs, and have a storefront to convert immediate sales.
3. How can she take advantage of repeat purchase programs? Local loyalty incentives typically provide 10% discounts versus a 50% benchmark for new customer deals. Punchcard programs, traditional or digital, can generate 20% increases in trips and 10% increases in order size.
4. How can all of the above help her improve her assortment? E-commerce sites and social media allow for testing and generate more customer feedback. Digital loyalty programs from LevelUp, Square, and others provide analytics on what the most loyal customers are buying.
Kudos to her for the niche she’s carved out — with admittedly no marketing. My friendly advice would be to change that policy.
I think part of the issue is “location.” Independent retailers will be able to be successful, despite all the things discussed here, provided they locate their businesses in commercial districts that have high usage (gravitation).
My nearby neighborhood commercial district (about 3/4 of a mile, but actually across the State line in Maryland, as I live in DC) has some micro regional serving tendencies.
There are a handful of independent shops (second hand items, clothes, furniture, gift shop, housewares, pet store) that have struggled. There is a post office. Part of the problem is that the district includes land in both DC and Maryland, so it isn’t fully coordinated.
There are a couple restaurants. The drug store is over the line in DC, and car, not walking, oriented. But an ACE hardware moved in, and really drives traffic. Soon after, in the DC side, a nice housewares-furniture store opened (but I think they’ll struggle, as the district isn’t a frequent destination for nonresidents).
On Sundays, when there is a farmers market, the strip is hopping. Most all of the businesses are smart enough to be open and it’s probably their best day.
While the hardware store has boosted customer traffic considerably, I think it’s still tough to open in narrow categories like baby stuff or Afrocentric gifts (that store has struggled for years, finally closing last month, it’s a biz. condo space and 2+ years ago they rented most of the space to a tavern and still had some space) because the general RTA and the visitation frequency just isn’t big enough for those kinds of categories.
This story is about their struggle, it’s about 4.5 years old.
But for me the issue is that people only buy this stuff occasionally. Even if you buy all your gifts in local stores in your local commercial district, you are probably only shopping 3 times per year. There just aren’t enough households in the RTA for this category to be successful.
So it’s worth it, but more risk, to open those stores in commercial districts where there is significantly better demographics, even though the rents will be much higher.
The lower rent in a more marginal commercial district probably isn’t enough of a sweetener for a business in a narrow category to be successful.
Mom and pop retailing continues to get more challenging. As a former shopkeeper in the 90s, I had to contend with many of the same pressures that Nikki outlined. Pricing pressure came from the big box stores, money was tight, and my marketing budget was nonexistent. Layer on top of this the 21st century retail realities of the connected consumer (mobile, social, multi-channel) and the competitive landscape for small retailers is even more challenging.
Refining your business plan, finding a mentor, and embracing technology are all ways to ensure that your hard work and customer service do not go unnoticed. Finding a way to differentiate your small business from the crowd and deliver a customer experience that is valued and unique are keys to success.
Independent retailing has never been easy, but today’s environment is especially tough. Innovation and being smart about your business are necessary ingredients to be competitive.
Ok, I am speaking solely as an observer having never actually tried to start a retail business, but it seems to me the same things that many people treat as obstacles could become great enablers for the independent operator.
The whole concept of the chain operations used to be the “efficiencies of scale.” You could put a bunch of bright people in headquarters who would design business processes around automation that would give the chain stores an operating advantage. Combine that with the chain’s ability to demand lower costs because the manufacturer could get the same benefits of scale by delivering 1,000 units instead of 10 and the independent had an even steeper hill. But these advantages are starting to wane and the bigger challenge for the chain operators is finding qualified and motivated employees who want to spend their careers supporting a bloated headquarters staff.
Automation has become common place. The average high school graduate knows more about computers than many professional programmers did in the mid 1980s. With a little help to get started, an independent operator can easily learn or hire the skills necessary to maintain a website and in-store automation that will make their business more competitive. This same automation might even make it possible for the business owner to leave someone else in charge while they take a well earned few days vacation. As far as the purchasing aspects, it seems automation should also help wholesalers be able to pass on a greater portion of manufacturer discounts. Improved forecasting and investment buying automation should allow independents to receive many of the discounts normally reserved for chains.
I think it is a great time for independent operators, but it is not going to work by simply “hanging out a shingle.” Automation is going to play a key role, including a way to keep in touch with customers who have experienced the retail environment and want to shop remotely. Nikki’s friend should think of her store as providing the introduction to her customers and the Internet as her way to sustain the relationship.
One of the challenges is the dearth of unoccupied commercial real estate that is an eyesore and drag for smaller retailers to locate in the right environment, or their current location is deteriorating overall.
Another issue is merchant processing fees which I hear about all the time. Small shop owners do not have the volume processing fee discounts and have to adjust their prices upward as a result.
But the biggest issue I’m seeing is a lack of empathy or support from local governments for small businesses. Many local governments are looking for chain retailers and big boxes to open up town centers while shunning their local entrepreneurs and established local family-owned stores.
The days of “build it and they will come” for retail stores is long gone. “Location, location, location,” though, is very much still a key driver.
“Green baby products” is a niche market and she seems to be operating in a small, niche market, so a much larger, denser neighborhood, like Greenwich Village in Manhattan might help the cause a bit.
Even if you’re a mom & pop, going into a business without doing your homework, like surveying the marketplace locally, can be a nail in the coffin. Also, sticking your head in the sand as technology, even free technology like social channels, passes you by is also another nail.
get on the web, open some Twitter and Facebook accounts and blast your store out there! It’s free!
Easier now than ever. Remember, credit didn’t exist in this country until after WWII and the time before the war every business was a small business. Are there problems now and competition now? Sure, but retail has always involved hard work and long hours. They key today is to have exclusive products and first among those is customer service. In your friend’s case, when selling to young mothers, they need good advice! Your friend should be the expert supplying advice about babies, food items, toys, etc.
Encourage her to look high-end and sell items that aren’t necessarily available everywhere. Homemade is great, but pay attention to competition. She can charge more, but not too much more. But it won’t be easy; never has been and probably never will be!
I understand the concern (and maybe the fear) that obviously triggered this question. I’ve felt them myself recently. I mistrust the glibness of a few of the consultant types that have responded. These times present a deeper and more structural problem than any I’ve faced in my 35 years of retailing.
I do agree that many of the skills that have been important in the past will continue to be valuable. Passion, knowledge, merchandising, selection, and community are still vital. The tools, though, are changing big time.
It seems likely that any store that relies on a geographical or distribution advantage is toast. Everything is increasingly available in greater abundance that the market demands. Proximity matters little and convenience only slightly more.
I hope there is a place for the independent retail store in our future. I can’t imagine our cities without this vital social function. We would all be the poorer for that.
Running a small biz is often a mix of pursuing one’s personal passion while navigating the tricky path to small biz success. But in retail, and as Nikki’s article clearly demonstrates, it’s become increasingly troublesome, especially given the hobbled economy, deal- and tech-savvy consumers, and stiff competition from both small and large retail chains.
While I don’t see things getting much better in the future, I do wonder whether the path to small biz retail success can be found first in the online space, i.e., build a following online and perhaps via catalog and then establishing a Main Street presence. There are still plenty of hurdles in the e-space, but it also allows a broader reach vs. a single store with no website.
There may also be some opportunity in targeting specific demographics with website content, niche catalogs and products specific to their lifestyles and shopping needs. For instance, placing the products on websites and in the catalogs where senior consumers (new grandparents) shop, targeting new gay/lesbian parents, or targeting new dads.
Rather than the “Death of the Small Store Owner” maybe we should ask if the window of opportunity may be closing or narrowing for the independent retail store. The example I like to use with students and clients: the independent video rental store. Blockbuster closed that window and now streaming video closed up Blockbuster.
Our family business started as 3 small Italian delis and grew to a large regional frozen food brand. Those stores were built in a time where retail was far less complicated and where great products drove your success. Today, the business would never be able to replicate that path.
When I see the retail sector today I see 4 areas dramatically changing the landscape:
Customers are highly segmented and driven more by lifestyle vs. less complex demographics
Digital Technologies, mobile being the platform pushing change at rapid rates at retail
Showrooming – we all know this one
Shopper Marketing – which is too complex to address here and assumes, first, an understanding of consumer behavior
I struggle with how small store owners, who are artisans by nature, have the desire and/or resources to learn these, let alone the capacity to execute on any of these.
Can small store owners be better off as web-enabled retailers? Maybe.
Web enabled retailers can test the feasibility of their concept without the constraints of a physical location. The virtual store allows rapid prototyping, tweaking and changing product assortment and prices. A physical location imposes many constraints and far too often “you have to get it right” the first time.
However ecommerce can be very complex… not so much from the platform perspective. Consumers have an expectation that the site knows “you” and customizes the experience. It is also a domain where the “big brands” again have the wherewithal to execute shopper loyalty programs, targeted email campaigns, some level of behavioral analysis, text and/or app based promotions… the list goes on.
So, is the REAL problem small store owners can’t compete with the larger retailers for a variety of reasons? Or is the REAL problem the consumer finds less value in shopping at retailers run by small store owners?
Independent retailing is not easy, and the skill set needed for success is greater than it once was, but success is very possible if you keep the focus on the fundamentals. From my extensive work with independent retailers, here are a few keys to building a successful business model:
Be customer driven – one customer at a time, one transaction at a time, building long-term personal relationships day after day after day. Build those relationships around a shared passion between yourself, your staff and your customers.
Feature distinctive, high-quality discretionary specialty products produced specifically for niche markets, characterized by craftsmanship and an attention to detail. These aren’t the basics of life, these are the things and activities that makes life special for each of us.
Be sure value is denominated by the totality of the customer experience – selection, taste level, product quality, state-of-the-art product knowledge, flawless customer service, a distinctive store, and warm and engaging staff — and not just price. This enables you to maintain price integrity and sustainable margins.
View technology primarily as a means of enhancing your relationships with your customers.
The driver in all of this is your passion and purpose. This model is sustainable so long as your store reflects that passion and purpose, and maintains its commitment, freshness and dedication to customers.
The issues that Nikki mentions above are not unimportant, but ultimately they are secondary to all of these other things. They are challenges that can be met and overcome by a focus on these fundamentals.
Small businesses retail or other will never die. The notion that it will is simply foolish from any perspective. Today we have more ways to succeed than ever before. Using tried and true methods of business or the all new internet, many new trail blazing businesses will start and do well. Even in this awful depression, people have more options and ways to survive and grow a business than ever in the history of commerce. We live in troubled times all over the world for the new business person to wade through. But I for one sit in awe of all the opportunities that exist now that never have before.
This where retailing began, and it might also be where it ends. Retailing and customers need Mom and Pop stores to keep the market interesting and exciting. Time was when merchandise was regionalized without national distribution. Those times are gone. The only thing exclusive is customer service and owner involvement. The BrainTrust members and others should encourage the independent to hang in there. Distributors, find a way to give independent store discounts, or create independent store networks. Save the Small Store — SSS!
Many excellent points here. The first thing that I thought of when reading the article is that many of these challenges are the same for larger retailers. Furthermore, some large retailers face challenges that smaller retailers do not face.
I also wanted to echo David Biernbaum’s comment since I wrote a blog post that goes along with his point. Small and independent retailers have an opportunity to differentiate themselves because they are small and independent. The post that I wrote was about the simple act of writing a customer newsletter. This is one of the many things that a small retailer can do to interact on a more personal level with customers. Also take a look at what Jack Mitchell and the Mitchell family have done; they have taken the personal relationship with their customers to a level that no large retailer could ever achieve.
OK, here is my 2 cents worth. Most of you know I am a small independent grocer, and even though things are tough, I still maintain a profitable store, and I am always looking for ways to improve. Is it easy? Hell no, but there still are people out there who want that personal attention. Also, and this is a huge point, the customer doesn’t want to be gouged at the checkout, just because our store is unique.
You must always keep the value proposition in mind, as consumers will pay slightly more for homemade foods.
Walmart and other bigger stores have no clue how to run a Deli or Meat Department properly, as they just sell lunch meats at very high prices. Take advantage of that and work it hard, and you’ll succeed. People want to feel special buying that all important roast for the family, and we provide it to them for less money and better quality. What could be better than that? It works!
Of course it’s tough but that is nothing new as long as there’s been competition of any kind.
There’s a piece in today’s WSJ about small merchants selling through Amazon and competing against Amazon at the same time (http://on.wsj.com/NKeoqF) that outlines some of the challenges but the real opportunity is for “mom and pops” to create their own unique identity and reason for being.
There are countless examples of single-location stores that excel and thrive. A noteworthy example in Atlanta called Sid Mashburn has an experience and offering that is untouchable by a large chain store or by the likes of Amazon. It’s the “magic intersection” of experience, service and merchandise authenticity that is a refreshing reminder of what retail can really be when it’s done to perfection.
There are countless others, especially in specialty retail. It’s essential you know what you stand for, for which customers, and just as important, what you’re not trying to be (or compete with). Then it’s a matter of execution and refining your offering as precisely as possible.