RETAILER

The Small Retailer’s Survival Guide –

Retailing is one of the toughest businesses there is. The reason is that, although trade may be steady, it is a low margin business. This means you work long and hard for little reward. You are in a market where the customers are very knowledgeable about the products they are buying and the have a preset idea of what range of price they are prepared to pay. You are in a business where “the big order” never comes. All you can do is grow your business steadily and hope that a superstore doesn’t open over the road and steal your customers. If you seriously struggling as a small retailer, the first thing to ask yourself is “am I ready for the fight?”. If you have doubts, it may be time to quit right now. On the other hand if you are up for it, by working to your strengths as a small retailer and by hanging in there, the rewards may be better than you imagined.

Some people bemoan the demise of small stores and blame the large chains for their downfall. Superficially this is true, but this is like Yahoo! blaming Google for its downfall (should it ever happen) or radio stations blaming television for losing audience and advertising revenue. I suspect that few of the people who want small stores kept as museums would be prepared to support them by buying goods from them if they are given the choice of better value for money in a chain store over the road. So get real. Forget blaming the opposition. You need to do this for yourself. You never know, you
may one day expand your business into a large chain yourself – and then the little guys may all blame you!

If you are struggling as a small retailer then the most obvious thing you need to do is to change what you do. Some changes may be low cost and easy, others may require you to invest in the business and will mean a lot of effort and commitment. The key thing is to compete with other stores by working
to your strengths. The greatest strength a small local retailer has is that it is small and local. Large chains cannot be small and, although an individual branch is local, it’s primary focus is to the company and not the community it serves. Large chains will never be good at buying local products. Fragmenting buying power from localities is a contradiction of the way large chains are structured. They buy in bulk for a large customer base spread over large areas – that is why their prices are competitive. On the other hand, a small retailer can forge links with local producers. There may be a factory down the road that makes toy cars (OK then, a factory down the road that imports and packs toy cars that are nowadays made in China). You may also have a local dairy that sends their milk to a large store chain but may be happy to sell you a few pints each day. Explore your locality – you may be surprised at what you discover, and the bargains that you can negotiate by going straight to the source rather than through a wholesaler. Offering your customers local products is a good way of demonstrating one of your greatest strengths and having your own unique selling point (USP). You may even be first in the queue for new product trials. This will give your store a very specific and potent USP.

A small retailer can’t offer the lowest prices. This is usually impossible in the face of the buying power of large chains. What a small retailer can offer is intelligent pricing. You may reduce prices at certain times of year or even on certain days of the week. You could offer a buy-one-get-another-product-free deal by combining healthy sellers with less healthy ones. What you need to do is avoid giving customers the impression you are always more expensive than the large chain down the road. By majoring on price reductions for limited time periods you will give a quite different impression: your store will be a place where customers can often pick up a bargain and where most days there is a bargain price being offered somewhere in the store. Be just as nimble with your product range – it should never be set in stone. Be prepared to strike out poor sellers and try out new lines. Change the range when there is a major festival such as Christmas in order to accommodate different buying patterns. Remember, though, to keep changes limited and as gradual as possible so that customers can still find what they want and don’t feel excluded. Get to know your customers’ buying habits and anticipate demand patterns. Keep a close eye on possible out of stocks and react quickly when out of stocks occur.

Customer service is one area where you have the ability to beat larger store chains. No matter how well they treat their customers and how polite they are, you can treat them even better and be even more polite. The same goes for hygiene: make your small store a beacon of cleanliness. You’ll be amazed how many customers you will win over by having a spotlessly clean store. Also, consider extending customer service by having a home delivery service, perhaps teaming up with other local retailers. You may consider refitting your store, but before you dive in, make sure you employ good people to do the job. A refit can be a nightmare but, when it is done well and for the right reasons, it can do wonders for your sales and profits.

If you put into action some or all of the above ideas, then, if you were just ticking over before you will probably see an improvement. If you were seriously struggling before then you may at least survive. You may be thinking “just surviving doesn’t sound like a whole lot of fun”. I would agree with that. The point is, though, that things are bound to change for the better. This is not wishful thinking, this is based on an analysis of the retail market in most countries.

The nature of retailing is varied across the globe, but there has been a general power shift towards the large retailers at the expense of others in their supply chains, such as producers. This is set to change. In more mature economies, retailers have put a great deal of effort into cutting their costs. They have done this by shifting much of their work to third parties and this often means the producers. They have deskilled their staff away from the tradesmen that they once employed to a slick operation where no skill is required. Nowadays most goods come into the store ready to sell where no skilled preparation is required. The latest thing is for whole sections of pre-merchandised fixtures to be delivered to stores, to the point where store staff never actually handle the products. Distribution is usually carried out by a third party. Even the management of distribution can be farmed out. Often, head office functions such as regulation enforcement, including labelling and hygiene requirements, are farmed out to others. Even the buying function has been consolidated. Whereas buyers have historically dealt with a large producer base, many large stores have rationalized these producers into a handful of companies who will then go on to buy smaller lots from around the world. Buyers in large chains may rarely see the products being produced. Also, in to order release cash for expansion, many large chains sell their capital assets such as buildings and then lease them.

Producers in particular are now starting to think: “what assets do the large retailers actually have?”. They have virtually no plant and machinery, some own very little real estate or vehicles and they have very few skilled workers. Apart from some sophisticated ordering systems, the only real asset that they still have is goodwill – lots and lots of customers going into their stores. Retail customers are fickle, though. If better value for money can be found elsewhere then that goodwill would vanish very quickly. Without the assets and the skills required as a base to recapture customers, today’s big retailers could become tomorrow’s casualties. And what seismic shift would need to take
place in order to lure customers away? Remember where you read this first. The people with the skills, the machinery and with the contacts with small producers worldwide are the producers themselves. Wholesalers – the middle men – had already been cut out of large and mature retail supply chains many years ago. This time, though, the time is coming when the end-men will be cut out – that is
the large retailers.

In any large supply chain, the largest profit is made by the most dominant member of the chain. Nowadays that tends to be the retailer. If producers set up their own distribution or use a third party distributor and they acquire their own stores (either by building them, or more likely buying up another retailer), they will not be adding greatly to their current workload, as they do a much of the work anyway. They will not need to take on many more skilled people as they already have them and they will not need to invest in production as they have it already. They will be able to undercut their old master by a substantial margin and still have plenty left over to make handsome profits. They will not need to withdraw their supply to the large retailers – why should they? What they will do is charge them higher prices for goods they produce. Today’s large retailers have consolidated and deskilled so much that they will not be able to adjust fast enough and will suffer dramatically. Eventually they will be forced to sell their stores to the new kids on the block as the slaves turn on their masters – but this will only happen after a great prolonged upheaval.

So what does this mean for the small retailer? The large retail chains will be shaken to bits. The small retailers will stay put and take on the business that will come along in the transition period while the old retailers decline and the producers take time building up. I would say that the future for large
retailers is increasingly looking shaky. The small retailers can only benefit. Remember also that fuel prices are set to stay on a long term upward trend. Local and small may be just the thing to be in future times. If you survive these hard years you will be the winner in the end as small retailers rise up again. So keep going!

Author : Vernon Stent