U.S. Small Business Administration
As national chains and discounters cut an ever-widening swath across the country, many small U.S. businesses are shuddering in trepidation. Others conjure up the image of David and Goliath and bravely sally forth, confident that the armor of these formidable giants has chinks ready to be exploited.
And they're right. Savvy merchants are learning fast that smallness has its advantages. They're capitalizing on what differentiates them from larger competitors and turning these differences into reasons customers should walk through their doors. However, this is not a contest for the easily dissuaded.
The struggle for the American dollar has never been tougher. So much so that it attracted the attention of Fortune magazine, which recently devoted an entire issue to the "new consumer." Warned the publication, "Whether you sell $100 million planes or 79-cent pens, your buyers have changed enormously in the past few years. Their demands are lengthening; their patience is shrinking. Epochal shifts in the global economy have given them a sultan's power to command exactly what they want, the way they want it, when they want it, at a price that will make you weep. You'll either provide it or vaporize."
While these are hardly comforting words, the analysis is not completely discouraging, however. Fortune also asserts, "A sluggish world economy since 1990 has made consumers everywhere rabid about value, which doesn't necessarily mean the lowest price but does mean the best deal for the precise mix of features the buyer wants."
The concept of value is not a new one. But what it means to today's consumers is another story. Figuring out the "precise mix of features" that sets customers' hearts afire and making sure you provide that mix are absolutes if you're going to compete successfully with the big boys. That involves a lot of homework, effort and willingness to change.
One Los Angeles-area restaurant turned to focus groups to get a better sense of customer attitudes. The owners of the California Pizza Kitchen discovered that for their patrons, value meant larger portions. Observes co-chairman Larry Flax, "We're learning that people want more for their dollar. It isn't a matter of lowering prices. If I took a quarter off the pasta, it wouldn't make a difference." As a result, the company is holding the line on prices; no entree costs more than $10.
If the new competitive arena leaves you feeling ill-equipped, assistance is available. Out of the battle with the mercantile giants has sprung a plethora of consulting firms, devoted to helping small businesses retain their threatened territory.
One Man's Story
Al Hunton is one proprietor who chose to go it alone. Owner of Burlington Square Opticians in Vermont, he stood tall in the face of adversity and came out a winner. But it wasn't easy. Not only was he confronted with the arrival of a big chain competitor, but he also had to cope with unsatisfactory cost margins, a partner's death and New England's lingering recession. Rather than close his doors, he gave his customers what they weren't getting from Lens Crafters -- a lot of time and personal professional service.
"We promise to take more than an hour," he proudly emphasizes, referring to his competition's advertising slogan. "We live in a rush-rush society; everyone wants something immediately. We prefer to take a different tack, and tell our customers, `Your eyes are important. Taking care of them right takes time.' Besides, industry statistics show that only seven percent of people need service in an hour, usually when they've broken their glasses or lost a contact lens."
In addition to devoting more time to customers, each of Hunton's five locations is staffed by four to five highly qualified, experienced opticians. "That's our major strength," he notes. "Most chains hire frame stylists, who receive an average of two weeks training and work only part-time. We always have licensed opticians on the floor.
"Small companies have a choice," Hunton believes. "They can present quality or price. As they usually can't compete on price, the only thing left is quality. For us it means quality staff and quality service with warranties on everything we sell. And it's paying off. Business increased 20 percent in 1992 over 1991, and nine percent in 1993 over 1992."
A Nationwide Movement
Stories similar to Hunton's can be found in every state. Some business owners, like Hunton, figure out how to succeed on their own. Others are banding together, raising money, promoting aggressively and even hiring full-time help to revive their shopping districts.
The spark that has ignited the revival of hundreds of downtown business districts across the nation can be traced to the nonprofit National Main Street Center (NMSC) in Washington, D.C. A gold mine of information, NMSC is a division of the National Trust for Historic Preservation, which itself is leading the resurgence of small city downtowns. NMSC works primarily through state Main Street programs but also provides services to communities with populations between 5,000 and 50,000 that don't have access at the state level. In addition, help is available to downtowns of mid-size cities and neighborhood business districts of large cities.
"Hundreds of downtown business districts -- known everywhere as `Main Streets' even if they have no street by that name -- and tens of thousands of small firms are learning how to fight back," reports Independent Business magazine. "The battle has been bloody."
And the statistics are staggering. According to the magazine, there are now more than 36,000 shopping centers in the U.S. compared to 22,000 in 1980. The malls encompass 4.2 billion square feet of space -- or 17 feet for every American.
Ironically, malls are spending millions of dollars in an attempt to recreate the feel of a traditional Main Street. Real Main Streets are waking up and working aggressively to revive their districts.
"People are getting tired of homogeneous places that lack character and don't foster a sense of community," asserts NMSC director Kennedy Smith. "Downtowns, however, are one of a kind. The level of service local small businesses can offer customers is unmatched."
Difficult Dilemma
Sometimes the issue of local establishments versus large chains is not clear-cut. While the survival of small operations is a priority, the influx of large retailers and discounters can present communities with difficult choices. The lingering recession has robbed many cities and towns around the U.S. of thousands of jobs and eroded their once stable tax base. When a chain or discounter moves in, it brings much needed employment and tax revenues. So how do municipalities balance the need to nurture and support local businesses with the desire to provide jobs for residents?
One Northern California community decided to do nothing. Taking a laissez faire attitude when Home Depot came to town, city officials placed their trust in survival of the fittest and let local merchants fend for themselves. Another community, in upstate New York, found a way to accommodate both sides and get the best in the bargain.
Welcoming Wal-Mart
The historic town of Hudson is about to become home to one of 17 Wal-Mart outlets opening in New York, New Jersey and Connecticut in 1994, bringing the total to 51 in these three states alone. Unlike Greenfield, Massachusetts, where residents voted to bar the Arkansas-based giant from moving into their community, the four dozen merchants and antique dealers on Hudson's Warren Street (the town's main thoroughfare) are putting out the welcome mat. They're betting they can thrive in Wal-Mart's shadow by capitalizing on the carloads of consumers who will travel through Hudson to reach the new store, located just two miles outside of town.
Many shopkeepers are revving up their marketing to attract new customers to the cobblestone sidewalks of their 208-year-old city. They have rededicated themselves to offering friendly service, cleaning up their stores and expanding their wares. They're also doing their homework on this new competitor, photo-copying newspaper articles for each other, arranging seminars with retail experts, taking field trips to study Wal-Mart stores firsthand, and jettisoning products that are in direct competition with Wal-Mart.
According to Barbara Swanda, director of New Jersey's Main Street program, the Hudson merchants are making all the right moves.
"First off, it's critical that you shop the competition," she advises. "You need to research the products the competition is carrying in comparison to your own and determine the areas in which you are going head to head. Then you have to either upgrade your products or broaden the variety of your selection.
"You can't compete on prices," notes Swanda, "so you have to change in other ways. For example, if you own a hardware store, you should offer a different brand of tools than that carried by the discounter – preferably a better brand."
Swanda also urges businesses to take a more personal interest in customers. "Greet them by name. Some stores keep a very detailed list of repeat patrons that includes important dates, the kind of merchandise a customer is typically interested in, whether a patron needs a special size or likes a certain designer. Smart proprietors use that information to stay in contact with their customers."
She also recommends that district merchants coordinate their advertising. "Ideally, you want to establish yourselves as a destination point; a place people can go for a variety of products and services. You don't have to limit the alliance to retail establishments, either. Accountants and lawyers can also participate, letting customers know that they don't have to go far for these types of specialty services."
Consultant Kent Burnes, who helps small businesses stand their ground against what he terms "the big boxes," agrees with Swanda.
Building on the hardware store analogy, he stresses, "You have to find your niche. Let's say a discounter is selling a drill at $19 but you have to sell it at $23 to make a profit. You have a choice of offering a different brand or repackaging the drill with accessories that make head-to-head pricing impossible. You can also go back to the manufacturer and ask for price protection. The manufacturer, in many cases, will be willing because he needs independent retailers to introduce new products."
In the seminars he holds for business districts around the country, Burnes advocates his "ready, aim, fire" approach to help ensure not just survival but success as well. He emphasizes:
- Identify your target market.
- Don't try to out-price the giants on the same line of goods; that's a losing battle. "Instead, sell around them," suggests Burnes. "Emphasize better quality and harder-to-get products. Be more nimble, and advertise with a sharper focus."
- Take a look at your visual image. "What are you doing with window displays, merchandising and in-store signage?" he asks. "How easy is it for customers to navigate your store's traffic patterns?"
- Carefully assess your inventory. Weigh the advantages of dropping slow-moving and low-end items.
- Extend your store's hours. "The majority of products are sold between 4 p.m. and 8 p.m. -- after people get off work," notes Burnes. "Don't hold onto hours that are convenient for you but not your customers. Stay open an hour or two later. You're better off opening at 10 a.m. and closing at 7 p.m. If you're currently a Monday through Friday operation, consider being open on weekends would prove cost effective. Additionally, you need to have unity among the other merchants in your area."
- Examine employee attitudes and customer service. "Not surprisingly, customers would rather shop where they can get personal service," he asserts. "Teach employees that patrons are a source of revenue, not an annoyance. Employees need to have a good understanding of your clients and their importance to the business. Focus on building one-on-one relationships with customers."
- Improve your technology. "A lot of technical changes are coming down the pike and the farsighted merchant has a technology plan as well as a business plan," emphasizes Burnes. "For example, is your inventory computerized? Is your telephone system equipped with such customer service-oriented features as call forwarding and voice mail? Are you taking a variety of credit cards? Everyone should because the discounters and chains do."
Winning the Battle
Despite what seem to be overwhelming odds, small local businesses can succeed in the shadow of mega merchandisers. But in many cases, things will have to change.
"The days of having customers walk in the store because of a lot of foot traffic are gone," Barbara Swanda maintains. "Local retailers must actively pull customers into their shops -- from the appearance of their premises, both outside and inside, to the products they offer and the way they complete a sale. It's definitely possible to win the battle but it must come from the desire of businesses to help themselves."
Adds Burnes, "It's a tough retail world out there. But by becoming more knowledgeable and more sophisticated, and by stressing customer service and the individuality of their own operations, small business owners can encounter the big retailers and survive -- even thrive."
Consultant Helps Small Businesses Cope With Change
"It's not big business that's putting small business out of business -- it's small business," maintains Kent Burnes, whose consulting firm has assisted hundreds of small companies throughout the U.S., Mexico and Canada cope with changes in their markets such as the advent of mega merchandisers.
Previously the owner of a jewelry store in Northern Wyoming, Burnes witnessed the decline of his town's downtown area as retailers started going out of business. "The downtown is like the central heartbeat of a community," says Burnes adamantly. "If it's not pumping blood, the rest of the community starts to die as well. The decay spreads from the inside out."
In his decade-long role as a consultant, Burnes has witnessed both successful and unsuccessful downtown revitalization efforts. "It's not enough to just improve aesthetics with new lampposts, sidewalks and shrubbery. All you have after mere beautification efforts is a gingerbread house. And those living inside the house still haven't been taught the basics -- the nuts and bolts -- to compete successfully. What I offer are simple educational solutions that help small businesses work most effectively with three central elements -- their customers, their competition and themselves."
Burnes urges small business owners not to try and emulate the strategies of large national retailers, who compete by offering low prices and a multi-departmental product mix. "You can't win against them by attempting to be a `serve all,'" Burnes emphasizes. "But you can take advantage of the opportunity handed to you on a silver platter by these giants -- who can't serve the customer as well, who don't have in-depth product knowledge, and who offer a broad -- but not deep -- selection of merchandise."
Expanding upon the recommendations provided above, Burnes urges business owners to consider "the real simple stuff" such as accepting a full range of credit cards, investing in a fax machine for customer orders, implementing a generous return and layaway policy, and offering to special order items requested by customers that you don't normally stock.
And he goes a step further. "We're seeing an unparalleled scourge of towns across America as the huge discounters advance," he warns. "Municipalities have to carefully examine the trade-offs, and start managing their business assets the way they manage such resources as water. They need to invest in their own commercial base so as to be able to sell more products and services through existing businesses that have generational commitments to the community. Creating public/private sector partnerships to help retailers compete will result in more job creation and money coming back to the community through increased sales. As I've seen time and time again, if you manage your business assets effectively, they will pay you back."
*Excerpted with permission from "Small Business Success" magazine, Volume 7, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration and the Partners for Small Business Excellence.