Fall 2002 Beating the Big Box
Back in the day, Main Street was lined with storefronts and dotted with vendors on carts. Then came department stores. And now, “big-box” stores, systematically knocking everyone else off the block. Or are they? Can independent retailers survive and thrive in this era of deep-discount giants?
“Is there hope? Very much so,” says Jack Rice, a consultant in Longmont, CO, who tours the country to help retailers fight back. “In practically every town with a big-box retailer, you find at least one outstanding independent operator who is thriving.” But it’s not a given: “You need to work at it. You need to be willing to change,” he says. “And above all, you need to remember that you are the purchasing agent for your customers—not the sales agent for your suppliers.”
And pass the ammunition
As the story goes, David toppled Goliath with a slingshot and some stones. What can today’s specialty retailers use to stand up to their Goliaths, the big-box stores? How do you combat the giant and emerge victorious? Experts say there are a pocketful of power “pebbles” you can use.
For best results, make a plan—a “battle plan,” if you will—as early as possible. In fact, it’s smart to get started even before the big-box operators arrive. “Too many retailers fail to see the storm as it’s coming,” says Tom Shay, a retail consultant in St. Petersburg, FL. “There’s some denial. People say ‘It can’t happen in our industry’ or… ‘in our town.’” But it does, and independent retailers aren’t prepared. “They start eating off their inventory and their assets,” he says. “And down the tubes they go.”
But not you. You’re going to deploy your toughest armament: knowledge—a strong, working knowledge of what worked for retailers who have battled the big-box stores and thrived. Here are the main elements, the power “pebbles” for your battle with the giant. You’ll use some of them outside your business location, and you’ll use others inside, at your cart, kiosk or store.
On the outside
Move faster than they do. Change your advertising to take advantage of negative local news about the big boxes, like being out of stock of a popular product. List as many items as you can that they don’t stock but you do, and tell the world in recurring ads or your newsletter. Monitor their stock position and update your list continually.
Identify and exploit niches
Despite their size, the big boxes can’t cover everything, even if it looks like they do. So exploit the market niches they ignore or mishandle. To find out where they’re weak, shop their stores to find the holes in their marketing strategy—the merchandise they don’t carry, the services they don’t provide. No unique or innovative products? Too little variety? Long check-out lines? Few good sales people?
Involve your staff in this, too. One idea: Prepare a brief questionnaire and have your employees ask big-box customers (outside the store) what they like and dislike about that store. Take notes, look for patterns, and then take advantage of as many weaknesses as you can. Then promote your strengths in your ads, etc.
Get involved in your community, because this kind of relationship marketing—getting to know people one on one—can pay big dividends. While big-box operators can buy their way into the hearts and minds of the market, you can work your way in. Network with as many civic and trade organizations you can, and participate in or volunteer for community fairs and events of all kinds, says Rupp. Doing that can give you an edge over big boxes that have no roots or personal relationships in the community. “You’re laying the groundwork for future sales by shaking hands and kissing babies,” he says.
“The big-box competition is counting on you to try to go it alone,” says William Rupp, PhD, professor of strategic management at Robert Morris College in Pittsburgh and the author of a study of mass merchandising. Don’t do it! “Create synergy by banding together with other small businesses in your community,” he says.
One example Rupp cites is six small, independent bookstores that banded together,
presenting a unified front to compete against a new Barnes & Noble superstore. Part of their strategy: a series of daily newspaper ads highlighting the specialty of each of the six bookstores on a rotating basis. An association like this would work for any type of specialty retail. The retailers don’t have to be in the same category, says Rupp; they could be in the same center or on the same street, for example. In any event, join forces to brainstorm marketing solutions that heighten your profiles and bring more customers back.
Learn what other retailers have done
“Study the advertising, store layouts and employees at retail stores who are battling the big boxes successfully,” says Rice. It doesn’t matter if they’re in a completely different line. “They’re proud of their success and delighted to share their thoughts with you.”
From the inside
Don’t compete on price. “Too often, the independent retailer tries to compete on price when a mass merchandiser enters the market,” says Shay. “Big mistake. When a bear goes in the water after an alligator, the alligator usually wins.”
It’s natural to promote price in reaction to the new bully on the block. After all, the big box is making huge waves with all those full-page color ads. But here’s the problem: the traditional retailer who switches to advertising price has essentially let the giant competitor decide what game to play. To the public, that retailer is playing “follow the leader, and the leader is the big-box store—a hero in the consumer’s mind—that brought prices down for everyone. Shoppers see little reason to go back to their old stores or specialty retailers.
Still, this doesn’t mean that you can ignore the price issue. After all, the big box’s discount pricing has made this a critical issue for everyone. “You can’t be exorbitant in your pricing,” says Shay. “You have to be in the game.” But how? Shay has a two-pronged approach:
1. Match their pricing on selected items. To keep your customers, they have to know that you price the most important items the way the big boxes do. Create a list of items they’re promoting—these are the ones people want, so they track those prices. Then make your prices match or come very close to theirs, and promote them.
2. Pump up the prices on the rest of your inventory. “There are many items for which people don’t have the foggiest idea what the prices are,” says Shay. The higher margins on these items must more than offset the lower prices on the items you’re promoting. The result: the overall gross margin for your business matches or exceeds what you were enjoying in the “pre-Goliath” days. (By the way, the big-box operators do this, too.)
Create a value image
Since big-box competition has monopolized the price-leader image, you need to establish a reputation for something else. Otherwise you’ll be perceived as following the leader again. While low price is a powerful lure, that’s not all it takes to win. “Price is not the most important reason for customer loyalty,” says Rice. Survey after survey shows that customers return to a retailer for reasons other than saving money. Here’s what you need to do to meet their other needs:
• Have the right selection. Stock the merchandise your customers want, and always be fully stocked. Not running out is extremely important: “out of stock” means loss of customers. Shoppers will stick with you if they know you have what they want. So make sure your inventory system triggers re-orders at the right quantities to avoid empty shelves. And take shoppers’ requests seriously: tell them you’ll get it and will let them know when it arrives.
Give prompt service. Today’s shopper needs to get in and out fast. Save a shopper time, and you have a loyal customer. Train sales staff to respond to the shopper quickly.
Give good value. Low price doesn’t do much good if the product or service doesn’t meet the customer’s needs. Shoppers are usually willing pay a little more if you’re giving them what they want.
Offer smart help
Shoppers respond with sales dollars to staffers who pay attention to them and take the time to answer questions fully and clearly. When customers don’t get answers, they lose time and patience, and that means lost sales. Many big-box stores are known for poor, inattentive service. So make sure your employees are not only knowledgeable, but more so than anyone else’s. Rice says “this will go a long way” toward competing against big boxes.
Visual merchandising matters. An attractive display is worth plenty, and you’re likely to have an advantage here over the big-box stores, because they’re often weak in this area. Create displays that catch the customer’s eye and communicate that your merchandise and services will improve their lives and make them happy. Get your sales staff’s input: take pictures of your displays and ask your staff work up ways to improve them to spark sales.
Upselling is vital: train your sales staff on selling skills, especially upselling: how to move customers up to the next level of quality, or add related items to their purchase.
Survey your customers frequently
Find out what they want: which products or services could you offer to make their lives easier? Their answers are gold.
Facing up to the big-box retail Goliaths can be daunting even to the sharpest specialty retailer. But armed with some foresight, a battle plan and a pocketful of “pebbles,” you can compete, remain standing, and enjoy a profitable co-existence.
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