The Little Guys Strike Back

Independent store owners have good reason to be a solemn lot these days. Huge discount chains are cutting a wider and wider swath through American retailing, gobbling up market share, taking over entire new categories of merchandise, and irresistibly driving down prices. The chains have become so prevalent that they're starting to nibble on one another; and even once-invincible Wal-Mart has seen earnings dip.

Competition for customers from catalogs and on-line retailing keeps growing. Yesterday's stronghold, the shopping mall, now is a struggling institution. And consumers -- lurching about capriciously in the psychological pinball machine of modern marketing -- have become frustratingly unpredictable.

As a result, bankruptcies of retailers across the United States have climbed to an average of about 17,000 chains and individual stores a year during the '90s, up from fewer than 11,000 a year during the '80s, according to statistics compiled by the accounting firm Price Waterhouse. Entire categories of independent retailers, such as pharmacies, have become endangered.

Yet, even as attrition rises and "category killers" dominate, something is stirring among many independent store owners throughout the country. It's the attitude that "there is plenty of room, even under today's circumstances, for my store, and I'll do nothing less than reinvent if I must."

Don Taylor; an Amarillo, Texas, retail consultant who used to own a lawn-and-garden store and is co-author of a recent hit book, Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Retail Giants, says, "Those independent store owners who choose to compete -- and implement innovative strategies --really can succeed in going head-to-head with anybody."

Michael Rubin, a successful new retailer in California, says that if the chains are "steamships plowing through the ocean, then we have to be the cigarette boats zipping around and through them and changing direction on a dime. That must be our advantage when going up against the tremendous cash and resources of the biggies."

Perhaps the most encouraging characteristic of this fresh breed of stubbornly competitive store owners, however, is that they don't just operate defensively. They aren't always just looking over their shoulders at what the power retailers are doing.

"The 'big boxes'" -- everything from giant variety-store chains to "category killers" in retail areas such as sporting goods or electronics -- "had been around long enough that independents have either gone out of business or learned how to adapt," says Jay Wedeven, a retailing consultant and principal of The Strategic Edge, in Southfield, Mich.

Today's reinventors of independent retailing are looking their customers straight in the eye and asking: How can I serve you better? While such an approach often involves moves to out flank big discount outlets, these independents' strategies go far beyond that alone.

Here, based on anecdotes of small retailers and the advice of experts, are 10 strategies behind their success, including some words of caution:

1. Make Shopping An Experience

Just having goods in stock and on the shelves isn't enough anymore; increasingly, shoppers require a variety of attractions to give a retailer their business.

"This strategy relies on something you can smell or touch, kind of like when you're trying to sell a home and you put a batch of cookies in the oven about an hour before your open house," says David Wing, owner of Retail Advisors, a Seattle-based consulting firm.

A year ago, Valeria Watson, who designs organic cotton clothing, joined forces with Gary Schuyler, who produced natural body-care products, and opened Virtues in Phoenix. The store offers not only products but also facials, massages, and other manifestations of the partners' "green" philosophy.

"We call ourselves a 'lifestyle store,'" says Watson. "We have an upscale environment with a heart." Business is so brisk that the pair plan to more than double Virtues' 2,000 square feet next year.

Petroglyph Ceramic Lounge is a retail-entertainment hybrid. At a handful of locations around the San Francisco Bay area, customers select a once-fired item of ceramic ware from hundreds of options, for an average of $15 to $20 apiece. Then they pay $6 to $7 an hour to sit and paint their creation. Petroglyph administers the final kiln-firing right at the store.

"People don't have to get their hands dirty with clay to get the joy of finishing something," says Rubin, co-owner, with his wife, Jennifer, of Santa Cruz-based Petroglyph. "And this is something you can't really do at home, especially socially, because it takes so many supplies and so much equipment."

A book nook offers inspiration and ideas for ameture artisans. A kids' cave features videos and other diversions to entertain youngsters. Arrangements of tables and chairs and a juice bar encourage interaction; some people even come to Petroglyph on dates. To take maximum advantage of the store's concept, Rubin also has begun offering other activities at Petroglyph, such as mosaic-making.

Expansion of Macon Christian Book Store, in Macon, Ga., two years ago included a 36-seat coffee shop that serves as the setting for regular concerts as well as repast over a hot brew. "The coffee can be profitable, but the idea really is to get people to stay longer in your store," says owner Chris Childers.

2. Focus On Your Store As A Brand

More independents are thinking of themselves not just as a hardware store or a clothing outlet but as a destination that can squeeze more revenue out of each visit by each customer. Some diversify into new lines of products and services and then market the store's personality as the characteristic that binds them.

"The store itself is rapidly becoming a 'meta-brand' -- one that encompasses a broad spectrum of categories," says Carl Steidtmann, a leading consultant in the retailing field who is with Management Horizons, a Columbus, Ohio, division of Price Waterhouse.

For example, Tom Young, owner of Foley Rexall Drug, in Foley, Minn., already has outlasted at least one locally owned competitor in part by continually shifting his product mix. When a nearby clothier closed a few years ago in the town of 2,000 people, Young added sweatshirts and T-shirts. He also has opened a soda fountain.

As managed-care health-insurance plans increasingly favor big drug store chains in the prescriptions coverage they provide, the number of prescriptions Young fills has been slashed, he says. "We just keep trying different things" to stimulate retail sales, which have become more important to the store's survival. "We don't have a discounter in the area yet, but I think I could compete against one just with our personality and service alone," Young says.

Three years ago, the King Group watched glumly as a Staples moved in a block from King's location, on 33rd Street in New York City. The company had been a family-owned office-supply store since 1956, but the owners knew that the new office superstore in the neighborhood would be a powerful draw away from their shop.

As part of King's strike-back strategy, the store gave increasing attention to phoned-in delivery orders. It also expanded its self-definition: not just a retailer of office supplies but also a purveyor of many more goods and services to anyone who came in the door. King has added a first-class sandwich shop, a comprehensive copy center and a unique, art-oriented gift center that includes antique furniture and exotic frames.

"These customers already were in the same geography as our store; we're just selling more things to them when they come in," says Bob Gillon, chief executive officer.

3. Form Cooperatives.

Mimicking long-successful partnerships in the hardware business -- such as Ace Hardware Corp., based in Oak Brook, Ill. -- and in auto parts -- such as NAPA Auto Parts Co., based in Atlanta -- more types of independent retailers and their distributors are joining forces to form purchasing and marketing cooperatives that give them the critical mass to be players on today's enlarged battlefield.

Avis Sports, a Morehead City, N.C., distributor of hunting and fishing equipment, three years ago formed such a cooperative, called Avis Sports Group. Now it boasts more than 500 independent sporting-goods-retailer members around the country.

"If something wasn't done to help these dealers compete, our customer base was going to continue to erode," says Gary Zurn, executive vice president of Avis Sports. "While there were purchasing groups, no one was helping independents with the sell-through of products to the consumer."

Under the Avis Sports program, for an initial investment of $2,000 or more, retailers get the co-op's product line, store enhancements that include Avis Sports signs and fixtures, inclusion in slick ads in sports magazines and on national hunting and fishing TV shows, insurance programs, cut-rate credit-card fees and store-design and business-planning help from Avis' staff.

Even as Gary Waterhouse and his Great American Tackle shop, in Clackamas, Ore., have been competing with Kmart, Sports-Mart, and other nearby chains, sales have risen more than 20% since he joined Avis Sports.

At the urging of co-op consultants, Waterhouse installed brighter lighting and new fixtures in his 1,200-square-foot store. Then he watched with glee as Avis' advertising brought customers in the door.

"From the ads, people expect to walk into a big discounter, and then they get the personalized service that only an independent can provide," he says.

Pet-food distributor and retailer Charlie Moore, a former investment banker, launched another co-op, Pet Team Inc., a year ago. The group -- for retailers not large enough to purchase directly from manufacturers -- already has more than 1,200 members. Supported by 30 distributors, Pet Team retailers are required to stock at least 75% of the co-op's product lines, which range from Pet Team-brand dog food to toys. (Aquadic merchandise is not included in the arrangement.)

"Our business is particularly appropriate for this approach because we're combining economies of scale with people's powerful love of animals," says Moore, who operates his Metro Feeds distributorship and two Animal Authority stores in Columbia, Md., and Baltimore. "It's impossible for a discounter to duplicate the enthusiasm and expertise that an independent store offers," he says.

4. Embrace New Technology

Advanced technology isn't just for the deep-pocketed big boxes. Independent retailers also are making an impact on their markets with high-tech applications ranging from multimedia displays to computerized inventory control -- and not all of the options are prohibitively pricey, either.

For $800, Musicentro, a Latin-music store in Houston, has installed a device called the Virtual Audio Imager, which allows customers to "test drive" new releases in acoustic isolation from the rest of the 1,600-square-foot store. The unit creates a restricted listening zone -- with an effect similar to that of headphones -- by using two stereo speakers mounted under a spherical acrylic dome.

"We think customers will try it and then go tell their friends about it," says Leticia Gonzalez, store manager and daughter of the owner, Guillermo Hernandez.

Jeremy Brown, chief marketing officer of the Virtual Audio Imager supplier, Brown Innovations, of Chicago, says that lots of independent record stores, "cybercafes", and other retailers have ordered the device since it hit the market six months ago. "It dramatically changes the experience you can have in a store," he says.

Jon Lancaster, believing he needed a dramatic shift in the perception of car retailing to compete more effectively for consumers in an era of fast change in the industry, has relied heavily on high-tech applications for his new store, Car America in Madison, Wis.

There are no vehicles on display in the showroom of the dealership, one of the new breed of used-car superstore. Instead, the center of Car America's showroom features an attention-getting, 14-foot-high, 10-foot-wide "video wall" of TV monitors showing presentations that alternate between a large unified image and multiples of a single, smaller picture.

A short presentation, looping on the screen, familiarizes customers with the store's non-traditional approach to selling cars, which includes a policy of three-day, no-questions-asked returns and exchanges within 30 days.

"Sales consultants" then usher shoppers into a nearby kiosk where they use a touch-screen computer to obtain information about specific car and truck models and features.

Effective technologies go beyond merchandising devices alone. Half Hitch Tackle Co. has been electronically scanning each purchase at the point of sale for four years.

Demonstrating a commitment to this technology that is unusal among independents, owner Tom Putnam has invested more than $100,000 in scanning equipment for his three fishing-and boating- supplies outlets in and near Panama City, Fla. He spends about $25,000 more each year keeping it up to date.

Scanning enables Putnam to track the sales of each item easily, reorder efficiently, maximize inventory turns, and yet keep "out-of-stock" slip-ups to a bare minimum. "We can precisely track what customers are buying and not buying, and if some -- say, our charter-boat prospects -- aren't buying a group of products for some reason, you can adjust."

"You also can quickly know this spring whether you need to have 500 of some hot-selling item ready for next year."

5. Be Wary Of The Internet

The global network of computers can be a vast source of valuable information for the independent retailers. Sites available via the Internet can provide specifics, for example, on what's appearing at major national trade shows without business owners having to travel.

But as a selling tool, the Internet hasn't yet lived up to its hype, and some small retailers are discovering that firsthand.

Watson, of the Virtues store in Phoenix, created a site on the World Wide Web and began selling her Virgin Territory clothing line on it last year. But she discovered that many of her potential consumers became ensnared in the confusing architecture of the Web and couldn't even get to her site. Others were turned off by how long it took their computers to download dense graphic images from Virgin Territory's 80-page site.

"We wanted to make it a journey for people into our merchandise, but the reality is most people don't have time for it," Watson says. "So we pulled our Web site and are going to wait for things to settle down a bit before we try it again."

Since Kris Arnston established a Web site this spring, she has netted a few thousand dollars in purchases of the Danish gifts -- including sweaters, candleholders, and crystal animal figurines -- sold at her store,The Red Horse, in Steamboat Springs, Colo. But she has already had to yank her line of clog shoes off the Net because her Web-site manager is so busy that he can't update her merchandise lineup quickly enough. "It's ironic that speed is the problem, because we're dealing with computers," she says.

6. Go Where Others Aren't

By now, this advice is well-worn, but it remains potent. When power retailers own the neighborhood, competing independents should steer as clear as possible of their merchandise lines -- and certainly not try to beat the giants on prices of comparable goods.

But that doesn't mean there's nothing left. June Jean is one of thousands of small retailers who are managing to boost their businesses by going where the big stores aren't.

For her Hippety Hop Toy Shoppe, in Anchorage, Alaska, that has meant figuring out how to go over, beneath, and around the products sold by the Wal-Mart, Kmart and Toys R Us stores in her area.

Epiphany struck a couple of years ago for Jean. Soon after she opened her store in 1991, Hippety Hop generated brisk sales of Step 2, a toy line for young children, and dedicated an entire showroom to the brand.

But when Toys R Us opened nearby two years later and began offering Step 2, sales of that line at Jean's store fell off precipitously to just one-third their former level.

"How do you fight that?" Jean says. "I fought it by saying, 'I'm not going to get hit with a brick like that one more time.' I got out of Toys R Us' lines." And she got more aggressive. "We woke up and realized that we were small enough that we weren't getting noticed, so we had to make a bigger statement."

Jean added about 500 square feet to her 2,100-square-foot, strip-mall site and doubled the front window area. She added a selection of gifts for grown-ups "because kids in the store often ask for surprises they can get for their parents," Jean says. The store began offering fine candies and other treats.

And most important, Jean expanded specialty gifts for children ages 9 through 17, ranging from science toys to battery-operated miniature Mercedes-Benz trucks to Jurassic Sand -- used for molding figures, and shipped in from the lower 48 at great expense.

"The discounters just don't get in-depth in toys for that age range, especially where it's more specialized stuff," she says. "That's where the void seemed to be, so we filled it."

The result? A 20% gain in first-quarter sales over a year ago. Jean believes growth will continue indefinitely.

7. Fulfill An Unmet Need.

As long ago as the mid-1980s, Janet Gast, Patt Buller, and their friends were frustrated at their inability to find a decent selection of quality sports equipment and clothes for women.

So Gast, downsized from a large company in Minneapolis, and Buller decided to move out West and open their own store even though neither had a speck of retailing experience. The Fore Her Golf Shop opened in North Scottsdale, Ariz., in 1994.

"The primary focus of nearly all golf stores is men," says Buller. "That left a huge untapped market for us, and women's equipment in general is the fastest-growing segment in sports."

Sure enough, in its first year, Fore Her's sales exceeded any expectations the two women had. Last year, sales grew an additional 40%, and the 2,300-square-foot store promises to yield even better returns this year.

In addition to its savvy choice of location -- within 20 miles of 50 golf courses-- selection, merchandising, service, and public relations all have contributed to Fore Her's success. The store carries 14 clothing lines, three dozen shoe styles, and a few dozen varieties of club sets.

Fore Her emphasizes variety, Buller says, because women want to wear something distinctive Instead of ordering 20 of each size of a piece of clothing as as a store geared to men might do, Buller and Gast order just two or three of each size of a particular outfit. Men are comfortable shopping through stacks of clothes, but Buller and Gast are careful to merchandise their wares in painstakingly arranged boutique style.

The store offers custom fitting of golf clubs, plus lessons and clinics. And for "Preferred Customers", it maintains a dossier of sizes and preferences that husbands and boyfriends can access to ensure successful gift selections.

At pottery innovator Petroglyph, success began in a similar way. Michael Rubin says that after he and Jennifer met while working together in film production, she was experiencing difficulty "finding activities to do with her friends that didn't revolve around food or some competitive athletic thing. It really irked her that those were the only alternatives." She spoke wistfully of women's quilting bees of yore.

After the Rubins saw pottery-making grow in popularity in California, a light went on. "We saw how we could take ceramics from being an isolated activity to a social activity, and a successful retail concept as well," says Michael.

A corollary to this strategy is that if the retailing idea is new and powerful enough, it can lead to the opportunity for expondential growth and quickly transform a tiny retailer into a medium-sized or larger company.

Both Fore Women and Petroglyph plan rapid growth. From five Bay-area stores planned for this year, the Rubins intend to go national in 1997 with a combination of company-owned stores and regional franchises. Buller and Gast plan to have a second Fore Women open by around year's end and to open as many as ten more in the next few years.

"We'd like to become known as the Nordstrom's of women's golf," Buller says.

8. Location, Location, Location

While some traditional regional shopping malls remain strong and others still are being built or expanded, many of them are suffering because growth on the fringes of metropolitan areas has left them behind, because there's more competition from other malls, or because time pressures on their target shoppers are keeping them away. And may retailers find strip malls increasingly less attractive settings.

"No sector of retailing is at greater risk [than malls] over the next five years," says Steidtmann, the retailing consultant.

So some independents are choosing alternatives. For example, Rick Haase and his wife, Christine Ward, located their Patina gift store in a typical gentrifying urban neighborhood in Minneapolis when they opened it in 1993.

"We're probably one of the most over-malled cities in America, so we wanted to establish ourselves as a separate entity," Haase says. "And in a strip mall you're obligated to keep someone else's hours, and have a uniform look, instead of your own identity."

To pick out their specific spot, the couple scouted unusual-looking real estate in their target neighborhoods, searched for visible signs of neighborhood pride, and even cased intersections. "We'd look at the people who were coming to a corner for other business and tried to determine whether they'd be potential customers for us," says Ward.

And indeed, Patina has become "a destination store", Haase says. Sales have been so strong, in fact, that the couple has opened a second Patina elsewhere in the city. This summer, the first store will move to a larger home, in a similar location 10 blocks from the original site.

9. Try A Kiosk

To cut the expense and risk of starting a retail operation or experimenting with a new concept, many independents are trying short-lease kiosks or carts at a mall. According to the New York City-based International Council of Shopping Centers, about three-fourths of the nation's malls cultivate these alternatives.

Monthly rentals for kiosks range from as little as several hundred dollars in off-peak seasons to tens of thousands of dollars at Christmas time. Most malls set up kiosk retailers with a phone line and sometimes other amenities, and many malls get a small percentage of sales in addition to the rent.

For Raj Shahi, an initial kiosk in the Eastwood Mall, in Niles, Ohio, led to a handful of kiosks in other malls where his company, Salone International Inc., offers hair coloring, body piercing, and other hallmarks of the youth culture.

With headquarters in Pigeon Forge, Tenn., Bill and Fran Delozier already had a highly successful chain of 12 conventional stores, called The Christmas Shoppe. But a few years ago the couple also began leasing carts and kiosks during Christmas season in a handful of malls throughout the region.

"We hit the holiday season with the carts, and our stores give us a good season from April through November, with tourism [in nearby Great Smoky Mountains National Park] and everything," says Fran Delozier. "So we have two complementary streams of income."

10. It Still Comes Down To Service

Every other tactic could be for naught if retailers neglect that most basic aspect of their craft: customer service. That's especially true in this era dominated by the baby-boomer consumer, who is short on time and probably on the kindness of strangers as well.

Superior service reliably brings customers back and makes them much more agreeable to parting with more money while they're in the store. It's also something that many power retailers almost by definition have left out of their formulas.

Gerry Goodman and her husband, Walter, built and have sustained their Birmingham, Mich., discount-housewares store, Wells Freight & Cargo, on lavishly serving customers.

That means, for example, patiently explaining the traditional thinking behind various types and uses of chinaware to a generation of young women who are unversed in its niceties.

It also means rushing multiple additional place settings to a customer who didn't find enough of her selection in stock, or replacing a plate that had broken seven though it had been purchased by the customer several months earlier.

"It's not baloney with us," Gerry Goodman says. "And we've got some families with three generations of women who are customers of our store. That proves it."

For Putnam, of Half Hitch Tackle, dedication to service means obligating his employees to go out of their way to answer customers' questions, no matter how small, niggling, or downright annoying.

"That's a lot of what we are: a teacher for hire," he says. "You come to us, and we help you get started in the hobby, and as you grow in it and have questions and problems, we help you solve them and go on to higher things."

To the King Group, the New York office-products store, "Customer service now means not only personal attention but doing it right the first time," says Gillon, the CEO.

Demonstrating appreciation is a major element of many successful service formulas. Macon Christian Bookstore, has each employee write handwritten thank-yous to three customers each week. Each day, owner Childers himself randomly selects three customers and calls them to ask what they thought of the store and its handling of them.

The best way for independents to attract and retain customers is simply to talk with them, something that many big retailers don't have time to do.

"If you don't want to become a dinosaur, you've got to do that," says Wing, the Seattle-based consultant. "And the most important customer who comes into your store is the person who doesn't buy anything. What is he telling you?"

"Walk up to them and say, 'Excuse me, I notice that you come into the store often, but you haven't been purchasing anything lately. Could you please give me a couple minutes to fill out a survey for a 10% discount off you're next purchase?' They're going to love that, and you'll get information out of it."

Small retailers, to make the most of the edge they usually have in learning first what customers want, must apply that knowledge quickly and confidently, continually reinventing things about their business.

"Independents can adapt more quickly because they don't have to go through layers of management and procedures to make changes," says Wedeven, the Michigan-based consultant. "And change is what good retailing is all about."

Reprinted by permission, Nation's Business, July 1996. Copyright 1996, U.S. Chamber of Commerce.