Battle The Big Box Stores
and Win!

Tradition says that David slew Goliath with only a slingshot and pebbles. Today, small retailers are hoping history repeats itself as they battle a new giant: the “Big Box” warehouse stores that are stomping out independent businesses across the country.

Can traditional retailers thrive in an era of these deep-pocket discounters? “Yes,” say people in the know.

“Is there hope? Very much so,” says Jack Rice, a Longmont, Colo.,-based consultant who tours the country helping retailers fight back. “In practically every town with a Big Box retailer you will find at least one outstanding independent operator who is thriving.”

Yet success is not automatic. “You need to work at it,” says Rice. “You need to be willing to change. And above all, you need to remember that you are the purchasing agent for your customers... not the sales agent for your suppliers.”

Ouch! Looks like it’s time to replace the old slingshot with tougher ammunition. Here’s that weapon: knowledge of business practices that have worked for other retailers who have battled warehouse stores and thrived.

Let’s see what retail consultants say.

1) Don’t battle the mass merchant on price.

“Too often, the independent retailer tries to compete on price when a mass merchandiser enters the market,” says Tom Shay, a St. Petersburg, Florida retail consultant. “Big mistake. When a bear goes in the water after an alligator, the alligator usually wins.”
It’s natural to start promoting price in reaction to the new bully on the block. After all, the Big Box is making huge waves in the market with all that full page color advertising. Problem is, the retailer who switches to price advertising has essentially let the competitor decide what game to play. To the public, the traditional retailer is playing “follow the leader” to a warehouse store hero that has brought prices down for everyone. Shoppers see little reason to go back to their old store.
This doesn’t mean that you can ignore the issue of price. After all, the Big Box’s discount pricing has made the issue top of mind for everyone. “You can’t be exorbitant in your pricing,” says Shay. “You have to be in the game.”

So how is this puzzling game played?
Shay suggests the following two-pronged approach:

(A) Match the competition’s
pricing on selected items.

Shop the competition and watch the newspaper ads. Then create a list of items that are top of mind for your customers. These are the items that the Big Box retailer is promoting. They may constitute perhaps 10 to 20 percent of the stock keeping units (sku’s) in your store.
Since consumers know the advertised prices of those items, you have to make sure your store prices either match or are close to the prices being promoted by the Big Box. If they are to return to your store, customers must understand that you price your most important items as well as the Big Boxes do.

(B) Bulk up the remainder of
your stock keeping units
with higher prices.

“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 being promoted. The result is an overall store gross margin that matches or exceeds what you were enjoying in the good old days.
By the way, this technique is also being used by the warehouse operator. Although much is made of the warehouse store’s ability to buy in bulk and reduce overhead, technology is the big gun in the battle for the shopper’s loyalty. Fire up a spreadsheet on your computer and start figuring various combinations of prices and gross margin, because that’s what the Big Boxes are doing.

2) Reposition your store with a value image.

Since the Big Box competition has monopolized the price leader image, you need to establish a reputation for something else, or be seen as a “me too” operator.
Good news. While price can be a powerful lure to attract shoppers, survey after survey has shown that customers return to a store for reasons other than saving money. Low prices are expected. You need them to be on the playing field. They are not sufficient to win the game.
“Price is not the most important reason for customer loyalty,” says consultant Rice. He lists the following results from surveys as to why consumers return to stores:

Fully stocked with what the consumer wants. Having the right selection and not running out is of paramount importance. Shoppers will return if they know that the store has what they need.

What to do: Take requests seriously and tell the customer you will make sure you carry the item. Understand that stock outs mean lost customers. Make sure your computer triggers re-orders at the right stock level to avoid empty shelves.

Prompt service. Save a customer time and you have a friend for life. Today’s shopper needs to get in and out fast.
What to do: Train sales staff to respond quickly and appropriately when a customer enters the store.

Value. Low price does little good if the product or service doesn’t do everything the customer needs. Customers will be loyal to a store that satisfies their needs, even if the price is higher.

What to do: Survey customers on what services and goods they need.

Visual merchandising. If a picture is worth a thousand words, a display is worth a lot more than a verbal description of how to use a product.

What to do: Establish displays that answer common customer questions and show customers how to improve their lives by using the merchandise and services you offer.

Professional help. Shoppers will patronize the store with staff that can answer their questions. When customers can’t get answers they need, they lose time. And time is money.
What to do: Make sure your employees are more knowledgeable than anyone else’s. “Ask yourself how your store can address these issues,” says Rice. “This will go a long way toward defending you against the warehouse competition.”

3) Exploit niches that the competition ignores.

Despite its size, the warehouse store can’t cover all of its bases. Smart retailers identify and exploit the holes in the competition’s marketing plan.
Shop the Big Box store to discover what merchandise and services they lack. Then promote these at strong margins.
This is the right time to involve your staff. “Let your people decide what niches to get into,” suggests Shay. “Suppose one of your key employees has a special knowledge in one aspect of your business. Have this person train others in that area, and then promote this as a special service to your customers.”
No matter how much you have engaged your employees in the past, chances are good that you can benefit more from them. For example, why not get their input on sprucing up store displays that are less than noteworthy? Take a photo of each bad display. Then have your employees work up ways to improve the display to spark more sales.
Constantly survey your customers. What merchandise or services could you offer to make their life easier? The answers are golden clues to business treasure.

Bonus tip: Upselling is vital. Train your employees on how to move
your customers up to the next level
of quality.

4) Network in your business and community.

If the Big Box retailer can buy its way into the hearts and minds of the market, you can earn your way by networking with all of the organizations you can.
“Create synergy by banding together with other small businesses in your community,” says Dr. William Rupp, who conducted a study of mass merchandising and who now teaches strategic management at Robert Morris College in Pittsburgh. “The Big Box competition is counting on you to try to go it alone.”
As an example of retailers who did it right, Dr. Rupp points to a group of six small bookstores which banded together to develop a strategy to compete against a new Barnes and Noble super store. Part of their solution was a daily advertisement placed in the newspaper which emphasized the specialty of one of the six bookstores on a rotating basis.
Such an association need not be confined to other retailers in your industry, notes Dr. Rupp. Stores in many industries can band together to brainstorm marketing solutions that will heighten their profiles and grab more customers.
Don’t overlook the networking possibilities at local non-profit organizations, community fairs, and other events of all kinds, says Dr. Rupp. “Maybe you won’t sell a dime but you are laying the groundwork for future sales by shaking hands and kissing babies.” This kind of relationship marketing can pay big dividends.
Community involvement can give you an edge over the Big Box from afar with no roots in the community. “No longer can you just open a store and expect to survive,” warns Dr. Rupp. “You must be more active in marketing your store than ever before.”

5) Research what others are doing in nearby towns.

Networking with other stores in your town creates synergy. And involvement with organizations can heighten your profile. Now, why not take this idea far afield... to other towns?
“Visit outstanding retailers who are not in your town and see how they have tackled the warehouse store competition,” suggests consultant Rice. “The owners of these businesses will talk with you because you are not competing for their customers.”
Visit both stores in your industry and those that are in other retail sectors that have been hit with the warehouse store phenomenon.
In these intelligence-gathering field trips, a picture can be worth a thousand words. “Take a camera with you,” says Rice. “Whenever you see a store display that you think is good, ask permission to take a photograph.”

6) Get started early.

Most of the ideas in this article will help you develop your own success plan for battling the Big Boxes. For best results, though, get an early start. Make plans and take the right marketing steps before the warehouse operators arrive.
“Too many retailers fail to see the storm as it’s coming,” says Shay. “There is some denial. People say ‘it can’t happen in our industry,’ or ‘it can’t happen in our town.’”
When the warehouse store arrives, the independent retailers are not prepared. “They start eating off their inventory and their assets,” says Shay. “And down the tubes they go.”
Facing up to the Big Box can be a challenge for even the sharpest of retailers. With a little guidance from the clues in this article, though, you can solve the puzzle of maintaining and growing in the new retail environment.