INDUSTRY FOCUS COVER STORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . by Lauretta Converse

Welcoming Monsters to Main Street
A surprising look at the ways superstore giants help specialty stores

When large merchants begin selling futon sleeper sofas in their neighborhoods, local specialty stores are about as happy as Tokyo when Godzilla entered their city with his fire-atomic breath.

Futon retailers aren’t the only type of specialty store faced with the rampage of large stores into specialty stores’ monopoly. This battle is being fought in many segments of today’s marketplace. The futon category isn’t alone. It is one of many niche markets being challenged by the invasion of mass merchants.

Examples can be found on every Main Street. The family-owned pet store is being nudged out by national giants Petsmart and Pet Supplies Plus. The corner bicycle shop is being challenged by Sports Authority and Dick’s Sporting Goods. The neighborhood camera store is now competing with Best Buy. Even the corner coffee shop has to duke it out with the likes of Starbucks.

The good news is that independent, mom and pop retailers are prospering despite competition from the giants. Small booksellers, for example, have been battling the giants for longer than retailers in many other categories. Yet they have been able to hold their market share constant since 1999, reports the American Booksellers Association. While fighting the presence of Starbucks on their main streets, independent coffee shops have actually increased their market share by seven percent in recent years, according to Mintel’s market research.

That’s good news. But this is startling: these mom and pop retailers seem to be prospering, in part, because of the entrance of mass merchants into the niche. In a recent article entitled Plucky Little Competitors, Time reported that the enormous outlay of billions of dollars on advertising by mass merchants has actually created demand for everything from pet hedgehogs to soy-caramel machiattos. The entrance of mass merchants into niche markets has created a wave of interest and has drawn people into these markets. This represents an invaluable windfall to the specialty retailer, who could never afford the kind of advertising that megastores can buy.

The Best News

Here’s the best part. Futon retailers are finding the same phenomena. They are not prospering in spite of mass merchants; they are prospering because of superchains. They are finding that mass merchants have primed the pump of consumers and have created an interest in futons that they could not have created on their own.

Debra Smail is riding the wave of interest that mass merchants have created for her specialty store, Houston Futon. Instead of fearing the big giants, Debra observes that they have made ‘futon’ a household word and have led people to seek out more information about the product through the internet or the yellow pages. “Now people are interested in futons because they went to Sam’s Club for five pounds of bologna.”

Not all specialty retailers are thrilled, though. They fear the entrance of mass merchants into their niche because of what economists call free riding. Free riding is when discount stores benefit from the services of specialty stores. A typical example: A customer picks a salesman’s brain about futon covers, perusing his swatch selection, and then orders a cover online at a lower price. The online merchant is free riding on the sales efforts of the traditional retailer.

But wait—doesn’t free riding work both ways? Can’t the independent retailer benefit from the megastore’s efforts and investments? Radio listeners hear a jingle from a furniture superstore urging them to “Consider a futon for extra sleeping or sitting when friends and family visit. Find a great selection at Super Furniture World.” This type of generic product advertisement brings futon shoppers to Super Furniture World. But it also creates interest, educates consumers and brings shoppers to every other store in the area that sells futons. Such an image advertisement plants the seed for sales in every futon store.

Bet You Haven’t Seen This Before!

Product exposure isn’t the only way futon specialty retailers benefit when mass merchants enter their neighborhood. They also benefit because mass merchants provide a chance for specialty stores to be, well, specialists. They give small retailers an opportunity to differentiate themselves from their competition, to say “Hey, look at me!” and “Bet you’ve haven’t seen this before!”

Differentiating, or setting yourself apart and in most cases above, the competition, is the primary way that Houston Futon has been able to thrive, even though Smail’s competition recently moved just two blocks away. She has introduced exclusive merchandise such as Innovation frames and Ling covers that customers must come to her to buy.

Debra has also discovered another way to compete. She has found a niche within the futon category and is targeting it. When she noticed a number of customers coming in for better covers for the Big Tree futon they purchased at Sam’s Club, she made a mental note of it. When she noticed that other customers were coming to her to replace or upgrade a mattress from a Sam’s Club futon, she knew she was on to something.

She has sharpened her store’s aim to target these customers by putting mattresses and covers center stage in her store. “I have an eight foot display of mattress options where the mattresses are visible and touchable.” In this way, she is giving shoppers something Sam’s can’t offer. Not to mention that she has eleven mattress choices and a sales staff ready to walk customers through to the best choice for them.

Superior service is another important way that specialty stores differentiate themselves from big box competition. They are setting themselves up as the experts in their markets who are eager to share their expertise with customers.

Gabe Leblanc, owner of futon stores in Orlando and of Futon Planet.com, has made expert customer service his hallmark. Establishing his own Futon University complete with a final exam, he strives to fully educate all customers in futonology. His “primary mission is to educate the public about futons and how futons can increase home life enjoyment.”

“Big companies are isolating” for shoppers, Leblanc believes. To battle the giant merchant in his futon market, he is convinced he needs to give people “information with enthusiasm and be interested in the customer. It’s a rarity to find someone interested in helping you make a decision.” Futon Planet strives to fill the void created by large, impersonal stores.

Who’s Got the Fun?

Specialty stores are also thriving in the presence of the giants because they are able to personalize their stores and present merchandise in a compelling way. This presentation has nothing to do with size but everything to do with creativity. Small specialty stores are able to make the shopping experience fun and memorable, taking advantage of the cookie-cutter ‘mass’ part of mass marketers. The shopping experience in a large scale store can be impersonal and dry. Shopping at a specialty store, however, can be like chocolate chips in the vanilla of life. Not to mention you don’t have to worry about getting run over by a forklift.

There’s no doubt that Mark Bello knows how to create a futon store with a fun and compelling environment. Mass merchants can’t even come close to the party atmosphere futon customers experience at Right on Futon. This store shouts fun and excitement and is simply a happening place. Famous, colorful window displays on the outside and a showroom full of eye candy on the inside create a fun and friendly atmosphere. And what about that 55 gallon Tiki drum? The big boys just can’t compete with that.

Competing on Price: Just Don’t Go There.

These futon retailers and many others across the country are prospering despite the presence of mass marketers in their category and despite the deflation of prices that these super-retailers have caused. Large retailers have driven prices down to the point were some parts of the futon niche are now viewed as commodities. The promotional black metal frame and the low end mattress are two examples of products that customers shop for only in terms of price.

Specialty stores can flourish in this context when they refuse to play this “who can go lower” price game. It’s no secret that large retailers can negotiate low prices and sell at deep discounts that smaller specialty retailers simply can’t match. The successful independent retailer doesn’t even try.

Instead, retailers are competing successfully against mass marketers in categories across the marketplace by adapting their merchandise mix. To bolster their business, they find and service that niche-within-a-niche that is being ignored by the larger retailers. For some, that means specializing in premium, high end merchandise. For other stores, it means carrying hand-crafted, locally-made product.

In all cases, though, successful small retailers are using superior service to set themselves apart from supersize retailers. Their superior product knowledge is what many of today’s consumers are looking for. Specialty stores are adding that personal touch, trying to keep sales staff turnover to a minimum so that relationships with customers can be forged. They are working hard at remembering the names of their regular customers.

And retailers are creating store environments that allow them stand out in the vanilla world of mass marketers.

“Bottom line? You had better learn to sell on some other basis than price, price, price. If you can’t, you likely will be gone, gone, gone. Oh, no, no, no!” quips Jerry Epperson in Furniture/Today.

FL

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