How to fight big stores
. . . . . . . . Part 1. . . . . . . .
Phillip M. Perry |
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 small 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.
Battle The Big Box Stores and Win!
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:
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.
“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.
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