How do small
retailers compete with big-box stores? By
selling quality products with great customer
service, obtaining higher initial markups, and
avoiding corrosive sales down the road.
For just about every small retailer, cash is king. Whether
the focus is on daily and weekly sales to assure that
there's money in the bank to meet payroll and other
expenses, or on building a cash balance during the busy
season to get you through the slower times, most small
retailers keep a very close eye on cash flow.
Obviously, there are many factors that determine whether a
small retailer is meeting, or exceeding, its cash
requirements and building cash balances on an ongoing basis.
But for most, the cash profile of the business can be traced
directly back to a series of fundamental decisions
concerning mission and strategic positioning.
The critical strategic advantage of any small retailer is
the ability to focus on, and respond quickly to, customer
needs, while providing a superior level of customer service
and state-of-the-art product knowledge. The one thing that
the big-box retailers excel at is driving down costs and
offering their customers the lowest price for commodity or
near-commodity goods. They understand that for these items
the vast majority of shoppers are highly price sensitive.
But for any item, and especially for those that are not
commodities, there is a critical segment of customers who
are not price shoppers, who focus instead on product
quality, service, and a relaxed, friendly experience.
In other words, small retailers should avoid competing on
the basis of price, because there will always be a
competitor with larger, deeper pockets who will be able to
undercut you. Competing on the basis of product quality,
product knowledge, and customer service enables a small
retailer to present to their customers a compelling value
proposition and maintain critical price integrity.
Strategic positioning, therefore, leads directly to product
selection and pricing policy. Selling higher quality,
specialty products on the basis of their intrinsic value,
and the product knowledge and customer service that
accompany them, insulates a small retailer from price
competition, and enables the retailer to obtain a higher
initial markup, and avoid corrosive sales, price promotions,
and other incentives that eat into margins.
How is this done? Here are a few specific ideas to help
position your store as a premium destination for the finest
products, knowledge and service, and generate the margins
you’ll need to assure continuing positive cash flows:
Adopt a
better/best pricing structure, rather than a
good/better/best structure. The classic retail pricing
structure for any product category is three-tiered, with
an opening priced "good" quality item, a mid-priced
"better" quality item, and a higher-priced "best"
quality item. The nature of contemporary retailing is
that for most any product category, there is a big box
who is seeking to lock up the opening price point. Let
them. They are more than happy to trade margin for
volume, and have the deep pockets to do it. Instead,
protect your margins by focusing your efforts on better
quality goods, using a "better" quality item as your
opening price point, and focusing your energies around
the quality and features of the "best" item.
By the
same token, avoid carrying the same items as the
competing big-box store. This may not always be
possible, but if you must, think of those items as
accommodations to your customers, rather than key items
that you are trying to maximize the sale of. Rather,
build your business around unique items and unique
product categories in niche markets to a carefully
targeted clientele.
Keep your
inventories lean to minimize markdowns and their impact
on margins. The instinct of many small retailers is to
have enough stock to never miss a sale, but all that
inventory carries tremendous markdown risk, which can
decimate margins and cash flow. Bring fresh inventory
into your store as close to the time of anticipated
sales as possible. That way, you'll also always have
something new and exciting to offer your customers.
Don't get
locked into standardized pricing formulas, like
keystoning. Your pricing should not be merely a function
of what you paid your vendor for the item, but rather
the intrinsic value of the item, and the accompanying
service you provide your customers. The product
knowledge and customer service that comes with your
product offerings has a value to your customers. Don't
be afraid to include that value in your pricing.
Avoid
price-item advertising at all costs. Focus your
advertising on building the brand cache of your store,
not specific sales or promotions. When customers think
about you, make sure your advertising has left them with
the thought that you are a destination for premium
quality and selection, state-of-the-art product
knowledge, and outstanding customer service, and not
price.
From a
customer's perspective, customer service and product
knowledge are the means to resolving problems. Whether a
customer turns to you for something to knock back the
pesky weeds in their vegetable garden or for a truly
unique anniversary gift for their favorite aunt,
customers are willing to pay for solutions. Make sure
you and your staff are armed with state-of-the-art
product knowledge and the offer your customers the very
finest service.
Define your
mission around offering your customers premium specialty
products, state-of-the-art product knowledge, and the finest
customer service, and you will insulate yourself from
corrosive price competition, while protecting your margins
and cash flow.
