Independents Losing Ground

Discussion
Aug 16, 2010
Tom Ryan

By Tom Ryan

According to an article in USA Today, independent retailers
are fairing worse in the recession than larger chains due to a litany of reasons,
from buying clout to lack of management smarts. According to Sageworks, a financial
analysis company, sales at private retailers slid two percent so far in 2010
after tumbling eight percent in 2009. For publicly-traded retailers, sales
are up 0.5 percent in 2010 on top of a 0.4 percent gain in 2009.

One major issue
is real estate. Independents often get priced out of the most heavily-trafficked
locations. But beyond price, independents don’t have an in-house expert
to guide real estate decisions. Jim Bieri, CEO of the Bieri Co., a retail real
estate consulting firm, told the newspaper, "Many local
merchants don’t have the experience or the tools to pick real estate that’s
best for them."

Another core problem is that many independents focus on
boutique items. Recession-constrained consumers are more likely to favor low
prices over "value" as well
as lean toward more non-discretionary purchases. Said Drew White, CFO of Sageworks, "When
times are tough, people are laid off and the consumer confidence isn’t high,
people are probably going to go with the needs first."

Dan Butler, vice
president for merchandising and retail at the National Retail Federation, told USA
Today
that larger companies are also more adept
at planning to mitigate a downturn’s impact.

"Larger companies are just more nimble in some of these circumstances
because they’ve got a larger staff to deploy," he said.

Other disadvantages
falling to independents:


  • Limited advertising budgets
  • Less "muscle" in dealing with suppliers.
  • More challenges capitalizing on the internet and emerging social-media
    tools.
  • Fewer cross-promotion opportunities, such as tying deals to credit cards.

On the somewhat brighter side, independents were said to often have a better
opportunity to tap into local community causes and can benefit from local support
around neighborhood shopping districts. Moreover, consumers are expected to
be more willing to pay up for the service many independents are known for once
the economy improves.

"When people are feeling more confident and have more money,
they’re willing to go to a higher-service, privately held retail establishment
to get exactly what they want and get treated well," said Mr. White.

Discussion Questions: What are the major challenges independents face when
going up against chain stores? Where are the greatest opportunities for success?

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19 Comments on "Independents Losing Ground"


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Paula Rosenblum
Guest
10 years 8 months ago

As the daughter of a life-long independent retailer, I hate to see it happen, but I think mid-sized and large chains are about to encroach even further on the independent retailer’s turf.

Technology is helping chains eliminate the sense of a “sea of sameness” and the buying power of those same chains allow them to continue pushing costs down and margin up. Plus, private label really only pays off for chains–doesn’t help the independents much at all.

I think we’re going to see a time where the independents are clustered into particular segments: very high end, consignment shops, or specialty shops in tourist areas.

Carol Spieckerman
Guest
10 years 8 months ago

Independents have less room to buy market share, and to keep it as the big guys make grabs. For example, if Walmart wants to temporarily hobble Target in food, they can blast rollbacks all over the grocery area. If Target wants to ding department stores in beauty, they can snatch a European beauty brand (ala Boots) and run with it. In other words, the wounds inflicted on independents aren’t usually intentional; however, when the big guys throw bombs at one another, the shrapnel hits independents just as hard if not harder.

It’s even more important for independents to carry differentiated brands and products for this reason; however, with mass retailers breaking down brand barriers right and left, that’s getting harder to do. (I covered a recent example in a blog posting a couple of days ago.)

David Livingston
Guest
10 years 8 months ago
I’m going to totally disagree that independents are at a disadvantage. Oh sure they might not have some of the financial muscle that a chain has but they have other advantages. Independents can react to market changes faster and change policies almost instantly. I’ve got one client that kisses and hugs all his female customers. I’d like to see a Wal-Mart manager do that. Another that has the local police and fire departments in his back pocket to help out in an instant. One that visits his best customers when they are in the hospital or attends their funerals. One grocer I know of carries a loaded weapon on him at all time. He can keep his shrink down compared to the chain store across the street. Independents can hire and fire at will and get away with discrimination. They can retain employees better because they can treat them like family rather than a number. The list goes on. I also disagree that independents don’t have the real estate muscle. I’m going to brag here… Read more »
Justin Time
Guest
10 years 8 months ago

The way for independents to survive and prosper, is by joining cooperatives.

Take IGA, for instance. This group of independent grocers is constantly expanding. It has the strength of membership in providing its members a super private label product lineup, advertising, and other benefits.

IGA recognizes the rewards in opening their locations in food deserts. They are doing so in Pittsburgh and elsewhere, and are being welcomed with open arms.

Being an independent retailer can be a tough go. Doing it with others, can make the highly competitive retailing environment a whole lot easier to navigate.

Susan Rider
Guest
Susan Rider
10 years 8 months ago

Independents have to find a way to differentiate themselves and “stand out” in the community. Like opening the parking lot up to the local farmers market,doing a health fair, local involvement is a MUST. In this respect, independents have an advantage because they are much more agile and flexible. They can’t compete on paper towels but they can compete on community ownership and impulse buying.

Doug Stephens
Guest
Doug Stephens
10 years 8 months ago

Having spent a lot of my career working with independents, I agree with the points the article makes but would add one other important, albeit controversial point to the list–apathy.

I’ve personally seen situations where some groups of independents have consciously chosen not to rise to the occasion, despite every opportunity to do so. Many have made their fortunes, put their kids through good schools and are simply no longer up for the challenge of intensified competition. They’re coasting. They just want out.

This may not be all bad. It may represent a necessary “culling of the herd” making room for a new generation of inspired, ambitious, plugged-in and savvy independents.

Herb Sorensen
Guest
10 years 8 months ago

Thinking primarily of supermarkets, and their typical top 4 sources of profits:
#1 – brand supplier funds: trade allowances, rebates, promotional fees, etc.
#2 – float on cash: interest on money collected from shoppers before it is dispersed to suppliers and on operations.
#3 – real estate: buying, developing and managing property.
#4 – margin on sales: profits from actually selling something to shoppers.

I don’t see any possibility of an independent with even 5-50 stores competing with a chain with 500-5000 stores on the top three of these sources of profits. Their best chance is on margin, which will most readily come from the service departments–deli, bakery, meat, floral and the like. Tapping into the entrepreneurial spirit of managers for these departments is the best shot, assuming the chain is small enough to have good entrepreneurial spirit in its top management. Any chain with 500-5000 stores simply cannot find the 1000-10,000+ entrepreneurs for these departments.

Bill Emerson
Guest
Bill Emerson
10 years 8 months ago
This is a harrowing time for the independents. Aggregate consumption is down as unemployment remains high and even consumers who are employed are scared, foregoing discretionary spending (the lifeblood of most independents), focusing on necessities and increasing savings. Given the glut of retail selling space, several big players have already gone out with more to come, creating price competition that most independents simply cannot match. Finding credit is another challenge as banks work through bad loan portfolios and wait to see what the next set of regulations will entail. All in all, a horrible environment. And yet, in all this gloom and doom, there are still success stories. Apple, hardly a low price provider, is growing explosively. The iPhone now has well over 150,000 apps (this metric is guaranteed to be obsolete by the time you read this). Millions of iPads have shipped in the first year. So what’s the point? Apple is a big, well-capitalized company. What’s this got to do with independents? The point is this–if you’ve got something truly unique that resonates… Read more »
David Biernbaum
Guest
10 years 8 months ago

The reason that independent businesses are hurting more in the recession than chains are many fold, but one reason is that independent businesses tend to be situated in neighborhoods where the recession has hit hardest. That said, many independent businesses also tend to be improperly managed, especially for economics and financial considerations.

Mark Baum
Guest
Mark Baum
10 years 8 months ago

The debate about Independents vs. Chains, Big Box, Category Killers, etc, continues…as it has for several decades and economic cycles now. Clearly larger retailers have greater economies of scale, and purchasing/pricing leverage–which serves them well, particularly when shoppers are bargain hunting as they do in downturns. However, independents can more easily differentiate on service, variety, in-store experience, community relations, and a host of other ways. Consumers don’t want to live and shop in “anytown/everytown USA,” which unfortunately appears to be the direction we are headed!

Bill Bittner
Guest
Bill Bittner
10 years 8 months ago

Looking at this question from strictly a technical perspective, I am expecting a real renaissance for independent retailers.

As technology becomes more “Cloud” oriented, allowing users to plug into service providers as necessary, the advantage large retailers have had by maintaining their own services is disappearing. The challenge for the independent retailer will be making the difficult personnel choices that reduce their payroll expenses.

Especially for family businesses, it is going to be difficult to tell Aunt Sally that her services have been replaced by a computer. While the profits for the remaining workers may remain satisfying, there will no longer be enough margin to support the whole family. Time for second store, but until demand picks up that is not an option.

Ed Rosenbaum
Guest
10 years 8 months ago

Independent retailers are going to continue to lose ground to the national chains as long as we, the buying public, are focused on price first.

I too come from a family of independent retailers and have seen their demise because of the lack of buying power and skill sets the national chains have in their corporate offices. Independents spend most of their working hours actually on their sales floors doing what national chains hire managers to do. Independents know their customers personally. Nationals know their buying habits and are better prepared to meet those needs. I wish it were not so; but it is.

Lee Peterson
Guest
10 years 8 months ago

I have to agree with David Livingston on this; independents are actually at an advantage vs. large chains. They can be more nimble, they can (easily) provide better customer service and they can niche their product to perfectly accommodate the market they’re in. They can promote to local events, they can move product in their stores to sync with the day (Hot? flip flops up front!) and they can tailor their work force to the customer down to a detailed level.

The only thing chains have going for them is pricing due to scale. But if you haven’t figured that one out by now as a little guy, you’ve been gone for 10 years.

Craig Sundstrom
Guest
10 years 8 months ago

This discussion seems to paint “independents” with a broad brush, lumping together everything from well-run regional chains to fly-by-night and marginal businesses; and of course, inclusion of the latter will always depress results.

So the more meaningful question is: within a few years, will there still be a place for well-run single stores and regional chains in most product lines, or–as with the case of department stores–will they cease to exist?

Gene Hoffman
Guest
Gene Hoffman
10 years 8 months ago

With millions of people out of work today and the general public concerned about their finances, the main focus is on price. That becomes a magnet for Wal-Mart Supercenters even though their prices aren’t always better than those that prevail in many marketplaces.

Beyond the dynamics in price-persuasion, convenient locations have lots of appeal…and I agree with David Livingston that many independent have secured excellent locations via their wholesalers. (In my days at Supervalu we also made many independent zillionaires, a condition that leads one far away from a 7-day business along with their children.)

So unless a new breed of imaginative, aggressive, competitive retailers with showmanship, originality, and inventiveness arises within the independent ranks, we will see only large lumbering elephants in the food retailing jungle. But don’t bet against the independent just yet.

Doug Fleener
Guest
10 years 8 months ago

I thought this article used way to broad of a brush on the independents. I can tell you that the independents we work with and have built long-term relationships with are not hurting at all. They are some of the brightest businesspeople I know, and are not at all like this article painted them to be.

These independents know they can’t win going up against the big box and online retailers, but instead are incredible at winning and keeping their core customers. They drive traffic with social media and events, they deliver an incredible customer experience, and they keep their products fresh and exciting.

I do believe that the future is bleak for the average or mediocre independent, but that’s probably true for the national chains as well.

Michael L. Howatt
Guest
Michael L. Howatt
10 years 8 months ago

The only independents that will survive the next 10 years are those with a particular “niche” such as meat markets or specialty stores. They will need to be a destination store, geared towards the locals, or they’ll be closing up shop.

Mark Price
Guest
Mark Price
10 years 8 months ago

It is absolutely true that independent retailers face significant challenges in their battle with the large national chains. Scale, clout, and brand presence all make national competitors formidable.

At the same time, what independents have to offer is personal service and customer service–treating each customer as special and then “going beyond the call of duty” to delight those customers on each and every transaction. What that means, though, is for independents to survive, they have to change their business from a cost + model to a high-value add model, with staff training and owner support to add value to customers in ways that cannot be easily matched by the national competitors.

Same day delivery, free installation, opening the store off-hours for specific customers, limited run items and proactive PERSONAL contact to customers are all things that the large national chains struggle with. Independents, with their flexibility, must capitalize on that aspect and lock in their customers with unmatched service and convenience.

Robert Heiblim
Guest
Robert Heiblim
10 years 8 months ago
One of the core challenges to independents is energy. As entrepreneurial outlets often run by founders as others have written they can run away from change rather than embrace or drive it. We work in the consumer electronics space where the only constant is change and we find that many older independents do not have the energy or will to refinance, remodel, and relearn as is needed. Also as others have noted, many independents are however doing very well by being nimble. Suppliers need outlets and need avenues for new goods. Not all new items fit on the shelves of Walmart or Best Buy, so they serve a real purpose. However, just asking for market funds won’t cut it so unless independents highlight their abilities and energies, they will be bypassed. We see this right now with 3D TV where TV vendors went wide with launch mainly because the independents did not show they could promote it enough. On the other hand, the few that did received great support. Like all markets, things constantly change… Read more »
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