Case Study: Competing in Retail

The Advancing Leadership Blog

By TEC Canada, September 23, 2014

By: Toronto TEC Chair, Richard Peters

The retail industry and retail strategy have been major influences on the marketing and sales operations of a number of the companies with which I have been involved. I marvel at the innovation and creativity shown by some small retailers in the face of what may appear to be insurmountable competitive threats from much larger players. Probably the largest single threatening development facing small retailers are the “big box stores” the most notable of which is Wal-Mart and the niche market “category killers” such as Best Buy and Future Shop in the technology retail sector.

I want to share a few examples, which I believe,  you will find to be inspiring and motivating competitive advantage stories. These are cases where small retail owner/operators have grown and prospered by turning potential adversity into opportunity at a time when their peers were folding their tents in face of what they perceived as impossible odds.

As I write this case study, I am reminded of the bestselling book entitled “Who Moved My Cheese?” If you have not read this book, you must. 

CATEGORY KILLERS
I have spent over 10 years helping software, hardware and internet organizations brand and market their products and services. In that time,  I dealt with dozens of retailers who either exclusively or primarily sold computers and related technology. As this industry started to consolidate “category killers” such as Best Buy and Future Shop became the nemesis of small technology retailers.  Aggressive pricing and extensive product selection caused numerous smaller retailers to close their doors.

Here are few examples of small IT retailers who through innovation managed to survive despite the odds.

1. As Best Buy and Future Shop were expanding and smaller retailers were closing their doors, one of our IT retailer’s was actually opening. If memory serves me correctly, he had 3 or 4 stores. I noticed that they were located very close to if not directly across the street from a Best Buy or a Future Shop. I asked him about the wisdom of this strategy. His perspective was that the big guys were either an opportunity or a threat and he chose to capitalize on viewing them as an opportunity

His competitive strategy focused on what he perceived were weaknesses or deficiencies in the big store business model. These were:

• When a consumer purchased a computer, TV etc. from a big store, they would invariably end up being sold cables etc. to accompany their major purchase. Often the additional cost of these ad-on items could be a few hundred dollars.  The store owner advised me that the prices being charged for these cables etc. were significantly marked up from what they had originally cost the store. Actually, the cables etc. were relatively inexpensive to the retailer but provided a significant margin opportunity. The same, by the way, is true of the “extended warranties”  often purchased when someone buys a new computer etc. These warranties represent significant bottom line revenue for retailers.
• This store owner began to advertise that, at his store, the cables etc. were included in the purchase price of any equipment. The owner noticed that while his big ticket items prices were fairly competitive with the big stores, his clients were willing to pay a little more for these major items to avoid the additional cost of the add-on items. In many cases, despite the fact that some of his big ticket item price was higher, when the customer  factored in the “free” cables and accessories, that they would be required to buy a “big store” , the total cost was less at the small retailer.
•  Another competitive advantage was his “knowledgeable staff” and outstanding customer service.  In his stores he hired what he referred to affectionately as “nerds” who lived and breathed IT. The big stores on the other hand were less inclined to do so. The big operators offered clients access to in-store tech services such as “Geek Squad”at Best Buy who, if they were unable to deal with your issue in the store would visit your home or office and, for an hourly fee, would resolve whatever issues you had.  The smaller operator also offered to send a technician to a customer’s home “free-of-charge” to help them setup whatever new equipment had been purchased as well as resolve issues with existing equipment. He also opened his stores earlier and closed later than the big stores. He encouraged people to stop by on their way to work and on their way home.

 The retailer found that people quickly discovered where he was. Word-of-mouth and referrals were a significant source of business. Once new customers did business with him, he found they tended to check with him before visiting the big stores for future purchases.

2. Another IT retailer had his stores located in close proximity to supermarkets. He noticed that men were less inclined to want to spend time shopping with their wives or partners if they had someplace to which they could easily escape after parking the car and kill time while their other half was shopping. He trained his staff not to pressure people to buy but to create an atmosphere where people could come to relax, check out the equipment, have coffee, relax, ask questions and feel comfortable. He found that he developed a dedicated clientele who felt a loyalty to his store where they had developed relationships. They were even willing to pay slightly higher prices to shop there because of the level of service, customer relationship practices and convenience.

THE WAL-MART ADVANTAGE
Media and public interest groups have ensured we are well acquainted with the plight of small retailers as they face the “big box” effect caused by large operators moving into their markets. Wal-Mart, of course, has come to define everything that is evil about these big box operations. However, there have been instances where smaller retailers have risen to the challenge and turned even Wal-Mart adversity into opportunity.

A few months ago I read a story about a small “general merchandise” store in Alberta which had the misfortune to be located across from a new Wal-Mart location. The store had been operating for years prior to the Wal-Mart opening its doors but the effect of discounts and expansive product lines was taking its toll on the small store’s business. The owner decided that closing her doors was the final option but not the only one. She looked for opportunities that her new neighbor might provide. She came to realization that by altering her product line to consist of products not sold in Wal-Mart, she could take advantage of the traffic coming to Wal-Mart to also visit her store.

The Wal-Mart parking lot became her store’s parking lot and her business did better with the Wal-Mart next store than it had before the Wal-Mart arrived. 

CONCLUSION
In all these cases, the store owners looked out their store windows and did not see potential customers shopping somewhere else but rather people arriving in their neighbourhood looking for opportunities to spend money.

The challenge, as these store owners saw it, was to redefine the terms of competitive engagement and they chose to “complement” and “supplement” rather than compete.
photo credit: Tau Zero via photopin c