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.
Other case studies by Richard Peters:
