Is There A Future For Small Retailing?
A few thoughts on what it will take to succeed.
Published by Inc.com
Writing a regular column, I'm always looking for ideas. Many come from my clients, indirectly, for their questions and concerns are the questions and concerns of small retailers of all types.
But this question really struck me, for it cuts to the heart of the matter for many small retailers:
"Is there a future for small retailing? Can we really survive over the long term competing with the Home Depot's and Lowe's of the world?"
This is no idle question. Every new day seems to bring fresh challenges, and the margin for error gets smaller and smaller. This year has been particularly difficult, with energy prices pinching customers and impacting sales on the one hand, and driving the cost of both merchandise and doing business up on the other.
Is there a future for small retailing?
The future for the small retailer is in what the Big Boys don't -- and can't -- do well; offering a full selection of high quality, specialty goods coupled with the state-of-the-art product knowledge and outstanding service that customers need and expect.
Customers are willing to pay a premium for these goods and services, but it's not enough to merely stake out your niche. Successful small retailers in the future will need to continually improve their skills and performance to maintain a leadership position in the market.
Here are a few thoughts on what it will take to succeed:
A small retailer can't be all things to all people. It can't even be everything its customers might want it to be. It can only be that which it simply does better than anybody else. After all, that's what its customers think of it for, first and foremost. It may be a cliché, but a small retailer must maintain its focus like a laser beam. Expanding into new lines, categories and services may seem like a logical way to increase sales, but unless it is directly related to your core competitive expertise, more often than not it only dilutes management's focus, increases costs and reduces profits.
Show me a small retailer that actually takes the time to plan and I will show you a well-run, profitable retailer. The correlation is striking until you stop and think about it. Without a plan, the future is something that happens to you rather than something that you make happen for you. In the short term, a plan is a budget, whether for purchasing inventory or controlling expenses, a series of benchmarks that lets you know how you're doing. In the longer term, a plan reflects your strategy. It's the tool that everyday answers the question "Where do I need to be in one year, two years, three years, and what do I need to do today to take the next step along the path to getting there?"
One of the greatest competitive advantages that a small retailer has in a world dominated by larger competitors is the ability to make decisions (and execute those decisions) more quickly and nimbly. Indecision robs a small retailer of that critical edge. And yet, in too many small retailers, that advantage is conceded, whether because of inadequate information, aversion to risk, family politics or simple inertia. If there are factors that are preventing you from acting quickly and decisively, factor them out of your equation.
For all of the popular business books on execution, the issue is really very simple for any small retailer: all of your strategizing and planning and organizing won't mean anything if you don't execute with urgency and precision, day in and day out. If your team can't get it done better, faster, more accurately, more efficiently than your competition, sooner rather than later your competition will take your customers from you. It's as simple as that.
Let's face it, the days of simply keeping your eye on sales and figuring everything else will take care of itself are long gone. It's no longer enough for a small retailer to leave the financial side of the business to its bookkeeper and accountant. Small retailers must maximize the productivity of their investments to succeed in today's marketplace, and that requires more than a passing acquaintance with financial fundamentals. Small retailers today must understand the ins and outs of balance sheets, profit and loss statements, and cash flow statements. They must be able to continually track their key financial metrics, whether its inventory turnover, return on investments or debt to equity. If nothing else, when you sit down with your lender, he will expect you to know, even if he doesn't say so!
It's not just that every small retailer needs a computer system, but it also must use it to its full capabilities. My experience is that most small retailers use less than 50% of the available functionality, in some cases much less. Whether the functionality is customer relationship management, inventory management or operations management, every small retailer must challenge itself to learn everything the black box in the corner can do for it, and then put it to work. It is a tool that's just waiting to help you identify your best customers, your best items (as well as your dogs), and opportunities to streamline and drive unnecessary costs from your operations.
The most powerful asset any small retailer possesses is its employees, and their accumulated knowledge, expertise and experience. Leverage that asset. Give your employees the tools and authority to do their job, and let them do their job. Establish clear, challenging, yet attainable, objectives, monitor their performance, and coach them when they fall short. Every employee wants to feel he or she is making an important and meaningful contribution to the success of the company. Give them the freedom to make mistakes and learn from their mistakes, and the discretion to take risks, try new things and solve customer problems.
If you're not going forward, you're going backward
This is something that I find myself repeating continually, regardless of the specific issue I'm discussing. The concept is a very straightforward one. Once you measure it, you can manage it. And once you can manage it, unless you manage it proactively, the next time you check you will have fallen behind. If you think you can stand pat or tread water or set something aside while you focus on something else, think again. Your competition will pass you by in the meantime. Challenge yourself and your employees to constantly be improving on every metric you measure.
The objective for any small retailer should be to set the pace in its market segment, to establish the standard of excellence, and to continually push the envelope. In any market, the leader sets the pace, and it's always easier to set the pace than be constantly struggling to keep up. Customers will always gravitate to the leader. The future belongs to those small retailers who dedicate themselves to being the leaders.