White Paper Looks at Challenges Facing Independent Businesses

In November, the Illinois Retail Merchants Association and the George H. Baum Community Charitable Trust of Morris, Illinois, in cooperation with the National Retail Federation (NRF), produced a free white paper to help independent businesses remain competitive now and in the future. The new resource, "Challenges of the Future: The Rebirth of Small Independent Retail in America," is a comprehensive look at the marketplace for small independents, the obstacles they might face moving forward, and, more importantly, how best to meet these challenges.

As small retailers deal with market trends such as increasing competition, demographic changes, soaring healthcare costs for retail businesses, and other factors, "doing business as usual can be tantamount to doing no business at all," said Jim Baum, chairman of the Baum Community Charitable Trust and a third-generation owner of several retail businesses in Morris, in a press statement. He noted that most independent retailers realize some of the challenges they face, but fail to adequately address them, and in some cases, retailers may not even be aware of challenges they face in marketing, merchandising, and pricing.

"While there has been a tremendous amount of research done on the challenges facing national chain stores, nothing has been done on the small stores," Baum continued. "Some of these challenges are significantly different for small stores. There are things in the retail industry that no one had taken a close look at, things that haven't even been thought about." His foundation decided to initiate the paper because he believed the greatest challenge for his business and that of other small independents is "just seeing the opportunities beyond our door."

The 64-page "Challenges of the Future" -- which was researched and written by Jack Stanyon, the president of EDGE, an independent marketing and communications consultancy -- is divided into three major sections.

The first section deals with the "trends, challenges, opportunities, and the drivers of change"; the second with the "challenges of the future"; and the third part provides readers with case studies from 17 small businesses in markets ranging from appliances to mattresses to food stores. To gather data for the paper, Stanyon spoke "with a number of consultants, academic experts, and retail association executives who work and talk with small independent retailers every day."

Stanyon's introduction notes that 90 percent of all American businesses employ fewer than 20 people. Furthermore, small business accounts for 40 percent of Gross Domestic Product and small business accounts for 66 percent of all jobs created in the past 25 years, according to the National Federation of Independent Business.

Stanyon also stresses, "We began research for this project with no preconceived notions. It is apparent that many small retailers are struggling. If you look no farther than many communities' downtowns, one sees fewer small independents. And some classifications of stores have almost disappeared. Change is evident. Surprisingly, however, we found success everywhere; small towns, big cities; 1,000-square-foot stores and 20,000-square foot stores; stores with four employees and stores with 40 employees. We found successful retailers in almost every classification of merchandise. We found a continual rebirth of small independent retails in America."

The first section, "The Fear and the Hope," identifies nine trends considered to be "major drivers of retail change":

• Personalization. "This important trend bodes well for small independents who can leverage their inherent advantages of flexibility and customer intimacy to create a more personalized experience for their customers," it is noted in the paper. "While technology permits sophisticated databased marketing and promotions, small independents are still the best poised to get to know their customers individually as they are often a personal part of their lives. Knowledge of customers' birthdays, favorite colors, time of day they like to shop, and other information is not just pleasantry any more. It can be an essential driver of sales. So while big companies employ slogans like 'reach out and touch someone,' it is more likely the small independent retailer who can actually shake their hand."
  

• The Value Equation. "American consumers are becoming more interested in getting more value for their money…. Price is not the only factor in a value determination. Speed, convenience, service, and knowledge all play an increasingly important role."
  

• Increased Competition. Stanyon points out that, since big retailers employ market share growth strategies and communicate value propositions designed to "dominate either a product category or customer segment," that "these companies eventually compete against each other because that's the only playing field where significant market share can be gained." As such, he continues, small retailers and businesses must scramble for the remaining share of the market where they can compete effectively.
  

  Moreover, the marketplace is becoming truly global, Stanyon writes, with the Internet "blurring the lines of traditional market areas. Competition for small independents can now come from anywhere, big chains or other small independents halfway across the country or halfway around the globe." As result, he warns that "small independents must not compete on price. To do so is a death wish. It is not sustainable. It is not winnable. And it will likely lead to ruin."
  

• Changing Demographics. It is predicted that "three powerful demographic trends will cause profound change": the aging of America (it is expected that the number of Americans age 55 and older, currently 60 million, will almost double between now and 2030); the continued growth of the Hispanic population (a market that remains underserved by many retail segments); and the coming of age of Generation Y (those born between 1981 and 1995 number 57 million and are the largest consumer group in the history of the U.S.).
  

• Community activism. Stanyon writes, "There is a growing national trend of community resistance to unrestrained retail development in order to protect local community personality, feel, and values. This trend is intensifying as large national chains are rediscovering downtown areas, looking for new growth opportunities by following population migrations. A member of the Arcata, California, local development committee was quoted in a recent USA Today article as saying, 'Citizens were concerned about corporate power issues. There's a revulsion against what's happening all over the U.S. You drive through most any town and you'll say, Where am I?'"
  

• Health Care Costs. Small business are especially hit hard by the runaway costs of providing health care benefits to employees.
  

• Changing Consumer Attitudes and Behavior. "The traditional customer definitions and delineations have been blurred by the sheer volume of marketing activity across the entire socioeconomic spectrum. People are more fluid in their shopping behavior."
  

• New Retail Development. The recent trend in "new retail development [is] to create community spaces of mixed use that exhibit a strong sense of place. Many of these developments, called 'the new urbanism,' incorporate features more in keeping with feelings of towns and neighborhoods vs. traditional large retail centers. They are designed to promote social interaction and leisure time activities."
  

The second part of the paper talks about the "Challenges of the Future." According to Stanyon, the six major consensus challenge areas identified are:

• The changing nature and effectiveness of marketing and advertising
  
• Difficulties in product sourcing and merchandise acquisition
  
• Speed and overwhelming nature of technological change
  
• Need for delivery of higher levels of service
  
• Transparency of price and product information
  
• Limitation of management skills and capabilities
  

The paper gives an in-depth analysis of each challenge and how independent businesses might best face these issues.

In the last section, "17 independents discuss success, change, challenges, risk, opportunity, hard work, passion, and fulfillment."

The paper is available for download from www.retail-revival.com. --David Grogan