Building a small retail business is one of the greatest challenges in the world of entrepreneurship, because it requires a considerable level of up-front capital investment but at the same time, relies upon the ever-changing tastes of post-modern consumers for lasting success.
For the last twenty years, the ‘big box’ movement has nearly decimated many small retailers, whether it was local supermarkets with the arrival of Aldi, general stores with the advent of Dollar General and Wal-Mart, or hardware retailers facing the likes of Home Depot and Lowe’s.
Following that onslaught has come a whole new threat in the form of Amazon. The eCommerce behemoth’s increasingly aggressive and cutthroat retail development strategy is rapidly closing the gap between online and in-person retail experiences-it’s now possible to actually receive more and more products, delivered to your home or office, the same day you ordered them.
And yet, at the same time there are fascinating indicators that all is not lost in the midst of today’s retail apocalypse. For example, the 1998 romantic comedy, You’ve Got Mail looks positively antiquated now that small independent booksellers are making a comeback and “big box books” are nearly gone with the loss of Borders in 2011 and the near-death of Barnes & Noble in the current period.
So, what does it take to make a small retailer successful today? How can you beat the odds when so much is at stake? Here are five powerful strategic insights that you can use to build a successful retail business in a marketplace littered with failing competitors:
1. Think Smart. Go Small.
If rule number one in retail is “location, location, location” then rule number two today should be “store size, store size, store size”. More and more retailers are rapidly shrinking their unit sizes to save costs, reduce risk and make it easier to experiment with new concepts. Small formats also allow for more of a focus on location.
Put another way, in most cases (not all, but most), it would be smarter to choose a smaller space in a better location, rather than a larger space in a weaker location. Another advantage of a small format is that it forces you to be choosy and precise when it comes to product selection. How many times have you been in a gift shop or local retail store that seems loaded with dusty, slow-moving (or never-moving) products that seem incongruous to the store’s theme? A smart retailer knows that the store shouldn’t carry any products that don’t move, so using a small format makes that very obvious since there’s nowhere for dusty, forgotten-about merchandise to hide.
2. Pursue a Niche. Then Own It.
Successful brands are built around very clear ‘swim lanes’ — the areas of focus that each business is considered the market leader in. One reason so many longtime Hallmark stores have closed over the years (the vast majority of them family-owned) is because their focus got lost. Are they primarily a greeting card store? A gift store? A home accessories store?
Similarly, on the corporate side, Radio Shack ultimately failed in large part because the stores didn’t have a clearly defined focus. After the stereo era ended, Radio Shack entered home computers, then later cellular phones, then after that digital navigation devices…all the while leaving customers confused about when to go.
Compare this to stores that just sell batteries, like Batteries Plus, or stores that are very specific in both what they offer and the price range they target (an example is Warby Parker, which sells eyeglasses that are all priced between $99 and $149 throughout the store).
It is so much better to be precise in the key questions of targeting versus being too generalized and therefore lacking clarity. The key questions are:
- What do you sell?
- Who are you targeting as your buyers?
- What price ranges/buyer budgets are you targeting?
For example, a small general hardware store will struggle to survive in today’s all-encompassing retail environment with both big box and online solutions just seconds away. But a highly focused hardware store — such as one that specializes in architectural accents or focuses on pro-grade tools, or perhaps only serves contractors vs. the general public – can still do very well. Of course, in rural areas a more general store might still survive due to the lack of physical competition, but that’s a strategy for a slow death, not a path toward success.
In addition, the real value in niche focus is getting to know your audience and then becoming their go-to partner in life. If you sell bras, consider focusing on a specific audience — for example, plus-size women; female athletes; or breastfeeding mothers. That way, you can build a true community and deep loyalty among your customers for years to come.
3. Your Store is a Stage. So is the World.
Do you know one of the biggest mistakes that small retailers make? They embalm their stores. Yes, it’s pretty much literally true. They set up the displays, order merchandise, open the doors and then sit there waiting for people to show up and buy stuff.
Stop viewing your store as a passive business, because it is not — not if you want it to succeed! Instead, it’s time to view your store as a stage. Hold events, tastings, customer appreciation parties, product line introductions and anything else you can think of. Hold a party, host an expert presenter, create a workshop, celebrate an appreciation week for your particular product category (even if one doesn’t exist — who says you can’t create the world’s first “Ukulele Appreciation Week”?
The “Store as Stage” concept doesn’t have to stop at the doors of your retail space, nor should it. Participate in retail events, festivals, trade shows, business events, workshops, programs, anything to get your name out there. And when you do, focus on your brand and on capturing as much contact information from guests as you can. Sure, hand out free samples and share brochures or rack cards. But it’s far, far more important for your business to capture people’s names and email addresses than it is to hand them brochures and business cards (ideally, you’ll do both).
You can even consider taking the concept of getting out of the store a step further with ideas such as pop-up stores in other locations; a product equivalent of the “food truck”; or even selling directly to customers outside the store. For example, one wireless product store manager kept taking time out from being in the store and coworkers thought she was wasting time…until she returned with multiple large orders from area businesses she’d been personally visiting.
3. Create a Conscious and Committed Community
One reason you need those names and email addresses is to help you begin building community. Of course, this involves social media but it can also go beyond that. On the social media side, remember that generating views on your Facebook page or to your other social accounts is a good first step…but just a first step. It’s far more valuable over the long term to pull customers gently but firmly into a semi-private community such as a closed (but visible) Facebook group or a proprietary customer appreciation club, for example.
Another thing you can do very easily is to reward customers and encourage them to become brand advocates. Ask them to attend special events, appreciation parties, product line previews or workshops with brand experts from the companies whose products you sell. Ideally you will also be capturing physical addresses (especially with consumers, whose personal email accounts are notoriously susceptible to spam blocking even with approved marketing emails). Send out regular postcard mailers, event updates, thank you cards and more.
Then, ask customers to volunteer and become brand advocates at various levels. Do you have some “super-user” customers who consistently seem to buy every new product your store brings to market? Ask them to talk about their experiences online, or perhaps even offer their voice at a workshop as well. All of this demonstrates why having a modern point-of-sale (POS) system is *so* very important as well. You need a system that captures this customer information for use.
Finally, build community with your partners. Let’s suppose you sell home furnishings in a resort town. You might partner with interior designers, complementary retailers (such as an art gallery, a closet system manufacturer and/or a window covering retailer) and local realtors to co-launch an event series or workshop or evening wine tasting program where you and your partners showcase how customers have used your products in their homes.
5. Use Online as a Brand Expansion of Brick-and-Mortar
Finally, don’t forget that online retailing is not just your competition — it can also be your secret weapon. Some of the biggest investments being made in retail today are in companies that began as pure-play online businesses and are now diversifying into brick-and-mortar stores. Examples include Bonobos, Casper, UNTUCKit, Peloton and Warby Parker. Of course, they all benefit from huge venture capital or private equity investments, but what they have figured out is that customer experience is king. The reason the Warby Parker store experience is so flawlessly simple for customers is because they already built a nearly friction-free online experience which was then mirrored to their stores.
Some analysts strongly advise against small retailers investing in eCommerce development, and there is a legitimate argument to be made for not trying to compete head-to-head with Amazon and the other giants. However, even if you opt against selling online as a primary channel, you need to invest in *being* online so customers can engage with your brand, your products and your experience. Think blog articles, podcasts, online guides, short-format videos and other media options that help demonstrate the value of what you have to offer.
These five insightful strategies collectively emphasize the importance of creating a powerful brand experience. The key to doing that concretely begins with allocating time and money, so remember at the very start to set aside a significant percentage of funds for brand development, marketing, merchandising and other customer development activities. Retailers typically spend between 5-15% of gross revenues on marketing (depending upon how you define the category), and in the case of franchise systems an additional monthly fee equal to 1-5% of gross is not uncommon. Make sure you don’t under-allocate investment toward the business development side of your business!
To explore other related strategies for financing growth and preparing for the expansion of your small retail business, make time to speak with your CPA today.