Small Independent Retailers Have An Opportunity To Capture New Business As Chain Stores Become Insolvent

by Bill Sardi
by Bill Sardi

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I just finished reading an article in Forbes Magazine on how small retail business can cut costs in today’s tumultuous business environment. Suggestions consisted of inconsequential tips, such as saving on paper costs by generating direct-deposit paychecks, sharing office space, using more cost-effective conference calling, group buying, etc. These are trivial measures that simply do not address the dire problems facing small business in America today. In fact, they may signal to workers that your shop is in an inevitable downward spiral. For most small businesses, all the cost cutting in the world will not save it from insolvency.

The marketplace environment dominates in whether a business fails of succeeds. For an extreme example, the best-made business plans to open a retail shop in Darfur in the western region of Sudan would not likely be successful. In Darfur, your prospective customers are starving and there is almost no economy. As sharp a business manager that you are, you may not succeed in a poor business environment.

A business usually goes up or down, so when a downturn begins, owners and managers need to pay careful attention. However, ill-equipped managers and owners tend to reach for the small things they can easily change without recognizing better controls and strategic measures may be needed, not minor cost cutting.

Small business faces unprecedented challenges today. It’s obvious that retail stores, small and large, are closing down all over the country. The most visible closures in my area are a breakfast restaurant, an Italian dinner place, Chili’s restaurant, Mervyn’s department store, and a local movie theatre complex. It may be time to take strong measures and re-think your business. There will be fewer retailers chasing a smaller market, so small business must exercise sharp business acumen to survive.

Consumers have less money to spend and some are over-burdened with debt. They will be searching for values and cutting back on expenses, but balancing their need to spend more hours generating income versus time preparing lunch, washing the car, doing home repairs.

My suggestions for small business retailers today would be:

1. Ascertain the "altitude" of your business. Don’t fly by the seat of your pants. As an owner or manager of a small business, you may be confused over which numbers to watch on your monthly accounting report. Take the total monthly sales and divide by the number of full-time employees. This will produce your productively per employee. This number reflects upon all other management numbers – inventory, sales, cost of goods, etc. Compare your current numbers with those of past years by retrospective analysis. See how high your company is flying. If it is losing altitude, take note.

2. Attempt to learn whether you are circulating business from old customers or gaining new ones. The number of incoming telephone calls sometimes gives you a gross idea of whether your business is growing or not. Make an attempt to identify first-time shoppers in retail stores (drawings, etc.) to measure whether your customer base is growing or shrinking.

3. Keep an eye on your big customers and big-ticket items. For example, the greatest profit margin for restaurants is often in catering for funerals, weddings, gatherings. For restaurant owners, is your catering business rising or sinking?

4. Ascertain whether your products and services need a face-lift. For example, I recently suggested to a small but popular chicken and ribs restaurant near my home to think of making buckets of chicken for take-out service since take-home food is a strong part of their business, and to create a take-out window so these customers don’t have to crowd the sit-down customers at the front of the restaurant. Time is still a limited commodity for busy wage-earners and picking up a bucket of tasty chicken on the way home from work will still be treasured by busy workingwomen. An idea like this might transform a restaurant into a thriving rather than a deteriorating venture.

5. Check on your pricing. A newer entry to the retail ice cream store market debuted with a premium price of $3.25 per scoop. The timing of that new store entry does not fit with tough economic times. Consumers are likely to opt for generic store brands of ice cream. A popular drug store offers a scoop of ice cream at an economic price as a loss leader. It brings in customers who often think of something else to buy.

6. Recognize where consumers are most likely to cut back on expenses. Dog-grooming services, exercise training, car washing, restaurant lunches, may be examples. However, nearby my home a fully automated car wash has opened up for $5.00 a wash and you don’t need to tip the help since it is non-existent.

7. What value can you add to your merchandise? For example, small health food stores ought to be booming as health insurance and medicines are less affordable, and self-care should be the rule. But consumers are often confused here. Is your health food store helping consumers learn how to stay healthy rather than take medicines after disease occurs? Do you know how to coach consumers to find alternatives to costly prescription drugs? Invite consumers to bring their bottles of dietary supplements to your store so you can help them eliminate redundancies and buy better-priced products. Help your consumers save money.

8. Know a bit about your competition. There are many debt-ridden retail chain operations that will be going out of business in the coming months; at least 300 major chains are on the chopping block. Examine the SEC 10-k filings of publicly-traded chain stores that are your competitors. Determine their debt load and debt service (interest payments). Their 10-k filing may even note they anticipate difficulty paying the interest on their debt, since loan rates are likely to adjust upwards. Check on their net profits, which is their ability to pay increased rates of interest.

For example, one vitamin store chain has a debt of $165 million and has to come up with $22 million to pay interest on this debt annually. The company only netted $4.7 million in profits and has Libor loans that will adjust upwards in 2009. That is a competitor who is in danger of going out of business unless it finds a suitor since it is unlikely it will be able to renegotiate on its debt. Any suitors will wait for a chain store to go out of business and then buy it up for pennies on the dollar.

Your goal as a small business is to out-survive these chain stores and when the "going out of business sale" sign is hung on their front door, think of ways to capture their customers. "Bring your ABC Store Discount cards here." Small businesses carrying little or no debt may be unaware they are may be at an advantage against retail giants in this turbulent business environment.

9. What about your location? There are over 40 print shops in a 5-mile radius of my office. That’s a lot of competition. Maybe moving your business to another area will remove you from the clutter of competition. Does your business cater to people who work at home? If so, and your business is in those red-zones where there are a growing number of home foreclosures (Detroit, Michigan; Sacramento, California; Corona, California), your business success may be defined by your sour geographical environment. Maybe move to growth areas. Some businesses are moving to Nevada where there is no state income tax, where the labor pool is abundant and less costly, and the State as well as business parks offer incentives for business to relocate.

10. Think carefully before you consider new ventures which are business schemes rather than real businesses that meet consumer wants or needs. Multi-level selling opportunities sound good, but the profits often don’t materialize. Selling beyond your family and friends is a challenge. Hearing of the astounding profits others are making, many desperate people searching for new sources of income will waste their time in the multi-level marketing trap. Don’t fall victim to Ponzi schemes.

11. Internet businesses require savvy and take time to develop. It is easy for entrepreneurs to be lured into expanding into an online business presence. But remember, you are opening your online business in an electronic mall with hundreds of thousands of "stores." How will anyone find your online business? Google ads do not create much online traffic for you. You must generate your own publicity to gain online traffic. Beyond the delivery of goods or services, you must gain the trust of your online visitors to punch in all their credit card information on your site. The buying experience must be seamless and secure. Unique trade names and URLs are valuable.

12. Pay careful attention to the changes in the way customers pay for their purchases. For the first time consumers are charging purchases more often to debit cards than credit cards. Why let the banks hold all that money? Think about creating your own "debit" cards (usually called gift cards at most retail stores). Debit cards kind of bond customers to you as it obligates them to come back and use up the money they have on the card.

13. Think of dolling up the appearance of your business. Renovations usually attract 30% more business. Even a simple coat of paint and the simple replacement of old couches and chairs in the foyer of restaurants, doctor’s offices and coffee shops may help attract more customers. Don’t let your shop look worn and tired, like it is ready to go out of business.

14. Give reasons for consumers to tour your business. A new massage spa offered free massages by appointment during its first week of operation. It made it easy for prospective consumers to get acquainted with the new business and for the spa to pre-sell a package of massages.

15. Learn to barter with other businesses. For example, trade a plumber’s hours for free pizzas to fix a water leak at the pizza shop. Buy some paint to freshen up the appearance of the waiting room at a dental office and trade a painter’s time for free dental services. The business barter exchange idea can help small retailers band together to keep overhead costs low.

16. Hang onto your key employees. A landmark book, The Loyalty Effect (Harvard Business School Publishing, by Frederick F. Reichheld), showed that successful companies in any field of enterprise had one common trait – they had low employee turnover rates. The familiar faces and voices of your business are those of your trusted workers. Lose them and you will certainly lose business. Cross-train new and old employees so you can keep labor costs low.

17. Get out of the way of your own business. Small business owners are prone to burn out in times like these. There are three types of business managers: relegators, those who only allow workers to do the small stuff, making themselves the cog in the wheel; abrogators, those who delegate everything to poorly instructed workers who simply are unprepared for the responsibility; delegators, who make workers accountable to perform agreed-upon tasks within a set time and to leave reports of the completion of their work on the boss’s desk. You have to leave the business in the hands of your workers from time to time or face burnout syndrome.

18. Keep your eyes on the till. Workers are under pressure to pay their bills and cash businesses may experience loss of money from the cash register. Make employees write out receipts for cash payments in a carbon receipt book and place a sign for customers to read, to ask for a receipt when paying in cash.

19. Watch for other small businesses in your field where owners are thinking of retirement. Can you buy their customer list? Is a competitor going out of business and you can buy up newer equipment at bargain prices? Our gym trainer recently bought new-model exercise equipment for pennies on the dollar from a gym that had lasted less than a year in business. Keep your eyes open for opportunity.

20. Can you out-source business functions? I manage a 7-figure company that has no employees. Its sole product is produced by a contract manufacturer, orders are received and shipped by an independent fulfillment center, a website is managed by an independent webmaster and bookkeeping is performed by an independent contractor. Someone once said the most ideal business is a post-office box that receives cashiers checks.

Don’t be dismayed. Business misfortune can become great opportunity. Recall that Colonel Harland Sanders had a roadside café that was put out of business when a new highway no longer passed by his establishment. This forced Sanders to peddle his most valuable remaining asset, a recipe for fried chicken, to other restaurants. He cooked the chicken for other restaurants to prove it was so tasty that customers would come back for more. Colonel Sanders was to become the most identifiable face in American business and his Kentucky Fried Chicken establishments dotted the map. Sometimes all a local business success needs is to spread itself to other markets.

Small retail businesses are the bedrock of American free enterprise. Small business employs most Americans. Small independently-owned businesses have certain advantages over chain store operations. Millions of employed American workers depend upon small business owners managing their businesses skillfully. Develop the mindset of a successful entrepreneur. Business success is a thousand things done just a little bit better. Don’t make hasty changes, but you do need to outrun your competition. Your success can be copied by competitors. However, if you keep implementing new ideas, your competition is not likely to keep pace.

America is still the best place to conduct business, but not for the faint-hearted.

November 28, 2008

Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.

Copyright © 2008 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for www.LewRockwell.com and other parties who wish to refer to it should request permission to link rather than posting at other URLs. 

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