Mine Your Own Business

Wal*Mart Left Holding the Bag

According to Bloomberg.com, Wal*Mart's Sam's Club division and the Italian Fashion Group  Fendi
  have settled a law suit filed by Fendi accusing Sam's of selling knock-off handbags, wallets, and key chains and claiming the items were authentic in some of its stores.  Sam's will pay Fendi an undisclosed amount in exchange for Fendi dropping its lawsuit.

According to the suit, Wal*Mart earned millions of dollars selling the bogus leather goods.  A wallet that normally sells for $385.00 was selling at Sam's for $199.00 

Sam's has removed all the o"Fendi"ing merchandise from its clubs.  Customers who want to return the items will be given a full refund.

According to Bloomberg, in 1999, Wal*Mart agreed to pay Tommy Hilfiger Corporation $6.4 million when the discounter was found to be selling counterfeit Hilfiger goods in violation of a 1996 court injunction.

Here Come the Big Boxes

If you want to get the attention of the local business community, just start a rumor that a big box store is coming to town.  Like it or not, the arrival of Wal*Mart, or Target, or Home Depot in Smalltown, USA is going to change the business landscape forever. 

If you've been following along in your Mine Your Own Business workbook, you know that one of our goals is to offer you the tools you need to compete in this brave (?) new world.  Creative promotions, variable pricing, excellent service, and finding your niche are just a few of the things that will make you competitive with the big guys.

But, just in case you're located in a community that hasn't felt the sting of the big box, then here's a web site you might find interesting.  The Institute for Local Self-Reliance offers a variety of tools to help you keep local business local.  It includes a "Big Box Tool Kit" that shows you how to use a variety of legal means to keep a box store out of the community.  There's a link to a new book called Big Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses" which describes the effect that chain stores have had on communities across the US.  There's an article concerning a speech given by the book's author here.

Unfortunately, competition from national chains is pretty much a fact of life for most of us.  If you're lucky enough to be in a position to stop, or at least delay their arrival in your town that's great.  For the rest of us, keep watching MYOB for tips and tools to help you compete on a more level playing field.

On Protecting Personal Information

There's an interesting article on PC World.com about a provision of the 2008 federal budget that would require on-line businesses like eBay and Amazon.com to collect personal information on their customers and turn it over to the IRS.

Here's the thing:  The Treasury Department is concerned that it's losing tax revenue because of unreported sales over the online services.  If it passes, the new regulations would require the services to collect and report sellers' information including name, address, tax payer ID, or Social Security number.  This information would be turned over to the IRS only if the seller conducted 100 or more separate transactions worth $5,000 or more.

Trouble is that there's no way for eBay or Amazon.com to know, in advance, how much business a seller is going to to so most likely they would collect the information on every seller, regardless of their sales volume.  Since so many on-line sellers are individuals, not commercial enterprises, they don't have tax payer IDs.  That means the creation of gigantic private databases of people's Social Security numbers.   

Obviously it's not a good idea to have such a huge underground economy of people selling merchandise on-line and not paying taxes.  It's bad for the government and it's bad for competition.  On the other hand, the fewer places my personal information is stored, the better. With so many stories of hackers getting into sensitive databases lately, there must be a better way.

Costco

There's an interesting article on msnmoney.com about Costco.  For those of you not in their market area, Costco is a warehouse club, similar to Sam's Club, but with a more up-scale image.  Their merchandise tends to be a little more high-end than Sam's. 

Costco (and Sam's) are able to work on low margins because of their low expenses and because they generate substantial revenue from membership fees, $1.2 BILLION for Costco in their most recent fiscal year. The article is generally favorable toward Costco.  Compared to many of their big box competitors, some of the kudos are well-deserved.  For instance, they are much more generous to their employees with both pay and benefits than Sam's Clubs.

One thing the article doesn't point out is that many of the expenses that Costco and other big boxes "save" are actually passed along to their manufacturers.  Selling them can be an expensive proposition.  For example, the writer praises Costco for their no-questions-asked return policy.  Guess what?  The costs of that liberal return program are born by the manufacturers, not by Costco.  Other expenses associated with their streamlined distribution process also fall on the manufacturer.

The warehouse clubs are able to keep their inventory low by forcing their suppliers to hold the merchandise in their warehouse.  That's why, in spite of their wafer thin profit margins, the prices in warehouse clubs aren't necessarily the lowest in town.  Manufacturers, at least the smart ones, load these additional expenses into their wholesale price.  So, even though the warehouse club sells at a maximum of 15% gross margin, they're often adding that margin to a higher wholesale price.

It's easy for a manufacturer to get excited by the potential business generated by Costco or any big box store.  But the costs are high, both the expense of supporting their bare-bones operation and the expense of the loss of loyal dealers.

Demand lines with names like Black and Decker, Panasonic, or Sony may develop a long-term relationship with a warehouse club, but for the most part, products are in and out of the clubs very quickly.  As the video that accompanies the article points out, every product is carefully scrutinized and the ones that don't perform are quickly replaced.  (While the article is favorable to Costco, the video looks like a Costco infomercial.

The club model is unique but the high-volume/low-service style of business isn't that different from any of the big box stores. 

Changing the Rules

John Wyckoff is a marketing consultant, sales trainer, author and motivational speaker.  In a one hour interview with Small Business Trends Radio, he discusses how to beat the big box stores by changing the rules.  You can download the presentation and listen to it at your convenience on your laptop or mp3 player.

He touches on a variety of topics and strategies to help you compete.  For example, did you know that women have a tendency to look down while they're shopping but that men look up?  Since men are more likely to be impulse shoppers, grocery stores put impulse items (snacks, junk food, beer) on the higher shelves.  Another example is magazines, where sales were increased in a number of airports by putting the men's magazines up high and the women's magazines down low.

The 60 minute program has several commercials, including one for Wyckoff's book, Mind Your Own Business.  But the content is good and I'd never deny someone the opportunity to try to sell me something.  If you pick up just one good idea, it will be an hour well spent. Check it out!

By the way, there's a lot of other good stuff on the Small Business Trends Radio web site.

Working Hours

In a telephone survey of 300 leaders of companies with 20 or fewer employees, researchers have learned that small business owners "reported long hours, diminished vacation, and an ever-blurring line separating work from time-off."

The survey was done on behalf of Staples, the office-supply chain.  In a press release, dated today (1/08/07), they breathlessly report that "Time is a critical resource for companies of all sizes, but it's of even greater importance to small business managers, who possess a larger stake in their company's success and often lack the support infrastructure of bigger businesses."  That's according to John Giusti, vice president of Staples Business Delivery, the company's division which specializes in small business sales.

Here's a link to the press release that you can read if you have time.  If you don't have time (and according to the survey you probably don't), I'll give you the short version. 

• You work way more than forty hours per week. 
• Work intrudes on your "personal" time.
• The younger you are and the fewer employees you have, the more hours you're likely to work.

The press release goes on to promote the company as the best place for small businesses to buy their office  products and services.

I hope Staples didn't spend a ton of money on this survey since the "results" are common knowledge to anyone who owns a small business, who has ever owned or worked in a small business, or who has ever worked with small business.

The irony of the whole thing is that much of the extra time put in by small retail business owners is devoted to competing with big box retailers.  Staples was one of the original big box chains and even brags about it in the press release:  "Staples, Inc. invented the office superstore concept in 1986 and today is the world's largest office products company."  2005 sales were $16.1 billion.  They operate more than 1,800 stores.

I wonder how many office supply stores were included in the survey?

Urban Sprawl

This is number twelve in our series based on Challenges of the Future: The Rebirth of Small Independent Retail in America, a 64 page white paper by Jack Stanyon, underwritten by the George H. Baum Community Charitable Trust, the Illinois Retail Merchants Association, and the National Retail Federation Foundation.  Today we take a look at the trend of urban sprawl and real estate development.

Stanyon's final trend is "Urban sprawl and real estate development."  He points to the spread of "the new urbanism", mixed use developments where people can live, work, and shop.  A prominent example, and one of the first of these new communities was Celebration, FL, a Disney project.

Celebration is a city in itself with homes, stores, and entertainment.  It has its own post office and its own schools.  Theoretically, someone could spend their entire life there, never having to leave.  Other such communities are popping up all over the country, but the more typical "new urbanism" area isn't quite so self-contained, although it has similar features.

This form of "the new urbanism", one that may have more relevance for our type of business is the "lifestyle center" which seems to be replacing the more traditional shopping mall. Lifestyle centers tend to be smaller than traditional malls with an emphasis on specialty stores rather than big anchors.  They usually feature an open-air design and parking close to the stores.  They appeal to shoppers who are in a hurry and who don't want to negotiate a huge indoor mall to get what they want.  There is usually a sit-down restaurant or two and there's likely to be a Starbucks or something similar.  While the number of new malls is declining, the number of lifestyle centers is booming.

Because of their smaller size, there can be more lifestyle centers located closer to residential areas, which appeals to today's busy consumer, especially with the high cost of gasoline.

Stanyon quotes David Szymanski of the Center for Retail Studies at Texas A&M who said, "Americans are seeking more of a sense of community.  Lifestyle centers, you look at them and go, 'I like these places.  I feel comfortable here.  These are the kinds of things I like and these people understand me as a customer.'  And the other part is that they are located where these customers live."

In other words, exactly the sort of environment they might find in most independent retail stores.  Comfort, convenience, and individualized service is exactly what you do best.  While no one is predicting the death of the indoor mall, especially in colder climates, lifestyle centers are the trend of the day.  Isn't it ironic that everything that describes a lifestyle center also describes  downtown?  You remember downtown?  That's the place everyone moved away from in the 60's.  Now  we're building  new downtowns in the suburbs.  Go figure.

Guarding the Gates

This is the ninth in our series based on Challenges of the Future: The Rebirth of Small Independent Retail in America, a 64 page white paper by Jack Stanyon, underwritten by the George H. Baum Community Charitable Trust, the Illinois Retail Merchants Association, and the National Retail Federation Foundation.  Today we take a look at the trend of community activism.

This is the first time that I basically disagree with Stanyon's position.  What he calls "community activism" is best described as local businesses banding together to stop the spread of retail development in order to protect the "personality" of the local area.  In the past, you saw it most often when Wal*Mart announced plans to move into a new community.  Local merchants would try all sorts of strategies to keep them out. 

Today, we're seeing the same thing happening in major cities.  A recent example is the attempt by the City of Chicago to keep Wal*Mart and other big boxes out of town.  Although the ordinance, specifying that large retailers would be required to pay a "living wage" and provide certain benefits was passed by the city government, Mayor Daley vetoed it.  There have been similar fights in other cities. 

Where Stanyon and I disagree is his statement that "protectionism from increased competition has often proved unproductive.  First, consumers will find their way to where they want to shop--big box, specialty store, or national chain.  Secondly, trying to stop new development often becomes a major distraction for the small retailers when they should be spending time thinking about their own business and improving their downtown or neighborhood shopping areas."

While Stanyon's premise seems sound, local governments are often taken in by the promise of more jobs and a better economy that the big box stores offer.  To get these perceived benefits, they open their wallets and provide outrageous incentives to the chains.  This gives the big stores an advantage that they don't need and that taxpayers shouldn't have to provide.

A good specialty store should have little trouble competing with a big box store on a level playing field.  Their presence may require the independent dealer to change strategy and work a little harder, but the inherent benefits of an agile, flexible, locally-owned retailer should outweigh the advantages of size that the big guys enjoy.

But, given millions of dollars in tax breaks, the chain will win every time. 

While Stanyon has a point that too much concentration on possible incoming competition might distract from running the business and improving the local community,  the two aren't mutually exclusive.  In fact, preventing new competition from getting a sweetheart deal from the local politicians may be necessary in order for the independent to have a business to run.

As most of you prove every day, it's possible to survive and thrive in the face of competition from the big boxes.  In fact, it's been shown many times that having a chain store nearby can actually help the local businesses.  Given the choice between having a Wal*Mart in your town and having one in the next county, it's generally better for the independent to have them in town.  Otherwise, shoppers may do all their shopping in the neighboring community, bypassing you altogether.

The arrival of a big box store doesn't necessarily create jobs.  In fact, it may replace existing jobs with jobs that pay less, giving the area a net loss in income (and tax revenue).  Local stores that don't meet the challenge go out of business, leaving boarded up store fronts that reduce tax revenues and actually add costs for the local government.  As members of the community, it's up to all of us to see that our tax dollars are spent in the most efficient way possible.  Ignoring our responsibility to our fellow citizens to devote 100% of our time to our own business may turn out to be rearranging the deck chairs on the Titanic.

A Tale of Two Retailers

This is the fifth in our series based on Challenges of the Future: The Rebirth of Small Independent Retail in America, a 64 page white paper by Jack Stanyon, underwritten by the George H. Baum Community Charitable Trust, the Illinois Retail Merchants Association, and the National Retail Federation Foundation.  Today's topic is Competition.

Here’s a story of two retailers. I’ll call them A and B. What they sell really isn’t important to the story except that they both sell roughly the same kind of merchandise. They are truly specialty stores in that neither one sells anything that anyone really needs. If you were going to buy something in either store, it would be because the item caught your eye, or because someone sold it to you.

Dealer A and B are both located in a busy tourist area with lots of specialty shops and restaurants. It’s the kind of place you might go spend a Saturday afternoon which is exactly what my wife and I did this past weekend. The two stores are no more than a block apart.

Store A was busy. There were at least four people working there. There was music playing and the atmosphere was very conducive to buying something, which I did. I’ve been in this particular store many times. It’s always busy and I don’t recall ever leaving there empty-handed.

Store B was a different story. When we walked in, there were no customers in the store. The only person working there, who appeared to be the owner, was talking on the phone.  She was talking (quite loudly) to someone about how bad business is. She blamed gas prices, interest rates, the President, the stock market, chain stores, Al-Kaida, the bird flu, global warming, you name it. Listening to her side of the conversation, and it was impossible not to in the otherwise quiet store, you would think that we’re on the brink of another Great Depression.

While we were there several other people came into the store, looked around, and left. In that entire time, she continued her doom and gloom conversation, never once acknowledging any of her potential customers. When we left she was again alone in the store, continuing her conversation.

I would be willing to bet that at some point she told her phone friend that several people had just come into the store and left withoug buying anything, proving her point that the economy is in a mess.

I could go on about what store A did right and what store B did wrong, but you already know that. It all comes down to making your store an inviting, customer friendly place to shop. Store A is far from perfect. In all the times I’ve been there, no one has ever asked for my email address. No one has ever tried to up sell me or to suggest additional merchandise. But, it’s a pleasant place to shop. The people are friendly. The atmosphere makes it hard not to buy something. Store A is good with the potential to be great.

I feel sorry for the owner of store B. Remember, neither of these stores sells anything necessary. But, if store B were selling bread and milk, most people would still stay away. The atmosphere wasn’t inviting. Anyone who overheard and believed what the owner was saying would be just as likely to run home and bury their money in the back yard as they would be to buy something.  For the owner to not even say "hello" as people entered the store is inexcusable.   Store B reminded me of the auto parts store in an earlier post (Waiting for Things to Get Better).

When we consider our competition in the retail business, we’re likely to think first about the big box stores. They’re the ones with the big ad budgets and the huge buying power.  We seem to see their ads every time we pick up the newspaper or turn on the TV. It’s natural to think about them when sales aren’t what we think they should be.

But, face it, there are a lot of consumers who just aren’t our customers. They’re only concerned with price and we’ll probably never have a chance at their business.  They keep the Marts and the Depots in business.

Our target customer, the one who makes buying decisions based on value rather than price, is going to buy from us, or from someone like us. Our competition for that business is the store down the street, or across town, who’s also an independent retailer. That competitor has the same problems that we do. He or she is trying to tell the same value story that we are.

If we’re going to consistently win the business, it’s critical that we provide our customers with a pleasant, fun place to shop.  The difference between an independent retailer and Wally World is obvious.  The difference between two independents may be more subtle. 

Qustion, "What are you doing to make your store customer friendly?"

Wit and Wisdom of "the Donald"

As if he didn't have enough money, Mr. Trump has a blog which he humbly calls "The Trump Blog".  It's basically an advertising vehicle for Trump University, a series of on-line classes for business folks.  The Donald is a fairly regular contributor, but today I'd like to call your attention to a post by Don Sexton, PhD on competition. 

According to Dr. Sexton, there are four questions you should be able to answer about your competion. 

1.  Who are they?  This may seem easy, but it's harder than you might think. 

2.  What do they want?  Are they after short-term profits or are they in it for the long haul? 

3.  What can they do?  You need to know their strengths and weaknesses to plan a successful strategy.      

4.  What will they do?  Study their past actions to get an idea of what they might do in the future.

Healthy competition will make you stronger if you can answer these questions and make a plan to outmaneuver them.  Consumers are so well informed today that every one of them driven into the market by your competitors' ads is very likely to end up in your store.