Independent Retailers Face Challenges That Chain Stores Don't
August 10, 2010 USA Today
The recession has left its impression on Joya Helmuth's stationery store in South Bend Indiana. Helmuth, owner of Spark Fine Stationery, says that with consumers cutting back on wedding invitations and stationery, she's been forced to consider carrying cheaper products or cutting costs in other ways.
But Helmuth says she's lucky. In 2009 she saw a 12% drop in custom item sales, which make up 30% of her business, but she's fared better than some of her neighbors. Three out of the seven independent businesses on her street have closed or moved as a result of the downturn.
"It only takes a couple of bad months, and you can be recovering for a year or two, and that's if we recover," says Helmuth, who opened her store in March 2007.
With a retail real estate market that often prices smaller stores out of high-traffic areas and an economic downturn forcing consumers to cut down on discretionary spending, some private retailers are having a tough time.
"I don't see chains closing. I see my fellow business owners suffering," Helmuth says.
Terry Peltz of Performance Advisors LLC, , a financial analysis company, says that's not only the case in South Bend Indiana, it’s happening all across the country.
Except for a few exceptions, privately held retailers suffered greater sales declines than public company retailers. Private retailers have seen a drop of about 2% in sales in 2010, on top of an almost 8% drop in 2009. That's compared with publicly traded retailers, which saw a 0.5% increase in sales in 2010 and an increase of 0.4% in 2009.
Peltz says independent retailers saw a sharper decline in sales during the recession for many reasons, including limited advertising budgets and less "muscle" in dealing with suppliers. But one of the main struggles of smaller stores: They sell boutique items, Peltz says.
"When times are tough, people are laid off and the consumer confidence isn't high, people are probably going to go with their needs first," Peltz says.
Dan Butler, vice president for merchandising and retail at the National Retail Federation, says larger companies are also more adept at planning. "Larger companies are just more nimble in some of these circumstances, because they've got a larger staff to deploy."
Low prices over value
Jeff Milchen, co-founder of the American Independent Business Alliance, says that during a recession, consumers tend to favor low prices over value, which can hurt smaller shops.
Helmuth says she started a local business alliance with some other business owners in her area to help remind consumers of the value of buying from shops like hers instead of heading online, where prices can be cheaper.
"That's been a huge thing in making customers aware that the recession isn't just hitting them and their job," she says.
Though the struggles of a mom and pop shop can be especially acute during a recession, independent retailers are always faced with the challenge of finding a prime location at a decent price.
"Many local merchants don't have the experience or the tools to pick real estate that's best for them," says Jim Bieri, CEO of the Bieri Co., a retail real estate consulting firm.
Bieri adds that larger chains usually have an expert in-house who can help them sign a favorable lease in a good location.
"(Independent retailers) typically can't afford to be in the really expensive real estate," Bieri says. "The nationals price them out of the highest-traffic locations." That's why finding an independent retailer in a mall or heavy-traffic area such as Chicago's Michigan Avenue is relatively rare, Bieri says.
"The restrictions can be pretty heavy," says Butler of the NRF. Plus: "Some independent retailers prefer to be in a different format."
Steven Aarons, owner of Barston's Child's Play, which has four stores in Baltimore and the Washington, D.C., area, says one reason he's able to price his toys so competitively is because of the locations of his stores.
"When you're in a street location, your rent is a lot lower," he says.
Aarons adds that there are other reasons he prefers to be on the street instead of in a mall.
"The idea of what we're trying to do is be part of a neighborhood," Aarons says.
Alex Quintana, who owns Quintana's Barber Shop and Dream Spa with his wife, says owning the Cleveland Heights, Ohio, building they operate in is a "definite plus."
He adds that residents are invested in having local merchants downtown because they appreciate the eclectic nature of the shopping district.
"It's what makes people choose to stay and live in the city of Cleveland Heights. It is still small-town shopping," he says. "Everybody wants to go to Cheers."
For boutique shops looking to get into high-traffic locations traditionally reserved for chains, now might be the time to make the move, Bieri says, because landlords are looking to fill space any way possible. "One of the odd benefits of the downturn is that independent retailers are now more in demand than they were two years ago," he says.
Though independent retailers may be more in demand than ever, Milchen says demand is still much higher for chains. County, town and state governments will often offer larger stores subsidies to operate in their communities, something that's rarely available to locally owned businesses.
Larger corporations are also better at working together to offer cross-promotions, Milchen says. He cites frequent-flier credit cards, which often include deals from a retailer.
Milchen says smaller retailers are looking to counter this problem by creating local business alliances, which can help them cross-promote and tap into opportunities that they couldn't alone, such as e-commerce.
White says today's gloom isn't the end of mom and pop stores.
"When people are feeling more confident and have more money, they're willing to go to a higher-service, privately held retail establishment to get exactly what they want and get treated well," he says.
Butler agrees, adding that one of the biggest challenges independent retailers will face in the future is harnessing the power of websites and social-media tools.
But with business savvy and a little luck, Butler says, "The small independent retailer today could be the next J.C. Penney."