When it comes to competing against big companies with deep pockets, small retailers often struggle to make ends meet. While the lack of financial clout is one big impediment, another has to do with the talent and skill set of the entrepreneur. In most cases, a small business operator enters retailing with very limited expertise. For example, they may be good at providing certain services but not very strong managing their finances. This places a small retailer at a major disadvantage compared to large competitors, who employ specialists in nearly all business functions.
But while entrepreneurs may not be skilled in a wide range of business activities, there is one advantage small business operators may have over big competitors – connections with customers. This is because being successful as a small retailer almost always requires the development of a close relationship with those who shop in their store. In turn, getting to know customers enables the retailer to gain insights and develop new ideas that address what customers may want long before big competitors can learn this. For instance, the bureaucracy the often exists in huge chain retailers often means they cannot respond quickly to emerging customer needs. This is because those involved in marketing are often housed in office buildings located well away from customers and in-store personnel, who are engaging customers, may not possess the ability or incentive to implement or even suggest new ideas on their own.
A good example of how smaller retailers are addressing customer needs with innovative ideas can be seen in this story from the Los Angeles Times. The story looks at small players in the $17.5 billion pet supply retailing market. To compete against industry heavyweight, such as Petco and PetSmart, and large general products chains, such as Walmart and Target, smaller pet retailers have added unusual product offerings, such as dog scarves, in-store pet cafés and specialize pet services, including tooth brushing. The ideas for such products come from the close relationship these retailers have developed with their customers.
Of course, if these ideas take off expect the big guys to adopt them and to lower the price of offering these products. Thus, the cycle will need to start again, and the small guys will once again have to come up with something new.
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