The face of retailing is changing, and no one is more affected by these changes than the small independent retailers. According to a new white paper entitled “Challenges of the Future: The Rebirth of Small Independent Retail in America,” small retailers face eight industry trends, some of which may benefit them while others may prove to be their disadvantage. In order to survive, they must be aware of these trends and plan accordingly how it can affect them or turn these trends to their advantage. The report, which was prepared by George H. Baum Community Charitable Trust, the Illinois Retail Merchants Association and NRF Foundation, offers strategies for the future survival and growth of independent retailers.

These trends affecting the small independent retailers are as follows:

1. Personalization.

The buzzword in retail nowadays is “personalizing the customer experience.” With advancements in technology, customers now expect retailers to give them a more personal service. Gone are the days of mass customization, where the mantra is one size fits all. Customers want to be pampered, and to be given the quality of service that they think they deserve.

It is in this arena where small retailers are more likely to give the big boys a run for their money. Small businesses are more flexible and tend to know their customers individually. They are more apt to provide personal interaction with their customers – from knowing the actual names, personal details like birthdays, to knowing a customer’s preferences.

2. Value Equation.

Customers are increasingly demanding more for less money. They want better products, better prices, better selection, and better service – but without making a dent on their wallets. They want it cheap, they want it fast, and they want it now.

This is one trend where big businesses have the edge over small retailers. The Wal-Marts of this world will continue to under price other retailers, whether big or small. Big retailers enjoy economies of scale that small businesses do not have, allowing them to cut prices in order to give more value to their customers without sacrificing their bottom line.

3. Increased Competition.

The retail market has grown more and more competitive in the last few years. One of the toughest parts of being a small retailer is competing against a big retailer. Owners of small businesses often find it hard to fight against these big retail boxes whose goal is to dominate their product category or customer segment. The big boys often tend to squash their competition, big or small.

The only recourse of small businesses is to find a gap in their product or service offering and fill it. Let’s face it: small businesses cannot compete with the giant retailers on their terms. The key is to become a true specialist. As the report stated, “the real strengths of successful small independent retail revolve around specialization, differentiation and finding profitable, defendable and sustainable niches.”

4. Changing Demographics.

America is in the midst of changing demographic trends, which is profoundly impacting the face of retailing. The aging of the population, the growth of the Hispanic population, the increasing dominance of the Generation Y consumers provide specific target niche opportunities for small retailers.

5. Community Activism.

As big retailers like Wal-Mart move to new geographic markets to spread their dominance, they are finding that communities are up in arms to protect the “local community personality, feel and values.” Knowing the impact of bringing in the retail giants on small retailers, many local development committees often make it hard, if not outright resist, the encroaching of the big retailers in their area.

The study, however, does not consider this type of protectionism beneficial to small retailers. For one, consumers seek out shops – whether big or small – that cater to their needs and provide them with the value and service that they demand. Also, the whole effort of fighting off the coming of the big boys simply distract small businesses from the more important task – which is improving their businesses and preparing for increased competition.

6. Health Care Costs.

The rising cost of healthcare insurance is adversely affecting many small retailers. Many small retailers are forced to choose between spending money on their fledgling businesses or paying for health insurance. In fact, according to the International Profit Associates Small Business Research Board, healthcare represents the fastest growing small business cost. Instead of investing in inventory, marketing and supplies, small retail employers are finding their resources directed to paying for health care insurance instead.

7. Changing Consumer Attitudes and Behavior.

Consumers are now faced with an avalanche of choices. They can choose to shop in the mall, in a smaller boutique setting, in a catalog, or on the Web. They also shop for luxury items today and opt to buy a discount item the next. Economic segmentation of customers is now a fuzzy line: it is increasingly hard to pigeonhole or classify a customer.

Buying behaviors of consumers are also shaped by their need to maximize time. People nowadays complain of lack of time, and as such, reward retailers (big or small) who value their time and provide service characterized by speed and convenience with their patronage.

8. Urban Sprawl and Real Estate Development.

People are shopping closer to their homes. Hence, real estate developers are responding by creating mixed-use development that combines urban features with Main Street sensibilities. Instead of large retail centers, smaller shopping areas designed to fuse together leisure time and social interaction are sprouting in the suburbia. This type of retail development fits the small independent retailer, according to the report.

To download the complete study, click here.

January 24, 2005