Competing with Mass Merchandisers

Mass merchandisers, particularly the discount general merchandisers such as K Mart and Wal-Mart, are growing at a rapid rate and have captured market share from smaller competing firms. It is possible for smaller firms to survive in such an environment, but substantial changes in operations are usually required. This article offers suggestions to smaller firms on competing with mass merchandisers.

Strategies for Co-existing in a Discount Mass Merchandiser Environment

Many small retailers will need to develop new business strategies after a Wal-Mart store or other discount mass merchandiser opens in their area. The following suggestions are based on extensive observations and study of situations in several states.

Merchandise Tips

The following suggestions are offered with regard to merchandise mix.

Try not to handle the exact same merchandise.

For example, at least three of the largest mass merchandisers sell a particular brand of men's jeans for around $10. 1 have seen cases where smaller merchants sell the same brand jeans for $14. Customers automatically detect that the smaller merchant is 40 percent higher priced and often assume that everything else in the store is 40 percent higher. A better strategy would be to sell another brand that is not directly comparable. Sell singles instead of pre-packaged groups. Mass merchandisers often sell pre-packaged merchandise that contains multiple items. Customers often need only one item. Independent merchants can often meet these needs by unbundling packages and selling items as singles.

For example, a crafts store may gain new customers and make more profit by selling singles of various supplies such as templates, paint brushes, etc. Try to handle complementary merchandise. In many departments (such as hardware, electrical, plumbing, lawn and garden) the mass merchandisers handle only fast-moving merchandise. Astute competing merchants should expand their lines to be more complete than their giant competitors. Customers will soon learn to go directly to the more complete store if their needs are out of the ordinary.

For example, a customer building a back yard storage shed requiring 15 pounds of nails and 100 bolts will be sadly disappointed if he or she shops at a discount general merchandiser and finds only small pre-packaged assortments. Their needs will be much better met by a hardware store that has a wide assortment of these items in bulk quantities. Look for voids in the mass merchandiser's inventory.

For example, most discount general merchandisers do not handle the higher-priced name brand athletic shoes desired by so many people today. A smart competing sporting goods dealer would handle a full line of better athletic shoes. Consider upscale merchandise. Not all customers desire or demand lower-priced merchandise.

For example, there are cases of smaller children's wear stores which prosper in the shadow of a discount general merchandiser by catering to the tastes and preferences of middle-to-upper income clientele and to the "grandparent trade" where money is often not as much of a factor. Find a niche that you can fill. Smaller merchants can often succeed by merely finding the various voids in the mass merchandisers' inventory and filling them as described above.

Marketing Tips

There is always room for improving marketing practices. The following tips are offered to merchants regardless of their competition.

Extended opening hours are a necessity! Lifestyles have changed dramatically in the last generation. Now it is quite common for a household to have multiple wage earners working outside the household. Most of these people simply cannot get to local stores that stay open only from 8:00 a.m. to 5:00 p.m. Downtown merchants and other independent merchants cannot seriously compete in this environment unless they cooperate and offer similar convenient opening hours.

Look for ways to improve your returns policies. Most mass merchandisers have very liberal returns policies. Unfortunately, many smaller independent merchants cannot offer comparable policies because of their lack of leverage with major suppliers. In the long run, they need to work through trade associations and buying groups to achieve comparable leverage with suppliers. In the short run, they need to use common sense.

For example, if a customer purchases a piece of lawn equipment in May and brings it back shortly because of a malfunction that required factory repair, the dealer would be well advised to give the customer a new replacement immediately (or at least offer a loaner) until the repaired item is returned. I know of a case where the customer was left empty-handed until the repaired item finally came back in August. Needless to say, he was not happy. Sharpen your pricing skills. (Eg; lower prices on items that people purchase frequently.) It is my contention that many consumers do not know the "going price" of much of what they buy. They tend to know the price of the things they purchase frequently, or the things they have seen advertised recently. Discount mass merchandisers recognize this and tend to focus their lowest prices on these items. The average consumer then assumes that prices on all other items must also be less. Conversely, many local merchants have gotten a "bad rap" on price image when they have not been careful in pricing some of the "hot items." Independent merchants need to determine which items customers tend to know the price of and make special efforts to keep these prices competitive.

Focus your advertising. Stress your competitive advantage. Every business must have one or more competitive advantages in the eyes of the customer in order to succeed.

For example, Sears established a huge competitive advantage when it adopted "Satisfaction Guaranteed" many years ago. With Wal-Mart, "Everyday Low Prices" is a strong competitive advantage. Large firms incorporate these competitive advantages into nearly every advertisement. Unfortunately, many smaller merchants do not get their full money's worth from their ads because they often fall to promote their competitive advantages.

For example, a drug store with 24-hour prescription service and free delivery ought to incorporate those facts into every ad. Likewise, an apparel store that features special orders and in-store credit should stress those features in its ads.

Service Tips

Superior service can become an important competitive advantage for many smaller businesses. Large chain stores usually don't have the flexibility to offer many of these services.

Emphasize expert technical advice (Ace Hardware, for example). It is difficult to find workers in discount mass merchandise stores who know the merchandise. There are many examples of smaller merchants who build a loyal clientele because they are able to help customers analyze their problems and help them find the right tools, supplies and equipment.

Offer deliveries where appropriate. A certain segment of our population has a need for the delivery of prescription drugs or heavy equipment. Typically, mass merchandisers cannot respond to these needs. Some smaller merchants can carve out a certain market share by offering delivery service.

Offer on-site repair of certain items. Nearly everyone has a need to have some item repaired or serviced occasionally. Larger discount stores usually cannot readily provide this service. Independent merchants can draw a substantial volume of trade to their stores by providing repairs and service of merchandise.

Develop special order capability. It is not possible for merchants to carry every conceivable item in inventory. However, they can make arrangements with certain suppliers or cooperating partner stores to priority ship needed items. Fax machines and express delivery services are making this feasible today. So instead of letting a customer walk out the door when an item is not inventory, it is better to say, "I'm sorry I do not have it in stock, but I can get it for you in two days."

Offer other services as appropriate. Independent merchants can develop many loyal customers by offering "how to do it" classes, gift wrapping, rentals of items that will boost sales of collateral merchandise, etc.

Customer Relations Tips

In past years, small businesses had the reputation of excellent customer relations. However, nowadays many consumers perceive that they are treated no better in small firms than in larger ones. Research has shown that poor customer relations is the primary reason that customers quit doing business with a store. The following suggestions are offered for all businesses.

Make sure customers are "greeted." Customers are very offended by the failure to be greeted or acknowledged when entering a store. This is particularly true when the customer is in a buying mood. All store personnel should be trained to greet customers.

Offer customers a smile instead of a frown. All customers prefer to do business where they are treated in a friendly manner.

Make employees "associates." Firms like Wal-Mart and J. C. Penney call their employees associates and treat them as part of the team. Independent merchants can emulate this. Regular store meetings could be held where everyone can participate in planning and problem solving.

Solicit complaints. Many times customers have a bad experience in a store, but they are reluctant to complain to store personnel. Instead, they complain to other people. Good merchants would rather hear of the complaint first so they can find a remedy. They can provide an environment where customers feel comfortable in complaining by soliciting complaints through ads, through signs at the checkout counters, and by signs on shopping bags.

Train employees often. In the eyes of the customer, the employee is the business. Training employees can have one of the highest payoffs of any investment in the business. Training is available through Small Business Development Centers, university extension services, community colleges, parent companies, franchisors, and others. Also, there is a wide array of video tapes available today where training can be conducted in the store.

Last updated June 5, 2006