Sep 23, 2008

How Small Stores Can Lure Holiday ShoppersBy John TozziBusinessWeek.com

Call it a customer service Christmas. Consumers are expected to rein in spending this year, and the retail climate favors big-box stores that can offer bargains. But because small retailers can’t win price wars (BusinessWeek.com, 4/14/08), experts say independents need to leverage their biggest advantage over the chains: personal relationships with customers and the ability to deliver superior service. With some economists predicting one of the weakest Decembers since 1991, retailers that falter could face a cold winter

“The independent and the small business person are fighting a much steeper battle for sales in a shrinking market,” says Eugene Muscat, professor of management at the University of San Francisco. Unemployment reached 6.1% in August, the highest rate since 2003, and while gas prices are down from their summer peak, consumers still face high costs for energy and other essentials. The spending boost from the summer’s tax rebates has mostly petered out (BusinessWeek.com, 8/11/08). With shoppers squeezed, the National Retail Federation expects year-over-year sales to rise just 2.2% for November and December, half the average rate of the last decade, the group plans to announce Sept. 23. (Retail estimates exclude spending on cars, gasoline, and restaurants.) TNS Retail Forward, a consulting and market research firm in Columbus, Ohio, predicts a 1.5% growth rate over the fourth quarter last year, while Deloitte Services forecasts between 2.5% and 3% from November to January over the same period last year.

The outlook for independent stores is bleaker still, says Frank Badillo, senior economist at TNS. “As shoppers become more value focused, they’re turning toward big-box retailers,” he says. Small retailers can bolster sales by targeting wealthier shoppers who are less price-sensitive and may pay premiums for better service, Badillo says. “Upper-income households often perceive of value in very different ways from lower-income shoppers.”

So what can independent retailers do to compete with their larger counterparts? Advice from experts follows:

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