The current state of massive physical retail chains like Best Buy and Walmart may offer clues to the future for small businesses.
Black Friday, likely the biggest day of the year for big-box retail stores, was once again outclassed by Cyber Monday, with nearly $1 billion more revenue made on the newer shopping event, according to stats from Adobe Digital Insights. Although this includes both in-store and online revenue numbers, it indicates that consumers are more likely to log in on Monday than stand in line on Friday, which increasingly reflects year-round shopping habits.
As of 2017, e-commerce makes up 20 percent of total retail, according to Dr. Tenpao Lee, interim dean and professor of economics at Niagara University. However, even this is causing a huge loss in big-box retailers' profit margins. When even 5 percent of revenue is lost, it has a disastrous effect on profits, if not outright eliminating them.
"Many of the issues that big-box retailers were dealing with started before the rise of online business. The rise of online was the final step for some retailers, not the first," said John Crossman, president of real estate firm Crossman & Company. "The Great Recession is what exposed many of the problems in retail. Too many retailers grew too fast. They were overleveraged, grew without maintaining customer service, and there were just too many of them."
Just this year, department stores that were so prevalent in the '90s and early 2000s are closing locations by the hundreds, including J.C. Penney, Kmart and Sears. Others, such as Toys R Us, are avoiding sweeping closures but have filed for Chapter 11 Bankruptcy, with long-term plans for restructuring their businesses.
As Amazon continues to claim retail's market share with faster, cheaper delivery, it's given physical big-box stores a turbulent last decade, but they're unlikely to disappear just yet.
It's not all bad news
Things aren't as bleak for retailers as they may seem. There has been a net of 4,000 retail openings in the past year, according to Crossman. For every retailer that closed, an average of 2.7 open. There's also a trend of former box-store properties being bought up and redeveloped for medical, educational or even residential use, which has created a rise in value for retail spaces as the supply decreases.
Amazon's prices remain as competitive as ever, forcing many retailers to accept online price matching, which cuts deep into profit margins. However, there are big boxes that have been able to adopt strategies for success through new channels.
These are some of the success stories:
- Best Buy has been fortunate to be the No. 1 destination for shoppers to research and get a hands-on look at popular electronics. It does this by offering clean, easy-to-shop stores with helpful and educated customer service, said Danny Silverman, Clavis Insight head of marketing. The key is getting people to buy in the store rather than going home and ordering from Amazon, which Best Buy has attempted with improvements to its online store, in-store pickups and faster delivery.
- Walmart's e-commerce model has adapted to compete with Amazon's by allowing individual vendors to sell on Walmart.com, which greatly expands its online selection, and offering services for these vendors such as in-store pickups and the Walmart branding.
- Home Depot has benefited from the recent home and real estate boom, according to Graham Onak, owner of GainTap. It's also unique in that consumers are going there with certain projects in mind, so they're fulfilling their checklist of items and asking questions from experienced staff along the way.
So what does this mean for SMBs?
The issues hindering large retailers are a mixed bag for small and midsize retailers. Amazon and other e-commerce platforms are pulling market share away from both the big guys and the little guys. Yet the little guys aren't going away anytime soon and seem to be faring better. According to the U.S. Small Business Administration, in 2017 nearly 48 percent of U.S. workers are employed by a small business.
Staying relevant isn't easy, and if the big boxes are having trouble competing with the internet on prices, small retailers are no doubt facing that same reality. However, small retailers suffered more from the big-box stores taking their market shares than the e-commerce boom much later, according to Louis Tanguay, marketing director for Circle Marketing. In other words, large retailers had much more to lose, while SMBs have been making new inroads using Google, Yelp and other directories to win back their consumers.
"Do things Amazon can't. Forge strong local partnerships with other businesses, organizations and with your community," Onak suggested. "It's all about customer experience. You need repeat customers to keep a retail business afloat. The only way to keep customers is by respecting them."
Amazon and other online giants aren't the only ones that can prosper using the internet. Social media platforms such as Facebook allow local businesses to advertise to their customers.
"Using Facebook advertising effectively, small businesses can create videos and target them to their customers by customer demographics and customer behaviors," said Jeremy Miller, president of Inspired Blue Media. "The incredible targeting capabilities on Facebook allow small businesses to still find the results that they seek for with small budgets."
More than ever, consumers are shopping on their phones, so there's no excuse for any retailer, no matter what size, to not have an optimized mobile website or app that's convenient and easy to use. Apply your mastery of customer care and convenience online. Offering a multichannel customer experience is what will keep your small retail outfit relevant to shoppers and make them view you not as the old mom-and-pop stand, but a convenient and modern alternative.