Survival of the fittest: fickle consumers and fierce competition sound a wake-up call to small retailers - includes related article retail businesses that are likely to become successful

Entrepreneur, June, 1996 by Janean Chun

WHEN Adele Wallace started Sisterhood Bookstore in 1972, her sole intention was to sell publications relating to women's issues. But when the Los Angeles store was immediately embraced by a grateful clientele hungry for the product, Wallace realized her store had become more than a place to shop. Sisterhood Bookstare was a sign of the times.

Two decades later, the latest sign of the times--a 43,000-square-foot Borders Bookstore--taunts Wallace every day from across the street. Sisterhood Bookstore was still reeling from a recession-related drop in business a few years ago when Borders opened its formidable doors.

"It's the biggest fiscal challenge we've faced since we opened," says Wallace. "And the problem isn't specifically the store across the street but the whole proliferation of large chain bookstores. Even though our customers support us, it's very tempting for them to go to the Barnes & Nobles or Borders that are near their homes and have better parking than we do."

Entrepreneurs braving today's $2.2 trillion U.S. retailing industry are witnessing the best of times and, simultaneously, the worst of times. Last year, more than 4,000 stores dosed, and the death toll of retailers is expected to rise by another 7,000 this year. By most observations, this era of retailing history will be remembered as one of consolidations and mergers, as well as bankruptcies and liquidations among the major retailers. "It's a dramatic move considering many of them have been around since the mid-1800s," says Shaheen Sadeghi, founder of The Lab, a 17-store "alternative mall" in Costa Mesa, California.

While small businesses don't command as much media attention their performance may have a greater impact on the overall state of retailing since almost 75 percent of U.S. retailers employ fewer then 10 people. But the number of so-called mom and pop stores has been dropping steadily over the past decade. According to Dun & Bradstreet, retail failures in 1995 rose 1.4 percent over 1994--and most of those failures were small stores.

"These are the most difficult times for a small retailer," says Mark Thomas, creator of Rags 2 Riches Fashions Ltd., which operates The Alternative Shopping Complex, a network of small retail shops in Chicago. "Things are so good, so bad, so unusual, that nothing works anymore. You find yourself second-guessing, third-guessing and fourth-guessing."

Retailers today operate in an "age of confusion," says Kurt Barnard, president of Barnard's Retail Marketing Report, a retail forecasting and consulting firm in Scotch Plains, New Jersey. "We're going through a major shift in consumer priorities, perceptions, lifestyles and demographics.

In an era not tolerant of superfluity, the retail message may at first seem to be clear-cut: You either go big or go home. "We've seen small retailers doing business the same way they've done business for the last 30, 40 years, never realizing the world has changed," says Barnard. "They thought the downturn was episodic and that in no time at all, the roaring '80s would be back."

It took a clobbering from the big guys to finally shake small retailers out of their daze. "They were blind to what was going on right under their noses. And suddenly in moves one of these flashy, well-stocked, good-looking chains," says Barnard. "In many cases, this proved fatal for small retailers. But in even more cases, it was a wake-up call."

The added challenge for retailers is not just to wake up but also to arouse the majority of consumers who are bored as hell with retailing and aren't going to take it anymore. "You have to stand for something," says Sadeghi. "On one end of the spectrum, you have the Price Clubs [warehouse stores]; at the other end, you have the Nordstroms [upscale department stores]. And both venues have the opportunity for success. But at the dead center is this mediocrity that so much of the industry has fallen into."

For the true innovators who rise to the task, 1996 may provide a rare window of opportunity, as new technologies and original venues generate the first genuine excitement in retailing since mail order. Yet before entering the fray, retailers must down a dose of realism, no matter how nasty it tastes.

"We're entering a totally new age in which the American public is under the shadow of downsizing, where debt is rampant, and where income has not only stagnated but in all too many cases has declined," Barnard says. "Competition is ferocious, and the public expects a store that's up to snuff in appearance, merchandise selection and price. To the extent that the owners of small retail stores are willing to look those facts in the face and adjust, they'll end up doing better than they have in decades."

* SEEDS OF A REVOLUTION

So, here are the facts, if you want to face them. The dominant trends reshaping retailing include:

* Category killers. The domination of huge, warehouse-type specialty retail stores, often clumped together in ubiquitous "power centers," can be found "in virtually every sector and virtually every part of the country," says Lawrence Ring, a business professor at the College of William and Mary in Williamsburg, Virginia. They're not called category killers for nothing--when a Circuit City or Home Depot comes to your block, you can bet some small retailers are going to die a quick but painful death.