Survival tactics - small stores - Retailing - Cover Story

Nation's Business, Dec, 1994

A survey by the Illinois Retail Merchants Association showed that one in five small stores is losing money. And one in four reported pretax income of less than $10,000 in 1992. Moreover, retailers suffering losses were not limited to the smaller stores. Of those recording losses in 1992 (most recent data available), half had net sales of more than $1 million.

The study was part of a lengthy research project conducted by the association in collaboration with the Arthur Andersen accounting and consulting firm. Backed by a grant from the state of Illinois, the study reviewed the current performance of 1,500 retailers and suggested ways for them to improve.

The study identified several reasons why so many small retailers are having so much trouble. Among those seen as major stumbling blocks to success were failure to identify customer needs and expectations, poor merchandising, sloppy inventory controls, and a lack of long-term planning.

Results of the study project were published by the association this year as a 322-page book, Small Store Survival. The National Retail Federation calls it one of the most useful sources of survival strategies for small-store independent retailers nationwide.

Small Store Survival lists six best practices for small-store retailers:

* Develop a continuous process to determine what your customers want, and then meet or exceed those expectations at every turn.

* Identify and pursue a distinct customer market. Then offer it unique merchandise or value-added services.

* Design every aspect of store operations to enhance the shopping experience. This includes scheduling employees' hours to maximize productivity and reevaluating the store layout to make sure it maximizes customers' buying opportunities.

* Establish a vision and culture for the store, plan where the company must go, then take the steps needed to get there.

* Be prepared to compete more fiercely than ever for quality employees. Then make empowering, educating, and retaining them a top priority.

* Establish budget controls and costcontainment measures to manage frugally what can be measured, and negotiate more aggressively for favorable terms from vendors and suppliers.

One of the study's participants was George Kutsunis, president of G.W.K. Enterprises, Inc. He operates six women's apparel stores in Illinois and Iowa. He uses the study's findings as a guide for ongoing planning, he says, and his firm enjoys what he calls moderate growth and profitability.

Kutsunis credits that growth to a willingness to take steps such as moving to larger locations and investing in a point-of-sale computer system. "The POS enabled us to quickly drop vendors who aren't performing, and to reorder those styles that are doing well," he says.

Using the quick turnaround provided by POS, Kutsunis gives his buyers added ammunition to use on their buying trips and dealings with vendors. "Before [the POS installation], my buyers were being blindsided because they didn't have accurate data," he says.

"The trouble with a lot of small merchants is that they are unwilling to reinvest their profits or their capital into their business to buy into the technology, new fixturing, remodeling their stores, improving their lighting or carpeting," says Kutsunis.

Customers form opinions quickly about a store's level of success by its appearance and layout. He advises retailers to review such things as how merchandise is displayed and how easily customers can reach it.

What is the future for small-store retailers? "It is not getting any easier," says Kutsunis. "It's tough out there, but it's like anything else. The big guys don't get all the business. No one gets all the business."

With that in mind, Kutsunis plans to grow cautiously. But he does intend to grow: Two more stores are in the works.

Small Store Survival can be ordered by writing or calling the Illinois Retail Merchants Association, 36 S. Wabash Ave., Suite 1226, Chicago, Ill. 60603; (312) 726-4600. The price is $60 for members of the association, $90 for nonmembers.