What should the small retailers do?

Came across this article by Sanjay Sharma in Economic Times on Friday, the 9th of Feb. This gives a sense of continuity to my previous post and stresses on STP - Segmentation,Targeting & Positioning for the small retailers. Read on...

Little details could keep the petty retails going

Kirana shop owners would do well to identify niches and focus their efforts rather than diffuse their energies across a range of products as the biggies come calling.

IF ANYONE can lay claim to the mantle of being the oldest entrepreneurs in the nation then it is perhaps the ubiquitous kirana shop owner. However, in today’s changing landscape, this segment, finds itself at crossroads. The rapid growth of organised retail is worrying the 13 million retail entrepreneurs and they are now wondering if they can survive what is called the Wal-Mart phenomenon — the death of small retailers when a large retail giant enters the area, mom-and-pop shops operate in. This happens largely because small retailers can’t match up to the lower prices, greater convenience and the vast product range offered by large retailers.
The issue is a cause of concern to policy makers as well, who are worried about the economic and political consequences of small retailers being forced to shut shop. Which brings us to the question: Can small retailers reinvent themselves and co-exist with organised large retail?
The answer to that question, according to many experts that Starting Up spoke to, is a resounding ‘Yes’. However, for that many of these retailers will need to reconfigure their business model to keep up with the dynamics of a changed landscape. Retail, it is said, is about details. And, the first task for small retailers is to take a closer look at the finer details of their product mix, distribution, sourcing, pricing and services and make choices. Small retail stores that stock everything and do not have a differentiated product mix are unlikely to survive.
Says Dharmesh Jain, owner of the Mumbai based mall, Nirmal Lifestyle, “Retail entrepreneurs with small formats need to reinvent themselves if they want to succeed. They can look at collective or bulk buying or look at a product mix which large malls can’t source or stock.”
Geoffrey Heard and Gordon Woolf have written a book on the subject called ‘Success in Store’. And they say, small retailers are closer to the customer, and big businesses like large retailers are not. They can adapt and change their products, service much quicker to adapt to consumer preferences, while big retail chain takes time to change the mix.
Many of these retailers would also do well to try and identify niches and focus their efforts on the niche rather than diffuse their energies across a range of products. Malls, thanks to their policy of bulk buying and single supplier sourcing, are often unable to cater to specific niche segments. Which means that a local saree shop in Chennai that is focused on a particular type of sarees is far more successful than the mall across the road that has half a floor dedicated to all kinds of sarees.
According to Ajeet Singh Karan, partner, Baring Private Equity, the key for small retailers is to forge closer ties with their customer and use the superior understanding to their advantage. Says Mr Karan, “They need to understand the needs of the captive customers better. Instead of trying to compete with the same products that the large stores have, they should be looking at products which are not sold by large stores.” The product offering could be a small but specialised. For example, rather than continue as a general purpose retailer, the retailer could focus on a specific segment and become a shop that sells only Chinese goods or antique furniture or vernacular books. Says Mr Jain,

“If the small retailers define their consumer clearly, it will be possible for them to target it. Then a community of consumer can be built by product segment, geographical location or by the service offering.”

Nothing is more critical in retailing than detail and therefore small retailers need to take cognizance of the neighbourhood they operate in and use it to their advantage. If the shop is located in an area that is dominated by a particular race or class then the retailer needs to configure the product mix and service in a manner so as to cash in on this uniqueness.
At present, large retail stores have a ‘wow’ factor attached to them. Consumers in metros sometimes go to malls not for buying but for a weekend outing. Which is why the ratio of footfalls to purchase is slightly distorted in India. This might change and if community activism against large retail formats happens then the situation may tip in favour of small retailers.
One of the big advantages that small retailers have besides convenience of their location is the fact that they offer credit and services like home delivery. Most consumers have to travel to a big mall. There is a cost associated to this travel, and older consumer travel less for buying, while the younger consumer will travel more. This means that a small retailer is more likely to retain customers who are old and will find it difficult to attract younger customer. Some industry observers believe that all these factors will help small retailers survive the onslaught of big retail and it is medium-tier retailers who are likely to be more affected. Retailers who had invested in large shops or supermarket but do not have the efficiency of sourcing or scale are likely to be hit first.
Says NV Sivakumar, head, consumer and retail practice at consulting firm PWC, “I do not see large scale replacement of the small stores. Consumers will tend to focus their large scale monthly shopping in the large chains but for other need-based daily shopping will still flock to the neighbourhood stores.” Sivakumar believes that it is the mid-size retailers who are likely to lose their consumer base to the large chains.
It is likely that after all this many small retailers will hope that as with everything in India the government will bail them out. They, however, would do well to remember that Japan faced a similar kind of problem in the 90’s when the government eased laws relating large retail stores, and changed its rules for urban location. And in spite of the Japanese government’s efforts to try and protect small retailers and local players the structure of Japanese retail industry changed completely with only the most inventive of the smaller set surviving and thriving.
So, whatever be the model, it’s perhaps time for the small retail entrepreneur to reinvent himself.