How's business? Survival strategies for tough times- Articles and Industry News

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STORY: 120109-HBSSTT
by Bob Vereen, Worldwide DIY Council

How's business? Survival strategies for tough times

America, like most countries around the world, has been in recession for many months and retailers large and small have been finding consumers reluctant to buy, except for absolute necessities.

When faced with sharply reduced consumer spending and the continued onslaught of giant retailers like Home Depot, Lowes, Walmart and Menards, can smaller chains and independent retailers survive, and if they so, how are they doing it?

Recent research shows, surprisingly, that many smaller retailers appear to be coping remarkably well in these recessionary times. Some actually are showing sales increases, contrasted with their two big competitors, Home Depot and Lowes, both of whom recorded significant sales declines for the 1st half of 2009.

It has required sharp buying and merchandising, clever promotions and an increased concentration on superior customer service to maintain sales or to show slight sales gains, dealers admit.

Not all independent retailers are winning, however. Those whose business is largely dependent on the building trade (new homes or contractors) are suffering, just as the two large home center giants are. And retailers whose business is largely commercial or industrial are hurting equally as much, since those customers have seen their own businesses drop dramatically and thus have cut back sharply on their own buying.

But DIYers are still buying. They may not make as many big purchases (which is affecting the three home center giants), but they are continuing to make smaller fix-up buys. Even those whose jobs have been terminated continue to do some buying as they utilize some spare time to repaint or do inexpensive fix-up chores. And for these smaller items being purchased, local shopping is easier since one doesn't have to drive to a distant big-box. Also, even though many smaller retailers are more price-competitive with the giants than they used to be, consumers still perceive big-boxes to be cheaper, but for smaller purchases, any price differences are not as critical-real or perceived.

Home Depot reported that same-store sales dropped 8.5% for its first half of 2009. Sales to handymen and building managers declined from 32% of all sales to just 27%. With Lowes being the second largest appliance retailer and Home Depot the third largest, the lack of new home construction and the decline in replacement appliance sales especially hurt the two giants. As one observer noted, "It takes many small repair projects to make up for the price of a new stove and granite countertop."

Lowes has reported sales declines in stores open more than a year for the past 12 quarters, a stock analyst said. While its transactions slipped just 1% for the last quarter, sales of items costing more than $500, which make up 30% of normal volume, fell 16%.

Another big retailer hurting even more is Sears, the nation's #1 appliance retailer and the marketer of the biggest selling tool brand-Craftsman, which has been hurt by the building slowdown.
Same-store sales at Sears dropped 12.5% for the last quarter. Trying to milk profits out of reduced sales, the company is no longer trying to remodel its aging store base, which is sure to continue damaging its sales.

In these times, one of the most significant advantage independent retailers enjoy is that they are closer to their customers. With gas more costly, with incomes lower or perhaps somewhat in danger, people are shopping closer to home to save money. Smart independents and small chains also are promoting more to emphasize that they are price-competitive with more distant big-boxes.

MorningNewsBeat.com, an email newsletter, recently reported some trends in the supermarket industry, which apparently also apply to the hardware/home center industry.

Shoppers are buying between 6 and 10% less than they used to, and virtually every purchase decision is being seen through the "lens of affordability."
Consumers are redefining what they view as "necessities," with items like iPods and iPhones - that might have been seen as luxuries in the past - making the cut because they are critical to how shoppers (especially Millennials) connect to the Internet. These same Millennials are saying that they will be "cautious shoppers" for the rest of their lives because of the lessons taught by the current recession.
These connected shoppers are using the Internet to bring buying decisions home - more and more, they are using the information that they are gathering to make shopping lists that determine what they will buy. Impulse purchases are so 20th century.
"There must be an expansion of the dialogue among the consumer, the retailer and the manufacturer." All three have to be included for maximum impact.

Here are some comments from retailers across the face of America as to how business is for them and how they are competing in these trying times:

COASTAL NORTH CAROLINA--"Business has been up about 2% a month. We're seeing new faces as more people are doing it themselves to save money. Lowes is a mile away and a Walmart is 200 yards from us."

SUBURBAN INDIANA--"We were up early in the year, but business slacked off in July and August. Right now, we're down 4% and customer-count is down slightly."

NEW JERSEY--"Independents can be more responsive to local needs, whether weather-related (storms, floods or whatever) or local events, such as air shows or demand for beach chains to watch such an event. We find that if we react quickly to such opportunities, we can grow sales even in these tough times."

SAN FRANCISCO--"Our sales are up 3.7%. Our average sale is about the same, but we've had a 4% gain in traffic. Our store is 8,000 sq. ft. We're watching our buying and are concentrating on lower-end necessities."

SOUTHWESTERN COLORADO--"We're a home center and our business is down 20% because our contractor/builder business has dropped so much. Our cash sales (consumer/DIY) are off only 2%. Our average sale is down $9.56, but customer count is down only 1%. Lower home prices are making a lot of consumers feel poorer. That means discretionary purchases are off."

SOUTH CAROLINA--"Slumps have been good for us. After people shop with us because we are close and local as they are shopping more locally for everything, they find we are competitive and they like our customer service. During slumps, customers just don't want to drive to another town."

TEXAS--"We have 4 stores in New Mexico and west Texas and had a slow spring but business is quite good now and we've gotten back to be even with last year, which was a very good year."

MAINE--"2008 was up 22% over 2007, the highest in our 64 years. 2009 year-to-date is up 19% and customer count is up 26%. We are a building supply retailer."

GEORGIA--"Our economic base is manufacturing (carpets and furniture) and our commercial customers find their business terrible, so our business is also way down."

URBAN DETROIT--"We're a small store whose business is primarily industrial. We were up 9% last year, but with the recession, are back down 9% this year. However, our homeowner/DIY business is picking up, as is customer traffic, so we are concentrating on that side of the business."

CALIFORNIA--"Our consumer business is OK but our commercial business is off. Sales are down about 10%; our average sale down 3% and customer count is off 1.5%. However, we found that we have had sales gains the last two months, so are hopeful the worst is behind us."

MIDWESTERN RETAILER--"Customers today come in looking for something they've seen on TV or the Internet. We must carry larger assortments and be sharper on our pricing and customer service is certainly more important than ever, but if we keep up with 'what's new', we can keep growing."

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