Examples Of Business Feasibility Reports 3q132b

Examples of Business Feasibility Reports A market feasibility study can assess the right location before your business launch.

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Key Factors to Considering Business Feasibility Examples of Business Management Reports Feasibility Analysis for Pet Store Examples of Business and Financial Reports What Are Examples of Managerial Reports? How to Write a Feasibility Report on Starting a Small Scale Fish Farm A business feasibility study or report examines a situation whether economical, technological, operational, marketing-related or other and identifies plans best suited to manage the situation. It may involve approaches to cutting costs, assessing a new business location, or developing a new technological system. The feasibility report assesses the ing data and reasoning of each plan and provides a recommendation of which plan to implement.

Economic Feasibility An economic feasibility study reports on the cost factors of a proposed plan to an organization. If, for example, an organization requires a feasibility study on its payment-processing techniques, the report may assess the cost factors involving the functions of electronic funding, security measures and approvals applicable to both e-commerce and regular transactions. With ing data, the study would make a recommendation of the benefits and areas of improvement for both types of transactions.

Operational Feasibility An operational feasibility report focuses on the effectiveness of the function of the operations of an organization. If a business has a global market, for example, an operational feasibility study could examine the roles within each of its divisions both locally and in each global office. Based on the data of the study, the report could recommend that the organization consolidate and centralize certain departments for greater efficiency and cost-savings.

Market Feasibility If you are setting up a new retail store the right location plays an important role in the success of your business. A market feasibility study helps determine if your location is beneficial to your business. The market-feasibility study inspects the surrounding community, identifies competition, lifestyle, shopping patterns and other influences. Analysis of the data in the market-feasibility study provides the basis of whether or not this location can drive the market for your business.

Technical Feasibility Each business needs an information system to store data. Before a system is built, a technical feasibility study can identify the potential challenges and problems that the system may encounter technically based on the requirements and goals of the business. The study analyzes possible technical solutions to ensure that the system is achievable in its effectiveness to the business. The study identifies a number of technical options based on the business's resources and requirements and a final recommendation.

Competing with Mass Merchandisers

Mass merchandisers, particularly the discount general merchandisers such as K Mart and Wal-Mart, are growing at a rapid rate and have captured market share from smaller competing firms. It is possible for smaller firms to survive in such an environment, but substantial changes in operations are usually required. This article gives background information on mass merchandisers, reports the results of an Iowa study on the impacts of one chain, and offers suggestions to smaller firms on ways to compete in this environment.

How the large chains operate K Mart and Wal-Mart are fighting it out to become the number one retailer in the United States, relegating Sears Roebuck to third place. Although both firms have been in existence roughly 30 years, their strategies and operating methods have varied considerably.

Market size K Mart expanded rapidly in its early years, locating in large to mid-sized towns and cities all across the United States. The company located some stores in smaller towns, but like most national merchandisers, its major market thrust was in the larger towns and cities. However, in recent years (apparently in response to competition from Wal-Mart) the company has been opening stores in more small towns. Wal-Mart, on the other hand, initially focussed its stores in the smaller towns of the South and Midwest. The company typically would enter a town with a comparatively large store and usually would become the dominant retailer in town. Wal-Mart's expansion was relatively slow at first. However, starting about 1980, the company began working its way toward the East and West coasts in a very aggressive expansion program. Its sales grew from $1.2 billion in 1980 to $25.7 billion in fiscal year 1990. In the late 1980s, Wal-Mart also expanded its location strategy to include stores in larger metropolitan areas. This was usually accomplished by establishing stores in the suburban areas surrounding the central city. The Wal-Mart Company seems to be using a tandem duo of its largest size store (nominally 110,000 square feet) along with one of its Sam's Clubs (its hip wholesale-type store) in this effort.

Distribution system Both K Mart and Wal-Mart now have the most sophisticated distribution systems among all of the retailers in the world. Wal-Mart led the way in adopting the latest scanner checkout technology (a key part of the system), but K Mart has recently made major expenditures in this area and now has a system similar to Wal-Mart's. Since more has been written about Wal-Mart's distribution system, it will be described below. (See January 30, 1989, Fortune and December 14, 1989, Discount Store News, for example.) The heart of Wal-Mart's distribution system is its distribution center. A typical distribution center is about one million square feet in size. It has the latest in state of the art inventory control and materials handling equipment. A distribution center can accommodate about 150 retail stores and they are located in a circular pattern around it. Most buying is done centrally from the company's headquarters in Bentonville, Arkansas. Merchandise is delivered to the distribution centers and then trucked directly to the retail stores daily. As customers make purchases, sales amounts and the change in inventory are automatically sent to the computer by the electronic scanner checkout system. This information is then sent daily via Wal-Mart's own satellite system to headquarters and to the appropriate distribution center. This daily updating of inventory allows distribution centers to send the precise amount of merchandise to the stores to maintain the optimum level of stock. Similarly, the inventory information allows buyers to order ahead and keep the proper amounts of goods flowing into the distribution centers. According to Discount Store News, about 78 percent of the merchandise sold in Wal-Mart stores comes through the distribution centers. The remaining merchandise is delivered directly from the factory or through vendors and distributors.

The efficiencies generated by this type of distribution system are enormous and play a large role in the success of these large companies. Discount Store News reported that Wal-Mart's distribution costs amounted to only 1.3 percent of its sales, compared to 3.5 percent for a major competing discount chain and 5.0 percent for a major general merchandise chain. In other words, for every $100 worth of merchandise sold, the cost of getting it from the factory to the retail store was $1.30. It is not hard to see why smaller retailers have such a hard time competing pricewise when their merchandise must sometimes go through multiple layers of wholesalers and distributors.

Pricing Mart and Wal-Mart have two fundamentally different methods of pricing. K Mart has always employed the weekly sale system, where one or two print ads per week are distributed through local newspapers and rs. These sales flyers feature seasonal items and other popular items at very attractive prices. This is the system used by most other mass merchandisers. The strategy is to get customers into the store on the basis of attractive prices on d merchandise. It is then believed that most customers will assume that all other merchandise has a low price, and will make purchases without comparison shopping. The weekly sale system has encountered problems over the years. For example, many customers have had the experience of buying non-sale merchandise only to find it at a lower price at a competing store. One of the biggest problems with the weekly sale system is that often there are quick outages of popular items. The usual solution to this problem is to offer a "rain check," which in the unhappy experience of many shoppers, sometimes seems to disappear down a big black hole. Another problem is difficulty in identifying the real sale item. Many have been frustrated when discovering at the checkout counter that they had picked up the non-sale item. Wal-Mart's system of pricing is the "everyday low price" system. Stores do not depend on the weekly sale incentive, but instead have cultivated the idea that everything is low priced at Wal-Mart every day. The company did not invent the concept, but they have implemented it masterfully. Although Wal-Mart does have occasional sales, usually seasonally, the sales do not play a large role in their pricing strategy. Consequently, the company apparently spends less on print advertising than its competitors. Television advertising plays a large role in Wal-Mart's marketing strategy and virtually every ad features everyday low prices. Through advertising and word of mouth, the company has developed a strong reputation for low prices. Many people strongly believe that everything is, in fact, lower priced every day. People who carefully comparison shop have found that everything is not at the lowest price at Wal-Mart everyday. However, perception is more important than reality, and most people perceive that nearly everything has a lower price at Wal-Mart.

Merchandise mix K Mart, Wal-Mart and other discount general merchandise stores try to promote the concept that the average shopper can find most of his or her everyday needs under one roof at the lowest price possible. Much of the merchandise in these types of stores is, in fact, aimed at lower income consumers. In many states, approximately one half of the households have disposable incomes of less than $20,000 per year, according to Sales and Marketing Management's 1990 Survey of Buying Power. People in this income category seldom have much discretionary income and most gravitate to stores where they perceive they are receiving the best value for the dollar. Although this segment of the population appears to be the primary target market of the major discounters, surveys have shown that many middle income shoppers also make purchases in these stores (see December 14, 1989, Discount Store News). Wal-Mart claims to have 36 departments in most of its stores. This is a wide variety of merchandise and by necessity would include primarily fast-moving, popular items. It appears that many shoppers have been acclimated to shopping first at the discount mass merchandisers, purchasing what they can there, and then concluding their shopping trips at specialty stores where they purchase the remaining items on their shopping lists.

Service Most of the discount general merchandise stores offer minimal service as a means of reducing expenses and maintaining lower prices. The most noticeable lack of service is in the area of expert technical advice. Most of the people working in the departments of these stores are primarily concerned with stocking shelves and few have enough product knowledge to offer expert advice. There may be some exceptions in such areas as sporting goods, jewelry, pharmacy, etc., where employees are routinely behind a counter selling, rather than stocking. Other services normally lacking in these types of stores are gift wrapping, in-store credit, delivery, special order, special classes, etc. However, many customers seem willing to forego these types of services in return for lower prices.

The Iowa study It is important that smaller retailers know the probable impact of a discount mass merchandiser on businesses in their community. Armed with this knowledge, they are in a much better position to make strategic decisions concerning their business. The Iowa study was conducted in order to document what happened after a Wal-Mart opened in towns of 5,000 to 30,000. The latest study shows results through fiscal year 1989. Some people ask, "Why Wal-Mart? Why not K Mart or Target?" The answer is that Wal-Mart was the only chain aggressively expanding in the state during a time period when sales tax records were available for analysis. The results of the study do not prove causation, but strong correlations should be taken seriously.

Data sources Iowa Retail Sales and Use Tax Reports were used to document the sales levels of host towns and other towns before and after Wal-Mart store openings. The reports list the sales levels for all towns with at least 10 business firms. For towns over 2,500 population, the reports also list sales by a two digit Standard Industrial Classification (SIC) code, providing there are at least five such businesses in a category. For example, sales are listed for categories such as building materials, general merchandise, food, apparel, etc. Town population figures are central to this study and were taken from the latest estimates of the United States Census Bureau.

Pull factor analysis The raw data in these retail sales time series are based on current dollar sales. Current dollar figures are not a very satisfactory way of analyzing the trends for towns in a state. They do not for price inflation, population changes or changes in a state's economy. The current dollar sales were converted to pull factors in this study to provide a more equitable basis for comparison. The pull factor is defined below. PF = PST / PSS Where: PF = Pull Factor PST = Per capita Sales for Town PSS = Per capita Sales for the State For example, if a town had per capita sales of $9,000 per year and the statewide per capita sales were $6,000 per year, the pull factor would be $9,000 divided by $6,000 = 1.5. The interpretation would indicate that the town was selling to the equivalent of 150 percent of the town population, in full-time customer equivalents. In other words, the pull factor is a proxy measure for the size of the retail trade area of the town. When data are available, pull factors can be computed for the different merchandise categories within a town and for the total sales of the town.

Comparison techniques In this study, pull factors were computed for total sales for all towns in the state since the establishment of the first Wal-Mart stores in 1983. Pull factors were also computed for eight merchandise categories for towns over 5,000 population. It would have been desirable to compute pull factors by merchandise categories for towns between 2,500 and 5,000 population, but many of them have less than five stores in a category and consequently no sales are reported because of statutory confidentiality rules. For each Wal-Mart town, pull factors were established for the year preceding the opening of the Wal-Mart store and for each year since. These were compared to the average pull factors for non-WalMart towns of a similar size (between 5,000 and 30,000 population) and to pull factors for larger towns (over 30,000 population) for the same time periods. Comparisons were also made to the total sales pull factors for towns below 5,000 population in the same time period.The net result is a broad look at the change in trade area sizes for stores in different merchandise categories in the host towns and in other competing towns. It cannot be stated conclusively that Wal-Mart stores caused all the changes in trade area size, since other variables are always interacting to cause changes. However, when significant changes are seen to be consistently correlated with the opening of Wal-Mart stores, one can draw solid conclusions in spite of the lack of more sophisticated statistical techniques.

Findings The study found both pluses and minuses for the merchants in the host town. The major plus for most businesses was that in virtually all cases, total sales in the town increased at a rate greater than average for the state. Apparently, Wal-Mart stores attracted customers into town from a greater radius than had occurred before their entry into town. Two simple rules of thumb explain the winners and losers among host town merchants. Table 1: Sales Change in Wal-Mart Towns versus Same Size Towns (% cumulative)

Business Type

Building Materials

Wal-Mart Towns Same Size Towns* After Years After Years 1

3

5

1

-6.3

-6.5

-5.1 -4.7

General Merchandise 29.1 39.5 58.8 -0.6

Food

-4.7

-4.1 -12.1

Apparel

-2.7

-6.2

Home Furnishing

2.9

5.2

Eating & Drinking

0.8

-0.8

1.6

-5.1 -3.5

3

5

-7.1 -10.4 -4.2

-1.9

5.5

7.8

-5.8 -11.5

4.2 -5.1 -12.2 -18.9 2.4 -0.7

-1.5

-0.8

Specialty

-5.7 -12.1 -19.7

Services

-5.6

-7.9

-6.8 -3.5

2.3

3.1

8.1 -0.7

TOTAL SALES

0.1

-5.4

-9.9

-9.5 -14.2 -3.5

-4.9

* Did not have a Wal-Mart store. Rule 1: Merchants selling goods or services that Wal-Mart does not sell become natural beneficiaries. In other words, since they are not competing directly, many of them benefit from the spill over of the extra customers being pulled into town by Wal-Mart. Rule 2: Merchants selling the same goods as Wal-Mart are in jeopardy. In other words, they are subject to losing some trade to Wal-Mart unless they change their way of doing business. A basic premise lies at the heart of this study. The premise is that in areas of relatively static population (such as in states like Iowa) the size of the retail "pie" is relatively fixed in size for a given geographical area. Consequently, when a well-known national chain like Wal-Mart opens a large store in a relatively small town, it invariably will capture a substantial slice of the retail pie. The end result is that other merchants in the area will have to make do with smaller slices of the retail pie, or get out of business. In areas of the country where the population is growing rapidly, there is room for more retail establishments and the effect will be diluted considerably. Table 1 compares the cumulative real percentage change in retail sales for businesses in Iowa WalMart towns to those of businesses in the same size non-Wal-Mart towns. It should be noted that this data is reported by type of store and not by exact lines of merchandise.

Host towns (Wal-Mart towns) As shown in Table 1, there are winners and losers among merchants in a host town after a WalMart store locates there. Data were available for 17 towns that had a Wal-Mart store for at least one year, 14 towns that had one for at least three years, and five towns that had one for at least five years. Caution should be used in interpreting the five-year figures since the sample is so small.

Winners The general merchandise category shows the greatest gains in sales after a Wal-Mart store opens in a town. However, it will be shown later that most of this gain is by the Wal-Mart store and, in fact, the competing general merchandise stores usually sustain a loss of sales. The home furnishings category shows a real net gain of 5.2 percent after three years. This category consists of furniture stores, major appliance stores, floor covering stores, drapery stores, etc. Neither Wal-Mart nor most of the other discount general merchandise stores handle much of this merchandise, therefore these merchants are the natural beneficiaries referred to in rule of thumb 1. Eating and drinking establishments fluctuate between slight gains and slight losses after a Wal-Mart store opens. My study last year showed larger gains in these types of firms. It was concluded that because more customers were coming into town, some were staying long enough to consume meals. Other non-competing businesses spanning a wide gamut could also benefit from the additional traffic brought to town by a Wal-Mart store.

Losers As shown in table 1, the specialty category of stores shows the greatest reduction in sales with an average real decrease of over 12 percent after three years. Specialty stores encom a great number of stores such as drug stores, sporting goods, card and gift shops, fabric stores, jewelry stores and others. Many of these stores would be competing head to head with a major department within one of the major discount stores. Building materials stores lost an average of 6.5 percent of their sales after three years. The building materials category consists primarily of lumber yards, hardware stores, and paint and glass stores. Most of the evidence points to hardware stores suffering the brunt of these losses, since they are selling many of the same items that the discount stores carry. Apparel stores suffered sales reductions of 6.2 percent after three years. The apparel category consists of various clothing stores and shoe stores. It is usually assumed that most of these sales reductions occur among the stores selling low end merchandise. Food stores (grocery stores) also show an average 4.1 percent reduction in sales after three years of Wal-Mart operation. This is a surprise to many people. An analysis of purchases in Iowa food stores shows that between one quarter and one third of the purchases in grocery stores are non-food items, such as health and beauty aids, cleaning supplies, paper products and pet supplies. It appears that many consumers merely transfer the purchase of these types of items from the grocery store to a nearby discount store. The services category shows a sales reduction in both Wal-Mart towns and similar size towns without Wal-Mart stores. This category is weighted heavily by hotels/motels, theaters, etc. When compared to the cities, it appears that these types of businesses are declining in most smaller towns. Total sales for towns with Wal-Mart stores were up a cumulative 3.1 percent more than the state average after three years.

Same size towns Over 30 towns with a population in the 5,000 and 30,000 range, where there was no Wal-Mart store, were analyzed for the same years and in the same manner as were the Wal-Mart towns. The results are shown below.

Winners The same size towns (5,000 to 30,000 population) in the state without Wal-Mart stores showed gains of 5.5 percent in food store sales after three years. This was the only category to show gains. Over one third of the grocery stores in the state have gone out of business in the last 12 years. These failures have occurred mainly in towns that had fewer than 1,000 people. When a small town loses its grocery store, residents then have to travel to a nearby larger town to shop. The towns in the 5,000 to 30,000 population class have been the primary beneficiaries of this additional grocery trade.

Losers Home furnishings stores suffered the largest losses of trade. There has been an ongoing trend of more and more home furnishings trade going to bigger cities. Specialty stores in the non Wal-Mart towns suffered some loss of sales (5.4 percent after three years), but not nearly as much as the Wal-Mart towns. Other types of stores in the non Wal-Mart towns suffered roughly the same percentage losses of sales as did the Wal-Mart towns. Total sales, however, were nearly a mirror image and were down 3.5 percent after three years of Wal-Mart competition.

Netting out sales To get a better idea of the internal impact of a Wal-Mart store on a host town, it is useful to "net out" the sales. Basically, this means making an estimate of the Wal-Mart store's sales. It was estimated that for the average town in Iowa, Wal-Mart sales were $13 million last year. Figure 1 shows the netting out process based on this estimate and actual sales changes for all other businesses. Based on Figure 1, the following conclusions can be made:

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If the Wal-Mart store had sales of $13 million and the total sales of the town only increased by $4 million, then there had been a total reduction of sales in the town of $9 million for existing merchants. If the Wal-Mart store had sales of $13 million and the general merchandise category (of which it is a part) increased by only $7 Million, then existing general merchandise dealers suffered sales reductions of $6 million. If general merchandise stores ed for $6 million of the total $9 million reduction, then the net reduction in sales for other existing merchants must have been $3 million.

Small towns Four smaller towns within a 20 mile radius of each Wal-Mart town were compared to all other similar size towns further away from Wal-Mart towns. Figure 2 on page 39 shows the results over four years. It is fairly obvious that nearby small towns lose trade more rapidly than other towns. After four years, the towns within a 20-mile radius of a Wal-Mart store had cumulative net sales reductions of 23.5 percent while the same size towns much further away had sales reductions of only 10.8 percent.

Larger cities At the time of this study, there were no Wal-Mart stores in cities above 50,000 population in Iowa, although they are currently entering. There were only two areas where the cities appeared to be affected by Wal-Mart stores in the surrounding areas. General merchandise sales were down nearly 7 percent and grocery store sales were down nearly 3 percent after three years of Wal-Mart stores. The apparent major reason for these reductions is that local residents have to make fewer trips to the cities to shop.

Strategies for co-existing in a discount mass merchandiser environment Many small retailers will need to develop new business strategies after a Wal-Mart store or other discount mass merchandiser opens in their area. The following suggestions are based on extensive observations in Iowa and study of situations in other states.

Attitudes and actions In general it is best to take a positive attitude toward the opening of a new mass merchandise store in your area. The following thoughts are offered in this regard. In a free enterprise economy, all firms are free to compete. However, local officials should be careful not to offer unduly generous incentives to large firms that could place smaller firms at a disadvantage. Recognize that a discount mass merchandise store will probably enlarge your town's retail trade area size. Try to figure out ways to capitalize on the increased volume of traffic to town. It is possible to co-exist in this type of environment. You may need to change your methods of operation as described below.

Merchandise tips The following suggestions are offered with regard to merchandise mix.



Try not to handle the exact same merchandise. For example, at least three of the largest mass merchandisers sell a particular brand of men's jeans for around $10. I have seen cases where smaller merchants sell the same brand jeans for $14. Customers automatically detect that the smaller merchant is 40 percent higher priced and often assume that everything else in the store is 40 percent higher. A better strategy would be to sell another brand that is not directly comparable.

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Sell singles instead of pre-packaged groups. Mass merchandisers often sell pre-packaged merchandise that contain multiple items. Customers often need only one item. Independent merchants can often meet these needs by unbundling packages and selling items as singles. For example, a crafts store may gain new customers and make more profit by selling singles of various supplies such as templates, paint brushes, etc. Try to handle complementary merchandise. In many departments (such as hardware, electrical, plumbing, lawn and garden) the mass merchandisers handle only fast-moving merchandise. Astute competing merchants should expand their lines to be more complete than their giant competitors. Customers will soon learn to go directly to the more complete store if their needs are out of the ordinary. For example, a customer building a back yard storage shed requiring 15 pounds of nails and 100 bolts will be sadly disappointed if he or she shops at a discount general merchandiser and finds only small pre-packaged assortments. Their needs will be much better met by a hardware store that has a wide assortment of these items in bulk quantities.

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Look for voids in the mass merchandiser's inventory. For example, most discount general merchandisers do not handle the higher-priced name brand athletic shoes desired by so many people today. A smart competing sporting goods dealer would handle a full line of better athletic shoes. Consider upscale merchandise. Not all customers desire or demand lowerpriced merchandise. For example, there are cases of smaller children's wear stores which prosper in the shadow of a discount general merchandiser by catering to the tastes and preferences of middle-to-upper income clientele and to the "grandparent trade" where money is often not as much of a factor.



Find a niche that you can fill. Smaller merchants can often succeed by merely finding the various voids in the mass merchandisers' inventory and filling them as described above.

Marketing tips There is always room for improving marketing practices. The following tips are offered to merchants regardless of their competition.



Extended opening hours are a necessity! Lifestyles have changed dramatically in the last generation. Now it is quite common for a household to have multiple wage earners working outside the household. Most of these people simply cannot get to local stores that stay open only from 8:00 a.m. to 5:00 p.m. Downtown merchants and other independent merchants cannot seriously compete in this environment unless they cooperate and offer similar convenient opening hours.



Look for ways to improve your returns policies. Most mass merchandisers have very liberal returns policies. Unfortunately, many smaller independent merchants cannot offer comparable policies because of their lack of leverage with major suppliers. In the long run, they need to work through trade associations and buying groups to achieve comparable leverage with suppliers. In the short run, they need to use common sense. For example, if a customer purchases a piece of lawn equipment in May and brings it back shortly because of a malfunction that required factory repair, the dealer would be well advised to give the customer a new replacement immediately (or at least offer a loaner) until the repaired item is returned. I know of a case where the customer was left empty-handed until the repaired item finally came back in August. Needless to say, he was not happy.



Sharpen your pricing skills. (Eg; lower prices on items that people purchase frequently.) It is my contention that many consumers do not know the "going price" of much of what they buy. They tend to know the price of the things they purchase frequently, or the things they have seen d recently. Discount mass merchandisers recognize this and tend to focus their lowest prices on these items. The average consumer then assumes that prices on all other items must also be less. Conversely, many local merchants have gotten a "bad rap" on price image when they have not been careful in pricing some of the "hot items." Independent merchants need to determine which items customers tend to know the price of and make special efforts to keep these prices competitive.



Focus your advertising. Stress your competitive advantage. Every business must have one or more competitive advantages in the eyes of the customer in order to succeed. For example, Sears established a huge competitive advantage when it adopted "Satisfaction Guaranteed" many years ago. With Wal-Mart, "Everyday Low Prices" is a strong competitive advantage. Large firms incorporate these competitive advantages into nearly every ment. Unfortunately, many smaller merchants do not get their full money's worth from their ads because they often fall to promote their competitive advantages. For example, a drug store with 24-hour prescription service and free delivery ought to incorporate those facts into every ad. Likewise, an apparel store that features special orders and in-store credit should stress those features in its ads.

Service tips Superior service can become an important competitive advantage for many smaller businesses. Large chain stores usually don't have the flexibility to offer many of these services.



Emphasize expert technical advice. It Is difficult to find workers in discount mass merchandise stores who know the merchandise. There are many examples of smaller merchants who build a loyal clientele because they are able to help customers analyze their problems and help them find the right tools, supplies and equipment.



Offer deliveries where appropriate. A certain segment of our population has a need for the delivery of prescription drugs or heavy equipment. Typically, mass merchandisers cannot respond to these needs. Some smaller merchants can carve out a certain market share by offering delivery service.



Offer on-site repair of certain items. Nearly everyone has a need to have some item repaired or serviced occasionally. Larger discount stores usually cannot readily provide this service. Independent merchants can draw a substantial volume of trade to their stores by providing repairs and service of merchandise.



Develop special order capability. It is not possible for merchants to carry every conceivable item in inventory. However, they can make arrangements with certain suppliers or cooperating partner stores to priority ship needed items. Fax machines and express delivery services are making this feasible today. So instead of letting a customer walk out the door when an item is not inventory, it is better to say, "I'm sorry I do not have it in stock, but I can get it for you in two days."

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Offer other services as appropriate. Independent merchants can develop many loyal customers by offering "how to do it" classes, gift wrapping, rentals of items that will boost sales of collateral merchandise, etc.

Customer relations tips In past years, small businesses had the reputation of excellent customer relations. However, nowadays many consumers perceive that they are treated no better in small firms than in larger ones. Research has shown that poor customer relations is the primary reason that customers quit doing business with a store. The following suggestions are offered for all businesses.

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Make sure customers are "greeted. " According to surveys in Iowa, customers are very offended by the failure to be greeted or acknowledged when entering a store. This is particularly true when the customer is in a buying mood. All store personnel should be trained to greet customers.

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Offer customers a smile instead of a frown. All customers prefer to do business where they are treated in a friendly manner.

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Make employees "associates." Firms like Wal-Mart and J. C. Penney call their employees associates and treat them as part of the team. Independent merchants can emulate this. Regular store meetings could be held where everyone can participate in planning and problem solving.

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Solicit complaints. Many times customers have a bad experience in a store, but they are reluctant to complain to store personnel. Instead, they complain to other people. Good merchants would rather hear of the complaint first so they can find a remedy. They can provide an environment where customers feel comfortable in complaining by soliciting complaints through ads, through signs at the checkout counters, and by signs on shopping bags.

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Train employees often. In the eyes of the customer, the employee is the business. Training employees can have one of the highest payoffs of any investment in the business. Training is available through Small Business Development Centers, university extension services, community colleges, parent companies, franchisors, and others. Also, there is a wide array of video tapes available today where training can be conducted in the store.

Summary and conclusions When a discount mass merchandise store opens in a small-to medium-size town with little population growth, there will be both positive and negative effects. The total retail trade area size will expand. There will be some beneficial "spill over" sales that accrue to some firms (primarily restaurants, home furnishings stores, building materials firms, and other noncompeting firms). However, other existing merchants may suffer losses of sales unless they make adjustment to compete in the new environment. In Iowa, competing general merchandise firms have suffered the greatest losses, while specialty stores, service firms, and apparel stores also suffered substantial decreases in sales. Towns of a similar size without a large mass merchandiser have suffered sales losses in home furnishings, service firms, building materials, and apparel, that are partially attributable to the discount stores nearby towns. The largest towns and cities continue to gain sales in all categories except general merchandise and groceries. Since these are trend reversals, it appears that discount mass merchandise stores are holding customers in the local area to shop for general merchandise to a greater extent than before, thereby causing fewer shopping trips to the city. The smallest towns suffer at the hands of all the larger towns and cities. The best strategy for merchants in these towns is to get back to the basics of running a good business and focus on making service a strong competitive advantage. The major conclusion reached from this study and analysis is that it is possible to coexist in the face of competition from discount mass merchandisers. There are many documented cases of merchants surviving and in some cases thriving when operating against such formidable competition. However, most of these merchants did not continue business as usual. They made many of the changes suggested above, including major changes in merchandise mix.

- Kenneth E Stone, Ph.D. Source: The Journal of the Association of Small Business Development Centers This article is reprinted from the Small Business Forum, the journal of the Association of Small Business Development Centers.