By Brian Kilcourse, Managing Partner
January 26, 2010
Lisa Murkowski is the senior senator from Alaska, a place famous for its beautiful but unforgiving environment and the rugged individualists who call it home. So it’s no surprise that the state’s senator would say, “Freedom comes from strength and self-reliance.” Alaska might also be a good analogue for the environment that small retailers inhabit – independence can be a beautiful thing, but the business environment for entrepreneurs is extremely unforgiving. One false move, and you’re out in the cold. In retail as in the Bush, having friends to support you is a very good thing.
Although it’s often retailers with top lines of $500 million on up that frequently get the focus of analysts, pundits, and technology providers, it appears that quietly and with little fanfare independent stores are making all the right moves to become the winningest retailers in the U.S. right now. That is the finding in a survey of 1800 businesses nationwide by the Institute for Local Self-Reliance (ILSR), published on January 14th, 2010. It’s an interesting coincidence that on that same day, the National Retail Federation announced that “…preliminary 2009 holiday sales, which combine the full months of November and December, rose 1.1 percent to $446.8 billion, surpassing NRF's projected decline of 1.0 percent.” But the ILSR survey found that “… that holiday sales for independent retailers were up an average of2.2%. That contrasts with the Commerce Department figures released today, which show that overall retail sales were down 0.3% in December and up 1.8% in November.”
‘Small Is Beautiful’
RSR spoke with Stacy Mitchell, Director of Research for ILSR, to discuss the results of the study. ILSR (www.ilsr.org) is a non-profit research, educational, and advocacy organization that started in 1974, that focuses on community based economics. The organization has several program-based initiatives, including the “New Rules” project (www.newrules.org), which includes a focus on retail. “We’re the ‘small is beautiful’ people,” says Stacy, “in the case of retail, we research what the economic, social, environmental, and consumer benefits of independent businesses are in light of the tremendous consolidation that’s happened in the retail industry over the last 20 years.” The organization has become involved in a growing trend among independent businesses to slowly-but-surely organize at the local level into independent business alliances, which in turn network with national organizations such as the American Independent Business Alliance and the Business Alliance For Local Living Economies. The ILSR estimates that collectively this network of grassroots organizations represent about 30,000 businesses, many of whom are retailers.
It’s in banding together at the community level that independents find their true strength. Following the dictum of that famous American entrepreneur Benjamin Franklin, that “we must all hang together, or assuredly we shall all hang separately”, independents that were part of a “buy local” campaigns organized within their communities fared best of all. According to the ILSR press release: “The survey also found that independent retailers in cities with active ‘Buy Local’ or ‘Think Local First’ campaigns reported stronger holiday sales than those in cities without such campaigns. These campaigns have been launched by local business alliances in more than 100 cities and towns. Independent retailers in these cities reported an average increase in holiday sales of 3.0%, compared to 1.0% for those in cities without an active Buy Local initiative.”
Says Stacy, “There are a couple of important ways that these community programs function. The ones that are most effective have a strong educational component; they talk about studies that show, for example, that a dollar spent at a locally owned business generates much more economic activity in the community than if you spend that same dollar at Walmart of Barnes & Noble. They also support grassroots marketing. They use the store front for poster campaigns that may be mirrored by local print and radio advertising. A lot of how they communicate is by using their own visibility on the street and their customers to get the message out.”
How big is the potential audience for the ‘buy local’ message? Pretty big, according to ILSR. According to the research director, “there’s probably 20% of the population that is already supportive of independent businesses. There’s probably another 20% of the population who are diehard Target shoppers and they’re not going to change. The target for the independent campaigns is really the 60% in between that sometimes shops at the local store and sometimes shops with the chain, and has never really thought much about the difference. What we’re seeing is that customers who, for example, are loyal to the local hardware store start to see the ‘buy local’ message, pick up a local directory of independent businesses, and perhaps see a poster about the ‘ten reasons to buy local’ and why ownership matters, and that begins to influence the choices they make in their other purchasing. So instead of buying that next book on Amazon, they decide to check out the independent bookstore.”
Local is as Local Does
Says Stacy, “another aspect is that as retailers begin to promote ‘buy local’, they begin to think about their own purchasing decisions, and so we’re seeing retailers who say, ‘maybe instead of buying from Staples, I should go to the local supplier’, or ‘instead of banking with the big bank, maybe we should be using the local community bank’, and where it makes sense, purchasing inventory that’s been locally produced.” The New Rules project published another study in December 2009 (http://www.newrules.org/retail/news/independent-retailers-would-source-more-goods-locally-survey-finds ) that underlines the relationship between operating locally and sourcing locally. The study of over 100 independent retailers in New England found that, “almost all (98%) would like to source more of their inventory from manufacturers and other producers within the region. But there are barriers to doing so, including, most notably, a lack of an easy and efficient way for retailers to identify New England companies producing the kinds of goods they carry. All <the companies surveyed> are actively involved in ‘buy local’ and ‘local first’ campaigns that urge people to choose local, independent businesses. Being involved in these initiatives may have increased their own interest in purchasing more of the goods and services they need to run their businesses from other local businesses in the region.”
‘Localization’ Redefined
Big retailers have discovered that if they localize their offer (in this context, ‘localize’ means putting relevant inventory into the right stores), that they can improve financial performance. They’ve also learned that by giving their store managers a little autonomy- and compared to independent entrepreneurs we mean a VERY little, that local consumers tend to respond favorably. All of this points to something important for retailers large and small. Consumers want that local touch – they want to feel like they’re helping someone who might be living just around the corner. But independent operators have something that resonates with consumers in a special way. Says Stacy, “there are so many people who just rally around the idea. Where before there was a feeling of ‘it doesn’t really matter, what difference does my one little purchase make?’, now there’s a campaign that people can rally around and feel like they’re making a difference.” That’s localized loyalty.
That’s a type of localization that will be very hard for the big chains to replicate, let alone beat.
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