The Independents' Future

The independent versus the big box. It's been topic A in the gift and home decor industry for the past decade or so, with seemingly everyone siding with the mass retailer. But one industry veteran takes a contrarian point of view. Randy Eller, former president of CBK and now running his own consulting business, sees quite a different picture.

Eller cites the long list of mass retailers that have failed over the last 30 years, including Montgomery Ward, Waccamaw, Service Merchandise, and many others. And then there are today's troubled retailers: K-mart, Sears, and Mervyn's. Restoration Hardware and The Bombay Company are also facing challenges. That's not a very inspiring record if one's betting on national retailers.

On the other hand, Eller sees far fewer failures in the independent channel. Of 25,000 active independent retailer accounts CBK managed annually in his years there, Eller says the company's bad debt write-offs amounted to less than 1 percent per year. And there were no more than 20 to 30 bankruptcies in any year.

Why then, the perception that it's the independent that's in trouble? Part of the reason, according to Eller, is a culture that equates large sales with success, even though profitability may be thin or non-existent. By nature, salespeople don't like to write small orders, even if the commission is higher.

“Given the choice of writing a $100,000 order or a $2,000 order, even though the commission on the $2,000 order is higher, most salespeople want to go for the big deal,” says Eller.

Likewise, entrepreneurs who've created so much of our industry's core business are more sales-driven than profit-driven. Many American entrepreneurs who are successful when it comes to sales and marketing fail when it comes to running a business profitably.

This attitude has hurt independents, which need a higher level of service and the ability to order in smaller quantities, among other things. But Eller sees the handwriting on the wall for wholesalers who've neglected independent retailers in favor of the big boxes. Mass retailers now look to source directly, and overseas factories want to deal directly with retailers, often hiring their own domestic sales forces. Eller himself has been approached by a number of wholesalers for advice on how to get back to serving the independent channel.

Randy Eller also takes a contrarian view regarding today's consumers flocking to shop in the big boxes. While they may be saving money, they're not putting that money in the bank.

“What I'm seeing is people going to Costco to buy toilet tissue in case lots,” says Eller. “Then they turn around and splurge on things like spas.” The best performing retailers, in Eller's opinion, are at the extremes — the lower end Wal-Marts and Costcos, and stores like Neiman Marcus at the other end.

But independent retailers also have their work cut out for them. The days of merely opening your doors and sitting by the cash register are long over, says Eller. The first thing the independent has to do is forget about competing on price; a customer coming to a specialty shop knows she's going to have to pay more. If she's at your store, she's looking for a better shopping experience, more service, and to “make a connection” at the local level — and those are choices she's made before she even gets out of the car.

The independent has to become more aggressive in courting today's consumer. But that doesn't take reinventing the wheel, says Eller. It's just a matter of basic marketing, competing on offense rather than defense.

For the specialty retailer, events are a proven tactic. Eller recommends that strip mall merchants get together to stage events, such as hiring a live band to play in the parking lot or showcasing a celebrity, like the local weather person. A home decor store and a furniture store can team up to display a few pieces of each other's merchandise, and hand out each other's discount certificates. Fundraisers for school bands, sports teams, boy and girl scouts, and churches are other events that encourage consumers who want to connect at the local level.

Randy Eller sums up his view of the future with calls to all the industry players. To wholesalers, he says get ready to be dropped by the chains or have your margins squeezed so tight that you'll be basically working for them.

To mart owners, he says stop bragging about big retailers shopping your shows — it's the independents who'll fill your showrooms in the future. And to everyone, he says start planning and funding efforts to train, motivate, and inspire independent retailers to get their groove back.

“They may not be where the most sales are, but they are where the profit is,” says Eller.