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Word On The Street

Billion-dollar discount retailers are storming into Main Street America. Is your business safe?

We've all heard about the devastation consuming our nation's small retail enterprises--but finally, a recent study offers scientific insight into what occurs when massive discount retail chains take root in Any Town, USA. While the survey findings are not that surprising, they do highlight the devastating effects of a retail imbalance on the nation's economy.

"The country cannot have a healthy economic balance of growth unless there's a balance in the economy between small businesses and large businesses," says Edward B. Shils, Ph.D., study director of The Shils Report, which measured the impact of mega-retail discount chains on small businesses in various communities.

Hoping to prove his theory, Shils surveyed hundreds of entrepreneurs throughout California, Illinois, New York and Pennsylvania. His main findings? Seventy-two percent of respondents expected the mega-retail chains to negatively impact their businesses, 50 percent believed a serious reduction in their work force was an inevitable consequence, and 80 percent anticipated a major decline in sales.

Shils also discovered that wholesalers, the primary buying sources for small retailers, are fast disappearing now that these billion-dollar retailers are buying directly from suppliers and manufacturers. Many of the small stores are now forced to buy from competitors in order to stock their shelves.

In addition, Shils noted that for every part-time job created at a Target or Wal-Mart, a job and a half would be lost at what would have been a Main Street competitor. And alas, these "big boxes"--some of which measure more than 200,000 square feet--are supported by government tax breaks.

Perhaps the biggest problem for communities: Super-sized retailers fail to increase the size of the market. Instead, they just transfer the merchandise sales from lots of smaller companies into their own store by selling items below cost--an advantage unattainable by smaller competitors.

"I've been to malls all over the United States, which were [once] beautiful malls with a lot of small, individual companies," Shils says. But as soon as a Wal-Mart or Target moves in, "stores are boarded up, full of graffiti, and the mall begins to look like a ghetto. What we're really beginning to have is a whole string of national cemeteries. Is that what we want in America?"

But according to Kenneth Stone, an economics professor at Iowa State University and a leading authority on retail trade, the battle's not necessarily a losing one for small business. To fight back, they can establish a niche for themselves and learn to keep customers with exceptional service, flexible return policies, technological advances and extended hours of operation.

"I won't deny there have been a lot of small stores severely impacted by the mass merchandisers," Stone says. "But the smart ones know how to thrive in this environment."

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This article was originally published in the February 1998 print edition of Entrepreneur with the headline: Word On The Street.

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