Top Trending: 6 Ways to Build a Billion-Dollar Sales Machine

Catch-22

Are small companies that buy from giant retailers sleeping with the enemy?
  • ---Shares
This story appears in the September 2003 issue of Entrepreneur. Subscribe »
Reader Resource

Apply now to be an Entrepreneur 360™ company. Let us tell the world your success story. Get Started »

Already squeezed on all sides by a weak economy, the slowdown in consumer spending, and the rising costs of health insurance and other services, small retailers face another challenge. The megastores--Sam's Club, Target, Wal-Mart and others--that compete with small retailers have increasingly become entrepreneurs' main suppliers, putting many small stores completely under the thumb of the giants.

Entrepreneurs like convenience store owners have always sourced some products from larger stores. "Small shops used to get some of their goods from Sears in the 1930s. The owner would buy items, send his aunt and uncle in to buy more items and resell them at his store," says Eugene Fram, a marketing professor at the Rochester Institute of Technology in Rochester, New York. Recently, the trend has become more pronounced, as megastores have targeted small-business clients and used economies of scale to undercut wholesalers that historically supplied small companies. At the same time, major suppliers have required small companies to place minimum orders, pushing even more entrepreneurs into the arms of megastores. Gabriel Vega, owner of The Name of the Game, a toy store in Camarillo, California, can't afford to spend $5,000 at one time-the minimum order major toy companies often require. So Vega buys toys at local megastores and resells them in his shop.

Some small retailers worry that sourcing from large companies will put the giants, who are expanding their market share, in an unassailable position. But for others, the megastores provide the best solution to a tough problem. And those who aren't comfortable with the big-box retailers have another option: "There are still small suppliers who don't insist on minimums and who can't supply a superstore because they can't handle the volumes and just-in-time delivery," says Fram. These suppliers will offer good deals to entrepreneurs.

Edition: May 2017

Get the Magazine

Limited-Time Offer: 1 Year Print + Digital Edition and 2 Gifts only $9.99
Subscribe Now
OK

This website uses cookies to allow us to see how our website and related online services are being used. By continuing to use this website, you consent to our cookie collection. More information about how we collect cookies is found here.