Big Boxes Of The Serengeti

The Big box retailers are not all bad, and independent retailers are not all good. But the combination of the two is perfect. The retail world is a jungle that both predator and prey inhabit. Each are needed to keep balance in the world.

“Every morning the sun comes up, a gazelle knows that if it can’t outrun the fastest lion it will die. Every morning the sun comes up a lion knows if it can’t outrun the slowest gazelle it will die. The moral of the story is that when the sun comes up, you better be running.”

-African Proverb

The existence of predator and prey is a delicate dance. If prey herds are left unchallenged, they overpopulate, over graze their feeding grounds and die off in massive numbers.

Predators keep the population in harmony with quality grazing lands. By culling the weak, the diseased, and the aged from the herd, predators keep the herd young and strong.

If predators are left unchallenged, they grow fat and lazy. Unable to chase down or catch prey, they soon starve to death. A strong and healthy herd of prey animals keeps predator populations in check by forcing them to run long and hard in pursuit of their quarry. By fighting back and wounding the inefficient and slow predators, strong prey animals cull the predator pack of the weak, the diseased and the aged.

When the system is in balance both predator and prey stay healthy and survive.

Retail Predator & Prey Talk: There are many parallels between the law of the jungle and the retail world. At the last High Point show a couple of gazelles were overheard discussing industry rumors at the local watering hole (coffee bar at the Retail Resource Center). It seems that they were anxious about a lion rumored to be hunting in their grazing grounds.

The gazelles (one older and one younger) had been around for a while and were among the leaders in their herd. The older gazelle was concerned about the rumors and expressed a desire to find out if they were true, so defensive plans could be made. The younger gazelle was dismissive, saying there was no need. He was young and strong. He heard the lion was an old one that he would easily outrun.

The Retail Lion Attacks: It turned out that the rumors were true. The older gazelle executed his defensive plans and moved to a different grazing field (re-merchandised himself into a different price range/targeting different customers than the lion) and has moved beyond the reach of the predator.

The younger gazelle tried to out run the lion (a series of discount sale events attempting to blunt the impact of the lion’s open) got tired, got caught, and got eaten.

The same dance is playing out in other retail verticals where survival is a Darwinian Process. Stores that evolve survive, those that don’t are consumed.

Wal-Mart Nation: For a while, it seemed that we were heading towards becoming a Wal-Mart nation. Forced to evolve to survive, however, many of the prey stores learned vital lessons as a result of their battles with Wal-Mart. They made critical changes in the way they do business. In other words, they evolved. Now leaner and stronger, the prey stores are fighting back.

As a predator, Wal-Mart devoured whole herds of prey stores, and over the years got complacent, fat and sluggish. As a result, several prey herds banded together and ran Wal-mart out of Germany, wounded Wal-mart in Canada and are out-running Wal-mart in many of its core markets by opening new outlets and growing profits at the expense of Wal-Mart.

Because of increased competition, Wal-Mart’s profitability has dropped 6 quarters in a row. The prey stores are now forcing them to make changes to their business model.

Demise Of The US Automakers: The herd of US Automakers used to be made up of big companies. For a time their size protected them from the much smaller predators.

Ultimately, their size doomed them. Like elephants, they needed to eat all day, every day, just to stay alive. They were so focused on eating, that they ignored predators following the herd.

After years living off the big old, sick and weak auto companies, the predators got stronger. They also got bolder and began taking down smaller companies like American Motors, Chrysler, and Oldsmobile.

Emboldened by the taste of blood, they are now chasing down and nipping at the heels of Plymouth, Pontiac, GMC, Mercury and Lincoln as they try to cut them out of the herd and bring them down the way they did the others. Soon they will all be lunch for the pack.

Attack Of The Personal Computers: This trend even extends to the computer industry where the struggle has been even bloodier as predator Personal Computer makers, savaged the herds of fat, dumb and sluggish mainframe computer makers. In a few short years, the PC predators drove the mainframes to the edge of extinction.

By gorging without limits on the mainframe makers, PC makers got fat, dumb and sluggish only to see the mainframes - now lean and mean - strike back with a vengeance. They changed roles and adapted to the economical climate by becoming the backbone of the Internet, thereby thinning out the PC pack.

On the high tech grassland, both predator and prey now exist in a “nervous” state of balance. PC’s are no longer the dominant predators they once were. Mainframes are no longer the slow and easy targets they once were. Both are lean, both are strong, aggressive and healthy.

Retail Furniture Ecosystem: I once had a jaundiced view of the big boxes that was influenced in large part by the opinions of my independent furniture store clients.
Eventually though, I came to appreciate the interaction between predator (big boxes) and prey (independent retailers) on the retail furniture grasslands. It turns out that the big boxes make the retail environment BETTER for smart independent retailers.

If you are an independent retailer, do a little experiment and visit the showroom floors of some of the big boxes in your trading area. Once you’ve mingled with their customers you may realize that you really don’t want to sell to most of these people.
The majority of the customers you will find in many of the big boxes are good people, but they are not the type of profitable customers that most independent furniture stores need to attract.

Most of them are price sensitive, and getting the lowest possible price is one of their top decision points. Most of them are finance plan candidates, and financing options are a major part of their decision making process. Most of them are looking for immediate delivery. Most of them would not be good customers for a smaller operation. Price sensitive, finance customers who want immediate delivery, tend to be some of the most expensive customers from a service point of view.

Once you have that revelation, your attitudes may change in a number of areas. If you disparage the way that salespeople sell in big boxes, you may come to realize that these salespeople do a good job based on the needs of their businesses and of their customers.

When you look at the number of weekend customers on the floor of a big box, there is a certain harmony that becomes visible that highlights another truth about the difference between predator and prey. That is their feeding habits.

Predator Feeding Habits: Predators spend more money on advertising for two reasons. The first is because they can. The second is because they have to. Due to their cost of operations, they need more traffic to keep their energy levels up to survive. Lions eat about three times the amount of food gazelles eat based on size.

Intake needs for predator and prey are also relative to their position on the food chain.

I recently spoke to a big box manager who lamented the fact that his sales for the month were barely over the $2,000,000 mark. Later a small box manager said that her sales were over $300,000 two months in a row. She was ecstatic.

Conventional wisdom among industry consultants is that the big boxes waste customer opportunities by not developing each customer’s full sales potential. But the fact is that they can’t afford to take time to develop a sale; they have to grab the low hanging fruit before customers change their minds. They survive on a large number of small fast sales. That’s why they invest heavily in advertising price focused selling events with financing to make it easy to buy.

With their voracious appetites for cash flow, big boxes can’t afford closing delays or extended buying cycles. By feasting on opportunities as they present themselves, the predators take most of the weaker customers out of the market. That can be good news for independent stores.

That’s because big box predators, with their focus on immediate needs, create an environment that often drives the stronger customers with higher needs, more resources, and longer buying cycles into the doors of the prey stores.

Climate Changes: Everything changes when a predator moves into a market, and prey stores that don’t adapt to the climate change soon, find themselves in trouble. The first climate change is usually the marketing environment. Because of their size, predators play the numbers game. They have to spend more than prey animals on marketing because they need heavier traffic to survive.

The path of greatest energy efficiency for predators is “lowest price” and “easy financing” focused advertising.

Prey stores that are sharing grazing grounds with predators don’t have as much money to spend on advertising. Neither do they have access to the same types of feature-rich financial programs. They must, therefore, run their operations in a manner that feeds off the weaknesses of predators to attract customers.

The best prey stores do a number of things differently than predators. The first thing they do provide a better buying experience that appeals to higher-end customers. With a lower cost of daily operations, prey stores can survive on fewer, larger and more profitable sales.

Being smaller and more agile, a prey store can and should re-merchandise themselves away from the “bread and butter” items of the predator store.

When one storeowner learned that a predator was coming to town, he executed a series of defensive actions while he was still in control. He dropped all the lines that could be shopped cheaper by the predator. He re-merchandised the operation by raising his target price points across the board; he added lines that the predator couldn’t afford to carry. He cut the fat out of his operation and improved the quality of the people working for him.

Today, though smaller, he is leaner and more profitable than he was before the predator came to town.

The rest of the stores still in his market fall into two categories: the dying and the thriving. The dying stores are the ones who are trying to compete against the predator. But they don’t have the size, they don’t have the buying power, they don’t have the cash reserves to out-show, out-buy, or out-market the predator. In the end they will get eaten.

The other thriving stores still in his market are the ones who cut the fat out of their operations before it was cut for them. They carry lines the predator doesn’t. They don’t engage in price wars they can’t win. They have turned themselves into niche operations that appeal to a smaller target audience - markets too small to feed the voracious appetite of a large predator.

As was noted earlier in this article, a good predator, keeps the prey herd healthy by taking out the weak, the sick, and the aged.

Survival Instincts: In order to survive, prey stores are going to have to become more agile. They need to be leaner so they can move faster when opportunities present themselves if they are going to stay out of the grasp of predators.

In order to become agile, prey stores need to learn new skills. To begin with, they must find small cash-rich niches they can live on profitably that are too small to support a predator.

They have to become lean, and learn to outsource all functions that do not add value to their retail operations. Learning to outsource “non-value add” functions is something almost every other industry has had to learn to do. Now it is the furniture stores’ turn to learn what they can do more profitably in-house, and what functions they need to oursource to reduce operating expenses.

MORE CASE STUDIES
Consider this example of a small home electronics showroom that felt targeted by predators like Circuit City, Best Buy, Wal-Mart, Costco, and Fry’s Electronics. They knew they couldn’t play the same retail game they had been playing for years, so they changed their game. They found a niche - home theater installations.

They focused on their value add, which was “making sales”. Everything else that had no direct relationship to making sales was contracted out. They outsourced their warehouse operations, the installs, their bookkeeping and janitorial functions. They outsourced their advertising and marketing.

By becoming agile and lean, they continue to grow, and become more profitable. Their actions made them such a strong competitor that several predators stopped looking at them as prey and began looking at them as partners. They are now an outsource resource for a couple of predators who contract home theater installations through them.

One of the first laws of physics says that for every action there is an equal and opposite reaction. What happens to prey eventually happens to predators.

One agile little prey store opened across the parking lot, from a large, but complacent big box store. He built his business model around the weaknesses of the predator, offering a better buying experience with high levels of personal attention and personal service that appealed to better quality customers. He offered better quality merchandise than the predator.

In a very short time he grew strong enough to make the big box store have health issues. The predator responded with the same advertising and more sales events that had been used to bring down prey in the past. But because this prey store was healthy, the attacks only drove more traffic in the doors of the prey store.
After a number of failed attacks, the predator dramatically cut back on the number of price busting sales events and reduced advertising expenditures. It then saw improvement in its own health.

As was noted in the beginning of the article, healthy prey animals keep the predator pack healthy. By forcing the pack to run hard, they keep it lean. By fighting back and injuring the slow and inefficient, they remove the weak, the sick, and the aged from the pack.

NEXT ISSUE
Having framed the relationship between Predator and prey companies in the home furnishings industry, we will continue with practical tips and techniques. It doesn’t matter if you are a predator, or prey, or both. The most important thing you can do is to start investing in a process that will result in evolutionary change for your business. It is one thing to intellectualize about the “survival” tension between the predator and prey that helps stores remain quick, lean, and healthy. It is quite another to focus on increasing your agility and efficiency so that you can remain toward the front of your pack.

Ken Guerrero is a Consultant providing strategic and tactical consulting to help storeowners take their retail game to the next level. He has worked with many furniture stores and performed process analysis and process design for a number of Fortune 5,000 companies. For more information about operational analysis, strategy development, sales, warehouse or customer service training programs contact ken at keng@furninfo.com.