In This Chapter

After you’ve decided that retail is right for you and you are right for retail, before you pump your savings into a new store, you need to determine if your idea will work.

You do this with strategic planning. While most independent retailers think that strategic planning is something meant only for big retailers, don’t believe this. Strategic planning is equally applicable to small businesses. With this type of planning, you seek to match your idea of a store to available market opportunities.

In this chapter, we’ll explore how to assess the market and identify what unmet needs you can focus on for a profitable store. You will learn to evaluate the strengths and weakness of your idea and determine if your store has a chance to succeed.

If you are like most retailers, you already have an idea of the kind of store that you want to open and the product that you want to sell. It could be a store concept or a product that you like or know very well. For example, if you like wine and know a lot about it, you might think of opening a wine store. In this case, you are essentially matching your skills, passion, and experience to a retail store concept that requires those skills. Your idea of a product to sell or a store to open could also be something that is not offered yet or not offered in the best way. You think you could be the first to sell it, or you could sell it better than others.

Or you can be like the rest of retailers out there: you know that you want to open a store but you don’t know exactly what kind of store and what kind of product you are going to sell, and you need to find those things out.

Whether you know what you are going to sell or you don’t know, you need to determine if your idea is feasible before you start.

To do so, you need to study the market to examine your idea with respect to …

You will also need to assess resources required to enter the market, consumer/buyer demand, and of course, uniqueness of your idea.

Market study or research is something that most small retailers don’t do either because they don’t know how to do it themselves or they can’t afford it. Primary market research, which is specific to a store or company, can be quite expensive; however, secondary market research, which uses readily available data, can be very low cost.

Secondary market research allows you to gather information on your market and find out about opportunities for your store. You can buy or access secondary market studies and data for your product industry on the Internet or at your local library. These research studies have already been compiled, and from them you can learn basic information on your particular product industry, including consumer profiles, competition, and growth predictions.

You can also find valuable market information in newspapers and popular magazines, such as The New York Times, The Wall Street Journal, USA Today, Time, U.S. News & World Report, Newsweek, The Economist, and even People magazine on occasion. You may find articles on market trends in business magazines like Fortune, Forbes, Business Week, or any of the other business periodicals to which you may have access. All of these resources provide you with up-to-date and thorough information on economic, business, and market trends that can help you learn about the market and opportunities that are available.

Talk to your friends, relatives, business associates, and other small retail owners about ideas they may have or needs in the market they don’t believe are being met. You can often find helpful ideas.

And, last but not least, don’t forget the most overlooked resource—yourself. You’re a consumer. If you have wished that a particular product or service were available, chances are that others have, too.

When reading articles or market studies in newspapers, the web, or business periodicals, your goal is to learn about social, economic, and business trends. Look for opportunities to profit from these trends by selling your products or services.

Trends that are happening today and that are going to shape the future of the market for many years to come include demographic changes, the disappearance of the middle class, and the rush to save the environment to name a few.

Three key demographic trends that offer tremendous market opportunities for retailers both old and new include the aging of baby boomers, the growth in buying power of the Gen Xers and Yers, and the growth of the Hispanic population.

Baby boomers, people born between 1946 and 1964, are just starting to enter their 60s. This group has the largest amount of disposable income in history. They’re driving growth in many areas, including services, recreation, and, of course, retailing. Here are some key statistics from the U.S. Census Bureau about this age group:

Some key points to remember when targeting this age group include:

The second group includes both Generations X and Y. Although there is much disagreement about the exact definition of these generations, those generally pegged as Generation Xers were born between 1965 and 1985 and are independent and skeptical. Generation Yers, who were born between 1986 and 2006, are generally idealistic, optimistic, and patriotic but do not believe in traditional advertising, relying only on word-of-mouth advertising. Both groups have a lot in common. They grew up during recessions and many lived in single-parent households. Some key things to remember about marketing to these age groups include:

The third demographic group to target is the Hispanic market, which is the fastest-growing consumer segment in the United States. If the Hispanic population has grown in your area, don’t forget to consider ways to reach this population. You will need to have bilingual sales people to serve this market. Your best way to reach this market segment is through Spanish radio and cable television marketing. Internet advertising can also be an effective way to target this market segment.

Some key statistics from the census bureau you need to remember when targeting the Hispanic market include:

Another demographic change is the gay market, which is “going mainstream” and exploding. While in the past many gay couples were afraid to go public with their relationships, in many communities this lifestyle is now more acceptable. In communities where a gay lifestyle is acceptable, you can market directly to these couples. Many companies are targeting this demographic because it is often a two income household that has significant disposable income and a significant appreciation of good design and quality products.

The disparity between rich and poor is growing and, as a result, the middle class is shrinking. You will need to make a choice regarding whether you want to target the rich and develop your retail store catering to their luxury purchases or target the dwindling middle class and lower classes. But remember, to sell high-end products, you’ll need to create a store environment for your upscale customer where service, image, and product match your customer’s expectations and lifestyle. Price is not a concern to them. What matters to them is that the experience that they have in your store is the “best of the best.”

De-massification, or the marketing of products to niche markets, is not an oxymoron but a response to global homogeneity. Consider what that means for opportunities in stores that provide products or services individually tailored to each customer.

By selling something that is unique and tailored to a specific niche, a retailer manages to stand out from the pack. This is more effective when your product and target market are high-end. Consumers of luxury goods value status more than anything else and one of the ways to achieve it is by owning something unique that no one else has. As John Galliano, famous Italian fashion designer, said very eloquently in an ad which appeared in the Financial Times, “One desire that is getting stronger than all other demands remains the desire to be unique.”

In addition, as consumers are exposed to more choices, loyalty has become less important than it once was. Customers will bolt to a competitor for a slightly better deal. You can also lose customers if you experience a temporary shortage of stock.

Environmentalism made it into the spotlight with the success of former vice president Al Gore’s documentary on global warming, An Inconvenient Truth. You can develop a sustainable retail business focusing on green options or environmentally friendly products provided you can prove the benefits to your customers. To succeed, you must sell a product that is not only environmentally friendly, but one that also works effectively and is priced competitively. While most consumers say that they would choose a green product over less environmentally friendly options, they would only do it if the price difference is not significant.

Peoples’ lives are busier than ever, and you won’t find many customers who go out and only shop for the entire day. Most people don’t have the time to leisurely look through the aisles of your store. They usually want to find whatever it is they are looking for fast. Your store design, product displays, service, checkout operations, and deliveries all must reflect this change of pace in the consumer’s life. Retailers will compete more and more on speed as consumers are raising their expectations for instant gratification (I want it now) and efficiency (I want it fast).

A market in its entirety is too broad in scope for any but the largest retailers to tackle successfully. The best strategy for a smaller retailer is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers.

To find your market niche, you need to look at market trends, competitors, and your prospective market base. When analyzing them, you are looking for gaps or, in other words, an unmet need or a need that has not been met completely and that you can help fill.

You can find business opportunities by looking at trends in the market or the economy. The question you are going to ask yourself is: “Are there any trends out there that will generate a strong demand for certain products or services?”

Let’s have a look at the trends that I talked about earlier, for a moment. Do you see any market opportunities as a result of changes in demographics? Maybe a spike in demand of travel, recreation, vacations, entertainment products and services, as well as food and clothing to meet the need of baby boomers as they age.

What kind of demand can de-massification create? How about stores that provide products or services individually tailored to each customer?

What does the growth of the upper class mean for the sale of cars, entertainment, luxury products, and exclusive and personalized products and services?

This is the kind of analysis that you need to conduct to identify a need and an opportunity for you to service that need.

You found a niche or, in other words, a need that you can fulfill. Now, you need to ask yourself if there’s anybody else offering similar products or services.

Let’s assume that you believe that selling affordable designer furniture is the way to go. Do you know who else is doing it? If there are other stores that sell designer furniture at reasonable prices, are there any competitive advantages that you possess that other stores can’t offer customers even if they wanted to? Or is there anything that you could improve on?

When looking for a niche, it is important to think in terms of products and services. Most businesses involve a mixture of both, but this dichotomy can help narrow the focus. Suppose you wanted to open a light store, but there are a lot of specialty lighting stores in your area. You may choose to differentiate yourself through a service that is not offered by other stores. For example, you could choose to offer private consultation to customers who require a new lighting system for their home but are not interested in hiring an interior decorator, or offer installation of the lighting fixtures.

The uniqueness of your idea or concept is not so much the product you will sell, but the service that you are able to provide that others don’t. Remember, you can charge substantially higher prices for the service you are offering, as long as you are located where there’s a market for what you are offering.

Once you have a handle on your competitors, you need to focus on your prospective customers. Conducting surveys is the best way to find out your prospective customers’ needs, buying preferences, and spending habits. Surveys can help you identify who will make a good customer base for your store.

Marketing research firms are best equipped to conduct these types of Primary Research studies. Although this might be a costly proposition, they are able to provide you with a wealth of data that can save you money down the road. If you know your target market well, you can make informative choices about your business that are more likely to be the right ones.

Nonexpensive ways to collect data about your target customer base can be the web, newsgroups, and forums. You could also contact noncompeting companies that share your prospective target market.

Your customer survey should include questions that obtain information on the following aspects of your potential customers.

You have studied the market and spotted a fabulous trend that allowed you to identify a niche in which you feel you can succeed. You have determined that your competition is not currently meeting the customers’ demand for the products that you are planning to sell or the service you want to offer. You have analyzed your prospective customer base and concluded that there are customers who will be interested in buying your products. You have analyzed your product industry and learned that it’s booming and is not governed by too many regulations. Now, the real test is: can you do it and do it profitably?

More specifically, here are some of the questions that you will need to ask yourself:

The answers to these questions will not only allow you to assess the strengths and weaknesses of your idea and decide if it’s the right idea, they will become part of your strategy and business plan for how you are going to succeed.

How do you pick the right niche? We have compiled this list of practical suggestions to help you choose the right niche for your store. It is based on market conditions as well as personal considerations.

You should try to look for businesses where you will have a lot of repeat customers or where people will need to keep buying supplies from you. A good example of this concept is Soda-Club, a seller of soda makers to make soda or seltzer at home. You purchase the soda maker, and then you continue to purchase cartridges from them to make your water.

Another common strategy used by convenience stores is to sell a cup of coffee in a store brand cup and offer refills at a considerably reduced price if you bring back the cup. This gets the customer back into the store for the refill and hopefully other purchases as well. Think about ideas that will keep your customer coming back again and again.

Try to stay away from seasonal businesses. If, however, you’re willing and able to ride out the slow months, these businesses—such as beachwear shops, ski shops, farm produce, Christmas-related stores and services, and anything to do with schools and colleges—can provide you with a lot of time off. They can be the perfect business if you’ve retired and want to operate a retail business part of the year and travel the rest of it.

Avoid choosing a low-price store concept. Competing with discounters or with well-established businesses is a no-win strategy, because it will be just about impossible to compete with their prices. Instead, you’ll have to compete in service and unique offerings.

Try to find the right configuration of products, services, quality, and price that will ensure the least direct competition. Unfortunately, there is no universally effective way to make these comparisons. Your best bet is to shop the stores you believe will be your key competitors on a regular basis and think about what you can do to differentiate your store.

Don’t ever design your store with the idea of just beating the competition on price. You need to offer more than just price competition to build customer loyalty. A price war by the competition will quickly draw a price-conscious customer away from your store.

Whatever you decide to do, it is very important that when you look at your list of market opportunities—niches—you consider eliminating any of the stores or products that you don’t believe you’ll really enjoy owning. As a small store owner, you’ll be living, sleeping, and breathing your business—if you don’t enjoy what you are doing, your chances for success will be very low.

Also more effective and less risky than starting a new concept from scratch is to look for ways that you can perform a service or provide a product that is similar to, but not quite the same as, a service or product already being provided. You must be honest about the real difference you provide and be sure customers understand your unique service and be willing to switch to you.