Plucky Little Competitors

By Daren Fonda/Dallas Sunday, Oct. 13, 2002
    • ANDREW GARN FOR TIME

    MUD TRUCK: A New York City coffee cart thrives near two Starbucks

    Conventional wisdom would tell you Beverly's Pet Center in Pembroke Pines, Fla., should have a going out of business sign in its window. A family-owned shop that has sold animals and supplies since 1974, it's surrounded by hulking outlets of PetsMart, Pet Supermarket and Pet Supplies Plus. Facing the cut-rate prices of these giant chains, Beverly's was expected to get gobbled up faster than a mouse in a snake pit. But as in the wild kingdom, life in the retail jungle is full of surprises.

    Beverly's turned out to be about as digestible as a porcupine. Kids love it and pester their parents to take them there. Sure, the dog food costs a little more, but they get to play with plenty of puppies, stare at exotic reptiles and marmosets, eat free popcorn, cheer hamster races and get good and scared by the predators in Beverly's 4,000-gal. shark pond. "We run a clean shop and train our employees to know what they're talking about," says co-owner Greg Rosenberg. One of Beverly's big rivals, PetsMart, abandoned a location across the street from the shop and relocated several miles away. Beverly's moved into PetsMart's old superstore last year, doubling its square footage, and reports that its sales are rising 10% annually. Says Kim Paoletti, who shops there a few times a week with her two young daughters: "It's more expensive than at the chains, but the pet-food quality is better."


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    Beverly's success is part of a feisty comeback by independent shopkeepers, and not just in the pet business. Mom-and-pop retailers in several industries — books, coffee and hardware — are prospering, sometimes literally in the shadow of popular national chains like Barnes & Noble, Starbucks and Home Depot. This wasn't the case for much of the 1990s, when lower prices and broader selection enabled the giants to crush local shops. And to be sure, in the mass-merchandising field, Wal-Mart continues to stomp most rivals, whatever their size. But big specialty retailers today are focused more on fighting one another — and fending off Wal-Mart — than on targeting stores such as Beverly's, whose $3 million in annual sales is mere kibble to them.

    These trends have left a smaller number of strong indies to fight for some juicy scraps. Independent bookshops have battled successfully to hold a steady 15% share of the market since 1999, says the American Booksellers Association. And despite the Starbucks blitz, the number of independent java joints has increased from 8,200 in 1999 to about 8,800 today, according to the market research firm Mintel.

    Why the comeback? In part, it's survival of the fittest. Aggressive competition from the chains killed thousands of shaky retailers. Some were financially strapped and couldn't afford higher rents. Others tried to match the discounters' prices and perished. In hardware, many old-timers were not willing to invest in merchandising or such new technologies as inventory-management systems and instead let their businesses decline until they retired.

    The survivors in each field, however, discovered ways to compete. Almost all provide superior service. Their sales staffs know their products and customers well and stock what the locals want. They emphasize convenience and make things easy to find. Some choose specialties in which they can excel, whether it's children's books or saltwater fish. And many now employ more sophisticated pricing strategies.

    Pat Sullivan, 42, owner of Sullivan Hardware shops in the Indianapolis area, is surrounded by Lowe's outlets and a Home Depot. But he steadily increases revenues 6% to 8% a year, and he books pretax margins of about 10% on $5 million in annual sales. "I'm a speck to the chains," he says, "but I do well." Over the years, he adapted his merchandise mix and pricing to cope with the big-box stores. He knows he'll never beat Home Depot and Lowe's on prices for $100-plus power tools, so he stocks a minimal quantity. Instead, he targets weekend tinkerers who need repair and maintenance goods in a hurry, and he has bulked up on lawn and garden supplies and high-end paints, which are hot growth lines on which he can earn good profits.

    He also practices guerrilla pricing. Sullivan comparison-shops at the chains and tracks the smaller-ticket items they advertise, like sealant or tape measures. He prices the same merchandise about 10% to 15% higher and, like them, earns a higher margin on items that aren't so price sensitive, such as basic tool kits and paint accessories. The strategy lures customers to his store (as it does to the chains), but Sullivan wins additional business through service. His sales force helps people find the right socket wrench fast, holds their hands through a plumbing project and pays a home visit if necessary. Says longtime customer Dan Laycock: "If I need a couple of nuts and bolts, I don't want to wait behind people buying drywall." Sullivan is doing so well that he opened his fourth store just six months ago.

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