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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.
Sullivan owes part of his success to the advice he gets from the co-op to which he belongs, Do It Best, which has 4,128 members nationwide and provides consolidated buying power. (Other co-ops, such as Ace Hardware and TruServ, offer the same service to their members.) And the co-ops have become more savvy in advising members on ways to beat the chains.
In the book business, the indies are also banding together. Their American Booksellers Association established national gift certificates so that customers or their friends and family could redeem them at any member shop (of which there are 1,200, about half the nation's indies). The independents have an e-commerce site called BookSense.com to go up against Amazon.com They display best-seller lists compiled from indie shops nationwide and benefit from a $600,000 ad budget, used for promotions in such publications as the New Yorker and the Atlantic Monthly.
Collette Morgan, owner of the children's bookstore Wild Rumpus Books in Minneapolis, Minn., says the website helped increase her sales 10% last year. But she generates plenty of her own buzz. When she opened a decade ago, she was fresh from a general-interest indie that died after a Barnes & Noble moved in across the street. Morgan decided to make her store "something a corporate mind would never dream up and that a large company could never sustain."