The U.S. depends on small businesses. More than half the people in the country either own or work for a small business, and those companies create about two out of every three new jobs annually, according to the U.S. Small Business Administration. Retail is responsible for a little over 35% of small business employment.
In recent years, large chains started to take the lessons of independent companies and apply them at scale. The most impactful of those decisions may have been bringing down the square footage of brick and mortar locations. At the same time, independent retailers started to experiment with solutions that used to only be available to mass marketers or large national chains. For example, as technology improves and becomes more affordable, small businesses are able to deploy savvy payment solutions, delivery mechanisms and other operational improvements.
The pandemic has changed some of that, pressuring small and large businesses and particularly squeezing stores that were deemed non-essential during periods of required closures early in the crisis. Small retailers tried some of the same pivots their national competitors did in response — shifting where possible to e-commerce or piloting new delivery options — but the challenges of scale and competition that have always plagued those retailers didn’t evaporate during the pandemic. And in many cases the ongoing uncertainty pinched small retailers further by disrupting cash flow, employment and normal business.
This trendline explores several topics facing small retailers as disruptions from the pandemic, e-commerce and broader economic trends continue to bedevil operations.
The National Retail Federation warned in September that disruption from the COVID-19 pandemic hasn't ended for small retailers, whose owners are "increasingly pessimistic."
"The coronavirus continues as a shock to America's small employers," NRF Chief Economist Jack Kleinhenz said in a press release. "Small businesses are the backbone of American ingenuity and impact local economies in cities and towns across the country, but responses to recent surveys highlight the fragility of many small business enterprises and the importance of the need for well-tailored economic policy."
The trade association called for continued economic stimulus measures to help small businesses suffering from the pandemic fallout.
Even by mid-August, when restrictions on businesses that could open had largely eased, most small businesses reported that the pandemic still is having a moderate to large negative effect on their businesses, according to U.S. Census data.
That serves as a reminder that the struggles for retailers, large and small, go well beyond whether they can open their doors are not. Uncertainty remains as consumer behavior has gone through radical shifts (responding to both the pandemic and the economy). Moreover, operating while the coronavirus continues to spread is complicated, costly and bound by various regional restrictions.
The Census data shows small businesses have felt the impact in employment, cash flows and operating difficulties, among other challenges. As Kleinhenz also noted, small business optimism about business conditions over the next half year also fell in July after ticking up from April, according to the National Federation of Independent Business.
Small retailers around the country had to scramble in the spring to figure out how to do things like sell and market online when their stores were closed in response to COVID-19. Lack of scale and resources also made it all the more difficult to weather the closure period.
As one small business owner told Retail Dive in March: "Just understand that everybody, especially one- or two-person operations, we all live on incredibly small margins. Their income is over for now, but they're still paying bills. I bought stuff on my credit card thinking we would be selling into the summer. And we're coming out of our slowest time of the year after the holiday."
Reopening at least made it possible for revenue to come back in. But retailers also reopened into a more complicated and more uncertain economic and operating environment. Adding to the uncertainty is the expiration of federal stimulus measures, which included weekly $600 unemployment benefits that helped sustain sales in many areas of the retail market over the summer, as well as help for small business.
Given the number of people small retailers and other businesses employ, they are not only dependent on the recovery of sales but also a major contributor to the overall economic recovery. "Just as a physician checks a patient's pulse to measure the rhythm and strength of the heartbeat, small business is an important indicator of the comparative health of the local and national economies," Kleinhenz said.
Article top image credit: Daphne Howland/Retail Dive
How small retailers cope with pandemic disruptions
Local stores closed, without the financial cushions enjoyed by their larger rivals, and face even more unknowns in a post-COVID-19 future.
By: Daphne Howland
Jennifer Rockwell was working in her secondhand apparel shop in downtown Portland, Maine in March scrambling to figure out how she could sell online after closing down just days before. The store, Material Objects, was all set for the spring fashion season and normally bustling with shoppers who come in frequently to discover her most recent finds. On a Friday in late March, it was empty save for her two huskies.
"I think we were naively thinking we were going to continue with business as usual as recently as [the previous] Friday," she told Retail Dive in an interview. "We were letting people know that we were being diligent about wiping surfaces, but by the time Sunday came around, at least one of my employees said they were uncomfortable being around the public. It was almost easier to make the decision to close than to try to manage it on a day-to-day basis."
While larger U.S. chains had the financial cushion to pay their workers for at least a few weeks, Rockwell did not. She said at the time that she felt lucky that she and her business partner years ago bought the building they're in. She paid her employees for the first week of closure, and then they had to access the unemployment system. She also contemplated e-commerce, not something she thought she would ever do.
"I'm so ingrained in brick and mortar that I can't make that switch so quickly, and that's not how my customers shop either," she said. "I instantly got overwhelmed, trying to take photos, trying not to go crazy. I'm seeing some of my other business friends trying too and I can tell it's tricky."
She remained hopeful in the early weeks of the pandemic, in light of the store's ability to weather the Great Recession and other downturns, but felt like she was entering uncharted territory. "Just understand that everybody, especially one- or two-person operations, we all live on incredibly small margins," she said. "Their income is over for now, but they're still paying bills. I bought stuff on my credit card thinking we would be selling into the summer. And we're coming out of our slowest time of the year after the holiday."
Rockwell's store was one of many nationwide voluntarily shuttered in the face of the COVID-19 pandemic in the spring. Sales from small retailers were hovering around 5% to 10% above last year, with a small surge before mid-March, but that quickly flattened out, according to data from small-business tech and data platform Womply.
In general, local retailers may benefit, at least to some extent, from strong loyalty in a time of crisis, according to Neil Saunders, managing director at GlobalData Retail.
"I think this is definitely a time when local business can shine," he told Retail Dive by phone in March. "Local businesses are part of communities, and there's an opportunity for local to really revive out of this by providing local deliveries for older people. People remember that kind of thing and they will respond kindly to businesses that step up."
Indeed, some small retailers like grocers and hardware stores experienced a demand increase as the pandemic hit, but others, like apparel stores and antique shops, lost, according to Womply VP of Corporate Marketing and Communications Brad Plothow.
"We're seeing mass carnage basically," he told Retail Dive in an interview in March. "It's a unique situation, the spread of a virus, and it's especially hard for businesses that depend on a physical presence, they're disproportionately affected, obviously. We need lawmakers to take action on their behalf, and what really needs to happen is a direct stimulus for small businesses."
Peter Temin, a professor of economics at the Massachusetts Institute of Technology, advocated for government-backed, interest-free loans to small businesses so they could stay afloat and remain focused on the future. "Think if your plant burned down, how would you rebuild," he told Retail Dive in a phone interview. "Thousand-dollar checks to everybody isn't really a good idea, it's just the simplest thing to do."
Plothow agreed that the quick checks in a stimulus package wouldn't help many smaller retailers much. "The stimulus for individual consumers may make them more willing to spend, that does benefit the whole economy," he said by phone. "But if you are stuck at home you're not going to use that money on a physical local business. You're probably going to spend it on Amazon, and they don't need the help right now."
That has consequences not just for those retailers, but for the economy as a whole. The Small Business Administration estimates that those enterprises drive some 44% of the economy.
"If one mom-and-pop shuts down, it's sad for those people who have a job there or have it in their neighborhood, but it's not just a problem for these communities and employees — it's also a problem for the country," Plothow said. "U.S. employment is tied to small businesses as well."
While small retailers have benefited from the "buy local" movement and consumers' desire for unique experiences, that affinity could be undermined as new habits form during this unusual time, he said. "All this momentum around consumer behavior around small businesses, you get into these rhythms," he said. "If your muscle memory changes because I go to Target or Amazon or get pizza from Domino's, it could take a while for people to rediscover their local businesses, even if they're still around, and that is a real threat."
Material Objects' Rockwell stayed in touch with her customers on Instagram in order to stay top of mind. "I do feel like things will return to normal and I'm trying not to get panicked about it," she said. "And I'll use some of this downtime to get more familiar with using the computer."
Article top image credit: Daphne Howland/Retail Dive
How to shift your brick-and-mortar business to e-commerce
While much of the population is staying home in recent months, businesses are adapting in new ways to connect with and serve their customers.
If you own a brick-and-mortar business, you may have begun shifting online to continue to sell your products and services. While the change to virtual team meetings and eCommerce can be a big change, there are a number of steps you can take to ease the transition. Here’s how to get started bringing your brick-and-mortar business online.
Set up selling online
If you aren’t already online, you don’t need technical skills to get started — and it’s a solid move for your business. Here are a few options.
Before the online orders come in, you need systems in place to sort and count products, manage packaging and ship and deliver orders. You should create an omnichannel retail strategy that includes the following:
Shipping and return measures: Will you offer free shipping? How will you handle the inevitable occasional return? Have a plan in place to ensure customers have a positive experience from start to finish.
Delivery and pickup options: If you’re a restaurant or retail business with local customers, you can add local delivery or pickup. You can also add shipping outside of your local area, if you choose to ship outside of your community.
Staffing: Whether you’re a one-woman show or a large team, who will manage and fulfill online orders? You may also need to train staff in new fulfillment procedures.
Stay Golden, a Nashville-based bar, restaurant and coffee shop, has adapted to its community’s needs during the COVID-19 pandemic by setting up an online ordering page with Square. The team provides “survival packs” — family-style dinners, reheatable meals, cocktails and pantry staples from wholesale inventory like flour, butter and toilet paper — that customers can order online and pick up curbside.
The online offerings and curbside pickup have been so widely utilized that co-owner Jamie Cunningham says they’ll continue to offer it when operations shift long-term.
You’ll need to adapt your day-to-day operations if your business becomes more heavily dependent on eCommerce. Don’t be afraid to try new ways of working, ask your staff to work in a different way, or update your product offering. Be creative, and see what works and what doesn’t.
Lemon Laine, a Houston- and Nashville-based brick-and-mortar beauty retailer added a text-to-order operation after shuttering its physical locations. With over 400 SKUs and 20 product lines, owner Laura Lemon said it was crucial to keep her knowledgeable employees on staff.
Now customers can text to order their favorite products and chat with employees for recommendations by phone. Once an order is confirmed, customers are sent an invoice, and orders are shipped for a flat fee, fulfilled by staff in Lemon Laine’s retail shops.
Connect with your community
Using this time to reach out to your local (and virtual) community is a great way to get involved and stay in touch with your customers. A few of our favorite ideas:
Instagram, Facebook and Twitter are great, free ways to keep your customers up to date on business operations, product and service offerings, sales and more.
In addition to posting new product offerings on Instagram, Lemon Laine has shifted its regular educational wellness events online, which allows it to continue to provide some of its favorite events for customers but at a healthy distance.
Live streaming on Facebook or Instagram provides a chance to connect face to face with followers. Take advantage of this to stream regular offerings (like yoga or dance class), or create unique experiences (like bringing your star bartender online to share how to make a signature cocktail) for your online community.
Tutu School, a children’s dance school with over 40 locations nationwide, has shifted to streaming online classes to clients and providing families with activities to keep little ones entertained throughout the day.
Offer a helping hand
If you’re able, consider getting involved in COVID-19 relief offerings in your community. Whether you donate products or services, volunteer your time, or are able to keep your doors open as an essential business, your assistance is greatly appreciated.
San Francisco–based coffee and roastery Andytown is encouraging customers to purchase coffee and pastries that its staff delivers to healthcare professionals working at hospitals and senior care facilities. The revenue from this program is helping Andytown keep afloat.
Stay in touch with staff
Even if you don’t see your employees in person each and every day, it’s important to stay in touch. Some aspects of remote working to keep in mind at this time:
Communicate early and often: It’s important that your staff is as up to date on the business as possible. Make an effort to communicate your plans with employees clearly and regularly.
Have some fun: Set up regular virtual coffee chats, happy hours or game nights.
Learn something new: If business operations have slowed, and you have the means, it may be a great time to learn something new as a team. Consider offering a workshop or virtual skill-share swap session with other local businesses.
Keep it real
These are challenging times for everyone. Share your learnings and your current struggles with customers. A recent trust study by Edelman shows that the more open you are as a business, the more you can cultivate trust and confidence with your customers. Don’t be afraid to let customers know that you’re still learning, adapting and changing, and you’re open to suggestions.
To get more guidance and tools for your business during this time, check our resource hub.
For a couple of decades, Amazon has been setting consumer expectations that all retailers follow. The pandemic may be changing that.
By: Daphne Howland
Most retailers can remember a time when the internet seemed destined to wreck their business, but amid the COVID-19 pandemic, e-commerce has been a saving grace. Many larger publicly traded retailers are reporting triple-digital e-commerce growth, according to Wells Fargo analysts. Some mom-and-pop stores in recent months turned to the channel for the first time.
Unsurprisingly, with shoppers still skittish about shopping indoors, digital sales are expected to remain up. "While triple-digit growth won't continue indefinitely, we do think above-normal growth will continue through year-end," Wells Fargo analysts led by Ike Boruchow wrote in a July 23 client note.
For retailers, it's an imperfect solution, considering the higher costs of selling online, and the difficulty of fostering discovery for categories like apparel. And an incomplete one considering that uncertainty about the economy is holding back spending on any channel, with the Wells Fargo team finding that 5% of total pre-COVID demand could be lost.
That was a surprise that could have consequences. Customer expectations for the last two decades have been set by Amazon — speedy delivery, cheap prices and an endless array of goods — and retailers have followed, or tried to. But many consumers, left to think about climate change and the viability of their local retailers, and learning to live with delivery delays even from Amazon, may emerge from the pandemic with new priorities.
"During the pandemic, order turnaround times are uncontrollable, and it's forcing consumers to have patience again. That patience has awakened a new thought process, 'What if I don't really need my items this quickly? What are the hidden costs that I'm not seeing?'" DeAnna McIntosh, founder of retail and e-commerce consultancy The Affinity Group International, told Retail Dive in an email. "On social media, during the pandemic, I've seen a resurgence in conversation around slow fashion, upcycling, and sustainability — especially amongst millennial consumers."
That involves more than the uber-practical three-legged stool of convenience, price and availability that has been spinning Amazon's successful flywheel. But in order to win over the consumer who's having that conversation, a brand has to make an alternative argument.
Local booksellers have successfully done this for years, selling the exact items offered by Amazon at higher prices, and taking longer than Prime delivery to get orders into their customers' hands. Barnes & Noble CEO James Daunt, himself an independent bookseller whose company bought the U.S. chain last year, said he believes that the relationship some retailers have with their customers undermines Amazon's Prime advantage.
"As long as what you do is really authentic and true to your principles, then, yes your customer will stick with you because the loyalty will be extraordinary," he told Retail Dive in an interview, noting that most consumers are fine with delivery in three days "if it's reliable."
"I personally think the irony is that we're much, much more difficult for Amazon to compete with than Amazon is for us," he also said. "Because you can't, through an algorithm and a website, engineer the loyalty that we can, because our skills and our experience are completely unbeatable."
Who has the edge
Retailers can break through the demand for free high-speed delivery and an endless aisle by telling good stories, making a sustainability case for their delivery options, touting the advantage of their limited — or "curated" — assortment and otherwise fostering good relationships with customers.
"This conversation has created demand for indie brands, where consumers can have an emotional connection to the products and the founders behind them," McIntosh said, noting that several fashion houses including Gucci have recently taken steps to slow their design and production cycles in the name of sustainability and creativity. "The rules of retail are being thrown out of the window and Covid has given us a chance to create a better, more sustainable industry for the entire retail ecosystem."
In fact, smaller sellers may actually have an advantage over larger ones, according to Forrester Research Principal Analyst Brendan Witcher. While many DTC brands, or traditional retailers with nascent digital operations, work to achieve scale, that may not be possible, he said. Rather, the larger the e-commerce operation, the more diluted the profits. Rather than reach for scale, smaller retailers just reach for sustainable profits.
"I think that online retail is only successful for smaller retailers," Witcher told Retail Dive in an interview. "It's designed for the small business that's passionate about their product. They don't need to support a full staff, the costs are not as great. There are so many costs to online retail that if you're a certain size, not too big, you can outsource or do without."
A new standard?
That doesn't mean that retailers can ignore the reality that Amazon has reset norms around fulfillment and endless assortment. But the pandemic could be providing an opening for some alternative standards.
That's especially true now, with evidence that consumers at the moment are especially willing to ditch brands that don't or can't follow through, according to Forrester's Witcher and Matt Sargent, principal at retail consultancy Sargent Up North. Witcher calls it a marketing reset, where previous loyalty is easily abandoned. And Sargent believes it's a potential pitfall even for Amazon.
"People are making changes," Sargent told Retail Dive in an interview. "When people try a brand they like or used to like and something goes wrong, they are much more likely to switch brands. People are making these choices — that is the potential danger that Amazon and Whole Foods has with people potentially leaving Prime."
The "assisted sale," a higher level of customer service that was once a staple at retailers like department stores, is one way to woo customers at a time when they're ready to make a leap, according to Sargent. That's harder to do when a retailer is big and has a huge, varied assortment, and it's harder to do online, he said.
"That growth of the 90s that seemed brilliant at the time is hard to manage online," he said. "There needs to be a lot more alternatives in terms of what they're doing, they have to use a customer-designed approach to understand that. But your success is predicated on getting it right. Best Buy has been able to make this leap and Macy's hasn't."
At a time when consumers are awaiting a solution to a disease outbreak that has upended their lives and thrashed the economy, there's another quality that may be more important to them than fast delivery or a wide assortment, according to Michael Stefanakos, chief revenue officer at retail solutions company FieldStack, which works with retailers of all sizes on unified commerce platforms.
"I do think that that certainty is what people are looking for," he told Retail Dive in an interview. "When they've had that certainty at Amazon and others and now they can't, it is an opportunity for local retailers to fill the gap."
That takes a level of inventory control that many retailers, especially independent physical stores, aren't used to, he said. But any retailer — "small, mid or large" — can and should know what they have in stores "at any given time," making fulfillment or special orders as easy as possible. Today that probably means curbside fulfillment and some kind of e-commerce, even at small retailers, Stefanakos said.
"If you're only competing with Amazon on price you're going to lose because it's unsustainable from a retail standpoint," he said. "For brick-and-mortar retailers the thing that keeps them around is the experience that people have when they go there and the fact that they're part of that community. That's really important to people, it's part of who they are. Certainty — having that ability in a retailer — that is one thing that retailers can market themselves on today, and for customers it's cross-generational. You have every opportunity as a brick-and-mortar retailer to provide personal interactive service that you can't get online."
Article top image credit: Permission granted by Roadie, Heather Hughes
Powell's Books has had enough of Amazon
The Portland, Oregon, bookstore has been a marketplace seller from the get-go, but is now calling it quits and staking a claim for independents.
By: Daphne Howland
Emily Powell, proprietor of Powell's Books in Portland, Oregon, founded by her grandfather and previously helmed by her father, celebrated Independent Bookstore Day this summer by pulling the plug on a major source of sales — Amazon's marketplace.
It's going to pinch, she said in an interview by video conference call. In addition to its fourbrick-and-mortar locations, the retailer runs its own website, where it sells both new and used titles and merchandise like games — all, until recently, available through its Amazon portal as well — and enjoys a loyal following in Oregon and beyond. Like all independent bookstores, however, even large ones like itself, it's dwarfed by Amazon, which last year rang up $160.4 billion in product sales. That doesn't even include its cloud services and other revenue streams like marketplace seller fees, which brought total 2019 net sales to $280.5 billion.
Powell's began doing business via the internet even before Amazon launched. At first, selling used inventory through the fledgling Amazon marketplace seemed like an innovation and a smart addition. Two decades on, however, even after finding success and expanding the assortment sold through the marketplace, the drawbacks weighed on the indie store.
Not least of them is taking part in fueling Amazon's dominance. These days the e-commerce giant, which itself started out as a bookseller a quarter century ago, controls the lion's share of U.S. book sales. According to figures from book audience research firm Codex, released by email Sept. 18, Amazon's total unit share in book sales stands at 53%; in online sales of all books that rises to 72%, with share of e-books at 76% (with its Kindle e-book reader moving more than its online print business) and online sales of print books at 69%.
"We were actually online before Amazon, we've been in this game for quite a while, but the head start didn't get us anywhere particularly," Powell said. "Along the way you try things, including selling our used inventory on the Amazon marketplace. Over the years it became clear how costly it was to our business. It takes a toll on our business and our ability to focus. Any time you're increasingly dependent on a sales channel that has their own goals — that sometimes supports their sellers but sometimes not, that is not always in your best interest and not always clear — is worrisomeover time."
Marketplace sales move 60% of the goods purchased through Amazon's site, and in 2019 brought Amazon $54 billion in seller fees. Powell said the company no longer wants to contribute to Amazon's bottom line, but, more importantly, to the way it undermines indie retailers like hers.
Despite the loss of the Amazon channel, the company may have picked a good moment to go it alone. While Amazon is obviously a huge player in the space, consumers get their books from a variety of places, including libraries and yard sales, and are loyal to their local stores, even if they shop at Amazon, according to Codex CEOPeter Hildick-Smith. Codex's research indicates that during the pandemic shoppers have made a concerted effort to frequent their local booksellers, which in many places instituted curbside pickup or shipping options.
"We had expected Amazon to pick up a lot of market share in the pandemic, but because they de-prioritized books and focused on groceries and essentials, that prevented them from getting any kind of a windfall in books," Hildick-Smith said by phone. "Powell's is among the top 25 or so independent booksellers in the country. I think people have their loyalties pretty well defined in the book-buying space right now, and if that solidifies, that could be a long-term trend. People understand that these are their neighbors, and local jobs."
Amazon's share of book sales ticked up again from the early days of the pandemic, probably because fulfillment times improved, according to Codex. Powell isn't surprised, or deterred.
"Amazon's going to be fine, they don't need our help," she said. "The ones who need your help are local businesses. Shopping locally and shopping within your community makes a really long-term difference. We see it very clearly in Portland, which is built with the idea of a walkable community, with stores and restaurants. We wanted to renew that message to our community at this time, but it's not easy."
Article top image credit: Courtesy of Powell's Books
How the coronavirus could change the retail landscape
As stores were forced shut, landlords and tenants started feuding. Failure to work it out might alter the streets forever.
As the month would down and store closures seemed destined to last for several more weeks, feuding between landlords and their retail tenants reached a fever pitch. Los Angeles retail broker Jay Luchs works with both retail tenants and landlords, and fielded lots of calls from both.
"There's massive amounts of friction, we've never seen this before, and both are hurting," said Luchs, who is vice chairman at commercial real estate advisory firm Newmark Knight Frank's Century City office. "The tenant is not making any money and not able to pay the landlord, but the landlord is obligated to the bank. Everyone is hit at the same time with so much confusion, and it's not fair for either."
The situation spared few retailers, from corner bodegas to national chains, discounters to luxury. But the smaller the retailer, the greater the vulnerability, experts said. More than a third of local retailers have seen sales dry up entirely, according to data from small-business tech and data platform Womply. The firm found that 21% of small-business owners could only survive 30 days like that, and 55% had fewer than 90 days. Delays and difficulties around aid offered by the Small Business Administration (SBA) rendered the program ineffective for many.
"Many local retailers will be dead long before they get SBA emergency loans," Brad Plothow, Womply vice president of brand and communications, said in an email last spring. "Some already are."
Allowing smaller retailers to fail, or get discouraged enough to call it quits, would be a blow to the country's general welfare,considering that the SBA estimates those enterprises drive some 44% of the economy. And that could also alter, perhaps irredeemably, the streetscapes of cities and towns across the country, Luchs warned.
"Brick-and-mortar retail on streets is what makes places special and creative and different," he said in an interview. "Mom-and-pops make up so many cities, they're important to so many of us. You mix restaurants and brands with cool buildings, in cool areas. Imagine a world and a landscape that only had the big tenants and not the mom-and-pops. That's what's in such trouble right now."
Small retailers deemed nonessential have little to no financial cushion to weather the weeks they're forced to close, and are less likely to have much e-commerce, if any, to make up for the lost sales.
And they got little to no sales as the pandemic took root. Even as they scrambled to ramp up digital selling, small retailers in some jurisdictions faced confusing and in some cases stringent rules that seem to prevent that, as in Portland, Maine. There, curbside, delivery and even postal fulfillment of orders were banned for a month until an outcry forced a reversal. In general, it's been difficult to shop for much beyond groceries and household products throughout the pandemic, and consumers also appear to be reining in discretionary spending amid exploding unemployment and fears about economic decline.
"It's going to be hard to sell a $400 cashmere sweater in lime green right now — who's going to buy it?" Fraser Ross, proprietor of cult favorite shop Kitson in Los Angeles, told Retail Dive in an interview in April. "Easter was the same weekend as Coachella so we were ready for a boom — it's like Christmas honestly — but it's not happening."
Ross works with independent designers whose apparel and home goods are unlikely to be found at a department store or a mass merchant, and that's usually a draw. In the pandemic, though, chains could sell those categories while he couldn't. He said he resented the fact that the likes of Target and Costco continue to sell discretionary goods like apparel, toys and lawn furniture because those stores are considered essential and don't have to close.
Target reported in April that comparable store sales rose 7% from the beginning of February, though it expected operating margin to drop by more than 5% in the first quarter. In April, the retailer's home decor sales rose a percentage in the "high teens" after single-digit declines in March, but apparel and accessories sales dropped in March and April.
Moreover, the federal government's emergency aid packages were of little help. They were quickly depleted and there were many delays with the early aid. Several smaller retailers had trouble accessing the special loans, even as many large companies took advantage of them. And some small retailer owners in various areas of the country told Retail Dive that they were wary of taking on debt in any case. Debt is another thing that is easier for larger retailers than small ones, says Ross.
"You know, if you owe the banks a thousand dollars, it's your problem," he said. "If you owe the banks a million, it's their problem."
Meanwhile, most landlords demanded rent of retailers big and small, though some were open to being approached about relief, Luchs said. "For the most part the tenants are trying to stay," he said. "They're trying to work it out — most of these deals are five to 10 year leases when they sign. They're not saying 'Get me out of my lease.' They're trying to figure it out."
Ross said that laws passed in some areas, including the states of Vermont and Michigan, that ban sales of nonessential goods in stores in order to promote social distancing, would also make things more fair.
"In short, it is much better for retailers to have cash and be in default on leases than to be in lease compliance and be broke and/or bankrupt."
But, above all, these businesses need rent relief, experts say.
"Heavily impacted retailers, big and small, should hold onto cash if they have closed stores," Nick Egelanian, president of retail development firm SiteWorks, told Retail Dive in an interview. "The system is not set up for this kind of scenario, and there is little upside to being current on rent if your stores are closed and you are facing extinction. In short, it is much better for retailers to have cash and be in default on leases than to be in lease compliance and be broke and/or bankrupt."
The conundrum is that many landlords, too, are hard-pressed to meet their financial obligations, in some cases to banks or real estate investment trust (REIT)shareholders. "This situation pits retailers against landlords in a death struggle with consumer spending halted," Egelanian said. "The leases themselves are built to deal with problems in a functioning world, not problems in a stopped world."
Simply deferring rent isn't much of a solution for tenants, according to Luchs, because that multiplies the rent that's due in upcoming months. Instead, despite all the friction, tenant and landlords need to work things out together in times like these, rather than approaching each other with legalistic letters and threats, he said. "For those landlords [who can afford it], this is their time to be charitable."
Similarly, tenants "should make their decisions carefully and ethically to preserve key leases and pay rent where they have not been harmed," Egelanian said.
But this is a scenario where both probably need the banks and the government to step in and provide solutions as well, like some kind of pause on payment terms, Luchs said. "If the government was able to say, 'Hold on tenant, hold on landlord, this isn't fair to either,' that's something that could save the day."
Egelanian agrees. "The way to save the industry is a payment holiday instead of handing out money through the SBA," he said. "Freeze rent — landlords don't have to pay the mortgage and mortgage companies don't have to pay dividends — and back it up with the full faith and credit of the federal government."
In the future, that could be easier to accomplish, because the industry will have learned its lesson, Egelanian noted. "One of the changes that is sure to occur in the future is that tenants will demand that pandemics be included in force majeure clauses in their leases, and landlords will need to insure over that risk," he said. "It may end up like flood insurance with only the federal government able to underwrite the risk, but it would prevent a systemic collapse like we are seeing now."
Indeed, some small retailer owners, already on the edge, are likely throwing up their hands, Luchs said. As more do, the boarded-up and papered-over store windows and for-lease signs will continue to proliferate, and the streets will empty. And that could last longer than the pandemic itself, warned Kitson owner Ross.
"The small stores are the ones who bring the character to your complexes and your streets," he said. "We've got to keep these areas, these Main Streets, where people want to go when they come to a town. We've got to keep them because malls are a dime a dozen."
Article top image credit: Daphne Howland/Retail Dive
Are mobile apps worth it for small retailers?
National chain BuyBuy Baby and indie Little Birdies Boutique have two things in common: Both are children's retailers and both can be found in Apple's App Store.
By: Tatiana Walk-Morris
Editor's note: This article was reported pre-pandemic.
If you are in the market for newborn apparel, you may hop online or on an app to buy from a national retailer like BuyBuy Baby. Or, you could visit one of its 126 brick-and-mortar stores. However, if you want to support an independent children's retailer you may think your only option is to go to the physical location. However, children's retailer Little Birdies Boutique in Washington, D.C., has an additional option that many small businesses are exploring — its own app.
Of course, shoppers can buy their children's goods online, but Shanlee Johnson, owner and founder of Little Birdies Boutique, launched her store app to create another sales channel for the company.
"We developed the app … just to have another sales outlet to offer our customers a seamless shopping outlet," Johnson said. "[H]aving the phone in your pocket is convenient for our customers to pick up and use."
Mobile apps are essential for larger online and brick-and-mortar brands alike. Mobile shopping app use among U.S. consumers grew 70% over the previous two years, according to a 2019 App Annie report. The report also notes that retailers like Nike have used mobile apps to merge mobile and in-store experience, including reserving sizes in-store, tapping into rewards and getting help from in-store staffers.
But do small retailers actually need an app?
A 2018 survey of 351 small businesses found that 55% of small businesses owned by millennials have mobile apps, followed by 42% of Gen X business owners and 13% of baby boomers, according to market research firm Clutch. Twenty-six percent of respondents said mobile payments were the most valuable feature on their mobile app, followed by 24% who said social media integration as the most valuable feature, per Clutch's report.
Much like apps are a vital part of major retailers' omnichannel marketing strategy by remaining a key channel for reaching consumers, they can be a useful tool for acquiring and building relationships with customers. A 2018 Braintree report found that 58% of shoppers browse e-commerce apps or websites on their mobile phones, and at least 38% are doing so at least once a week. But small retailers shouldn't make an app solely to fit in with their small or larger competitors.
Mobile metrics matter
For Johnson, the app allowed her to pick up data points she wasn't otherwise able to glean from having a mobile-optimized website alone. Younger, "tech-savvy" customers, for example, tend to shop on the app, but grandmothers and other mature customers, as well as younger moms browsing during their downtime, made purchases via the website, Johnson said.
"They're almost two different customers," Johnson said. "Our online sales are a lot of grandmothers and older customers and also younger ones as well — moms that have [time] between nap time and after kids go to bed [to] shop online."
Whether an app is worth the investment for a small retailer depends on who you ask. Before developing an app, small retailers should first ask why they need one, because an app may not be right for every retailer or small business, said Adam Halvorsen VP of sales for the U.K. and Europe at DMI, which lists ESPN, Victoria's Secret and Audi among its previous clients. Creating an app might not be the right move if, for example, your sole metric is an increase in sales. While that may be your end goal, you may need to take a look elsewhere for ways to grow sales before creating an app, he said.
Small retailers should ask themselves whether the app will drive sales, function as part of their branding or engage with customers, Halvorsen said in an interview with Retail Dive. Understanding the fundamental purpose of an app can prevent small retailers from adding too many features, he added. He also explained that an app could increase personalization for each customer.
Echoing this, Johnson said developing an app allows retailers to send custom messages or push notifications to customers to remind them to come to the store and check out new products.
"If you're trying to use an app as a sales tool, there are a few different components about why having an app will be better," Halvorsen said. "One of them would be a richer experience than your mobile site. One of them would be that you have an app store presence, so that's an additional way to generate traffic."
An app provides smaller retailers with more customer engagement metrics beyond likes or opens than other channels such as email marketing, Amazon or various social media apps, said Alex Levin, founding partner of L+R, which lists brands like Google, Unilever and Vice among its clients. That customer connection enables smaller retailers to gain insight into what their customers' needs are, which, in turn, is useful for future product development, he added.
With an app, smaller retailers can also access other valuable metrics such as app retention rates, daily users and monthly active users, which allows retailers to understand churn and stickiness, L+R's digital transformation director Roberto Ranucci said.
"Amazon does [ordering] really well and that's what they're focused on … That's not where these small businesses would compete," Levin said. "It's more of being aware of the person, capturing their hearts and minds is what a mobile application can do beyond any other type of digital experience that can scale."
When it came time to develop the app for her store, Johnson said she found a company to help her develop her own product. She white-labeled the app, a technique which uses customizable templates to create it rather than doing so from scratch.
With the app, customers can pay with Apple Pay or a credit card that's linked with their cell phone, making the checkout process seamless, she said. When a choosing template for the app, it was important that the app was compatible with Shopify.
"We just wanted it to be a smaller version of our online platform," Johnson said. "It's very similar with the photos and the setup with the different collections."
In the software development world, Halvorsen said small retailers could likely find developers to create apps inexpensively, but "if you buy cheap, you typically buy twice." Besides investing in the strategy app first and asking potential users what they want out of an app, retailers should be prepared to spend a bit more to get things right the first time around. That also means doing due diligence in who they hire to craft the code if they're creating the app from scratch, he said.
In addition to the costs to set up the app, Johnson added that she has to pay a developer a monthly fee to manage the app as well as fees to maintain it in Apple's App Store and Google Play.
Smaller retailers should also consider how their apps will integrate with their existing technologies, including their point-of-sale system, warehouse facility or distribution center, Halvorsen said.
"Where I would see a native app or App Store app having value in [the brick-and-mortar] context is to increase foot form, to add experience in-store, to increase engagement," Halvorsen said. "The offline to online world — there's probably more creativity and more areas that you can leverage a mobile app."
Cybersecurity should be a consideration for smaller retailers, too, Halvorsen said. Retailers should ask vendors terms of payment and compliance, he said.
With an abundance of other retail competitors big and small, having an app is another way to stand out in an increasingly competitive online retail market, Johnson said.
"Having your brand everywhere — as many places as you can put it — it helps," Johnson said. "Having it as an option from the website, you're retaining more customers."
The U.S. depends on small businesses. More than half the people in the country either own or work for a small business, and the retail industry is responsible for a little over 35% of small business employment.
included in this trendline
How small retailers cope with pandemic disruptions
What online shoppers are looking for right now
The role of mobile apps in small business
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