Size Does Matter In The Fight For Independents' Survival

Jules Steinberg On Feb 26 2001 - 8:00am




How does one describe the plight of today's independent CE retailer without sounding as if we're shouting that the sky is falling?

That's the question that has gnawed at this columnist for much too long.

It's also one that has received scant attention from the industry as a whole, perhaps because the relative importance of anything is all-too-often measured in terms of how much it immediately contributes to the cash flow of the trade. (The combined volume of independents in 2000 was less than 20 percent of the industry's total.)

Overlooked is the fact that if the problematic future of the owner-managed store was confronted by all concerned, today's "little" dealer could more easily become the Best Buy of tomorrow.

It would surely please our readers more if we could say that this segment of the industry has profitably participated in the much-heralded boom in the national economy these past 10 years. However, a glance at the classified telephone directory of any medium-sized city in the United States would prove us wrong. As every manufacturer, wholesaler and trade association knows, there are fewer independents in business today than there were in 1991, and the number is shrinking rapidly.

To find a solution to that problem, we must come face to face with the cause, no matter how distasteful that process may be. Furthermore, the more difficult it is to find a way out of a situation, the easier it is to pretend that the problem does not exist.

Still, there is no denying that success in the retailing segment of our industry today is based on size more than ever before. The larger the portion of the market served by one of those merchants, the greater the sales volume. And, consequently, the bigger the size of the purchase orders to suppliers, the more support the merchant receives in the form of price cuts for the cost of goods sold, cooperative advertising allowances and other merchandising aids.

Most independents in this trade cannot generate sufficient volume by operating on gross margins of 38 percent or more, just as too few can show a net profit by working on margins of 20 percent or less. There, I've said it! But you knew that all along, didn't you?

But did you also know that the solution to this state of affairs is no further away than your nearest competitor? It's also one that has received scant notice from the industry as a whole. Overlooked is the fact that today's "little" dealer is no different than the early incarnations of outfits such as Best Buy and Circuit City.

The solution: By merging one's business with other dealerships, the independent becomes positioned to reap the benefits of being more important to the suppliers. In addition, increasing the number of entrepreneurs at the head of any properly organized business opens the door to increased net profits, because no one individual is as smart as all of us.

And let's not forget that the combined capital of two independents doubles the power behind the company's request for assistance from those suppliers, banks and other institutions designed to help the free enterprise system survive.

The biggest stumbling block in the path of this obvious solution to the difficulties of today's beleaguered independents can be summed up in one word: ego. It is the very thing that brought the individual entrepreneur into business in the first place.

Yes, it is satisfying to be one's own boss, and to be able to point with pride to a company built through one's own efforts, but that's not what today's business environment is promoting. Instead, it rewards one thing: size. Working together, under one business banner, the smallest pair of owner/managers can grow the 21st century way-by merging. Jules Steinberg, former executive VP ofNARDA, is president of the Jules Steinberg &Associates consultancy at 425 Sunset Road., Winnetka, Ill. 60093. Phone: (480) 345-0468. E-mail: JSteinb611@AOL.com.

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