The Fight for Survival by INDEPENDENT RETAILERS.

• Author: LOWRY, JAMES R.

Despite pessimistic forecasts, small retailers can compete with large chain stores by utilizing specialized marketing strategies.

"BUY FROM the merchants who are your next-door neighbors. They are the folks who go to church with you, buy from other local firms, and keep the money flowing within the community. Your local independent retailer is a longtime resident of the area who actively participates in and generously supports the community.

"In contrast, the large chain stores that are invading our community bring in a manager who stays a year or two and leaves. He has no interest in the community and does not participate in or support its local events. He does not plan to make this city his permanent residence. The chains buy their goods from suppliers outside the area and ignore our local wholesalers. This means that the money you spend at a chain store leaves the community and can not be used to generate local jobs."

Does this sound familiar as a contemporary attempt to dissuade consumers from buying at Wal-Mart or Kmart? This diatribe against the chains was made by my grandfather in the 1930s. He operated a retail plumbing and heating firm that was threatened by a growing number of chain-store competitors. He was especially fearful of the rapidly expanding Sears Roebuck & Co. and Montgomery Ward, which offered essentially the same lines of plumbing supplies that were available in his store. Thus, my grandfather's initial response was to tell everyone who would listen that a chain store was basically a leech on the community--sucking out money and giving back nothing. There was never a Sears or Wards product in my grandfather's home!

More than six decades later, independent retailers continue to seek ways to survive against the competition from the giant chains. These days, the chains have names such as Wal-Mart, Home Depot, and Circuit City.

Although independents represent the backbone of the U.S. retailing industry, their ranks are thinning. This is unfortunate for these merchants, who have sacrificed their time, money, energies, and family relationships to build a business. The independent retailer is an unsung hero who is seeking the American dream of successfully operating his or her own business.

By skimming through the business listings in the phone directory, one can readily observe that small enterprises continue to dominate the commercial landscape. There are many more listings for independent retailers than for the large chains. Census reports bear this out, revealing that independent merchandisers represent 80% of all retail firms, but generate 40% of retail sales. The small size of most such merchants is reflected by data from the National Retail Federation that shows about 75% of all retailers have nine or fewer employees and 49% employ four or less.

Since the advent of planned shopping centers in the 1950s, the share of retail sales accounted for by chains has steadily increased from the 30% mark. As shopping centers began replacing the downtown as the primary sales venues in a community, independent retailers suffered. In order for shopping center developers to get long-term financing from sources such as life insurance companies and pension funds, they had to possess lengthy leases with financially solid retailers. This meant ignoring the weaker independents and signing contracts with large successful chains.

By the 1970s, another development had further diluted the ranks of independent retailers. Giant general-merchandise discounters, such as Kmart and Wal-Mart, were locating on a town's edge, drawing additional shoppers from downtown. These huge self-service stores offered mountains of merchandise at very low prices that the independents were unable to match. Many small hardware stores, drugstores, and apparel retailers became the victims of these large competitors.

Noting the success of the general-merchandise discounters, numerous specialty discounters such as Border's bookstores, Toys "R" Us, and Circuit City emerged during the 1980s. Because they focused on one category of goods such as books, toys, or electronics, they were known as category killers, since they led to the demise of many small specialty retailers who were unable to compete effectively. About this same period, factory outlet centers emerged, offering a line of goods similar to that handled by independents, but deeply discounting their prices.

By the late 1990s, another development began impacting all retail establishments, both large and small--the exploding sales of goods over the Internet. In 1999, Internet retail sales were over $11,000,000,000, and they should account for about 2.5% of total retail sales by 2004. Because of their inability to create and maintain a viable website and meet the pressing demands of store operations, most small merchandisers do not engage in Internet retailing.

Catalogue retailers are another nemesis. In recent years, cataloguers have become more selective in their offerings and more sophisticated in their marketing, making them stronger competitors to the independents. By flipping through a catalogue, such as Lands' End or L.L. Bean, one can conveniently purchase a shirt or sweater without trekking to a store. In 1999, catalogue sales were estimated to be $93,000,000,000, and are expected to represent 3.8% of all retail sales by...