One of the most significant advantages enjoyed by the large discounters and big box merchandisers are their economies of scale. By buying an enormous volume of commodity products from their vendors, they can drive prices downward on those items. As a result, the megastores can charge less for basic items than specialty retailers can profitably charge.
Having said that, independent shop owners can find their opportunity in niches. If online retailing has made one thing clear, it is that consumers will easily gravitate toward products they want to buy if they are only given the option. Below, we ll explore the long tail of retailing in the context of how small shop owners can profitably cater to niches.
Using News As A Retailing Model
To lay the groundwork for this discussion, consider the evolution of news distribution. Years ago, there were only a few channels through which you could receive the news: newspapers, network television, and radio. To be sure, consumer choice was severely limited. Today, in addition to those choices, people retrieve current events from cable television, blogs, and thousands of other online sources. In effect, the number of choices from which consumers can select has grown exponentially.
Many of these news sources cater to specific demands. Some are conservative and others are progressive. Some offer a broad swath of topics while others provide updates on certain industries or sectors. This is a perfect model for the future of small, independent retailing. Local merchants need not compete with mass merchandisers for a share of the market on basic commodity items. Instead, they should carve a niche for themselves.
Why Independent Merchants Should Carve A Niche
With the debut of online properties such as Amazon, eBay, iTunes, and Netflix, consumers have grown accustomed to having access to niche products. Were they to buy a package of paper towels, any brand might do. On the other hand, their tastes in books, movies, electronics, and hundreds of other retail categories has expanded into specialized areas. Therein, lies a small retailer s opportunity.
Independent merchants can more easily attract a loyal customer base by catering to niches that are underserved by the megastores. For example, an astronomy enthusiast may be able to purchase a telescope from a mass merchandiser. However, the selection of mounts, eyepieces, and different optical designs will be severely lacking. By contrast, a small retailer who specializes in that niche can better accommodate that market.
Limitations Of Inventory Management
In any physical retail setting, merchants must cope with limited cash flow and struggle with efficient inventory management. After all, there is only so much cash and floor space and both must be used productively. Meanwhile, having cash flow tied up in merchandise is a balancing act; there must be enough merchandise held in stock to satisfy customers without unnecessarily tying up limited resources.
Catering to a tightly defined niche makes cash flow and inventory management simpler. The wide variety of assortments are targeted to a similar audience. Average ticket prices increase, customers return more often to purchase additional items, and if demand is forecast properly, inventory turns over more quickly.
The Value Of Long Tail Retailing
What I ve described above is not to suggest niche retailing eliminates the need for tight controls. You should still keep your inventory as lean as possible, negotiate favorable terms with your vendors, and watch your cash flow. Furthermore, you should avoid sporadic expansion into unrelated assortments (unless you have identified a clearly defined demand) and focus on providing the best experience possible for your customers.
That said, long tail retailing is a strategy to leverage the growing trend toward specialized niche products. Small retailers can use that strategy to avoid competing with the big box merchandisers on commodity items.
Author Resource:
G.A. Wright specializes in high-impact sales promotions that produce big increases in sales volume and attract big audiences. Check them out online at: http://www.gawrightsales.com
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