Retail surveys

Challenges facing the independent retailer

While population statistics show that the general population has been trekking towards the larger cities, independent retailers seem to be reversing this trend. They are migrating away from cities.

According to our mailing list, roughly the same number of general sport stores closed (222) as new ones opened (208) during the past five years. But, while 51% of the stores that closed were situated in major cities … 65% of the newly opened stores are in smaller towns or rural areas. Of the 163 new stores selling sport as well as outdoor gear that opened during the past five years, 78% are outside the major city areas.

Whether this is from necessity — an inability to compete against mass discounters and chains in cities — or lifestyle choice, is a topic for another research study.

But, due to this migratory pattern, and the complex nature of the independent leisure trade – you could have four retailers in one block, all requiring different stock – we wondered how the independent retailers coped with the challenges of the current trading environment?

We sent out questionnaires via email to independent retailers on our mailing list, asking about these challenges. The profile of the 5+% store owners/managers that responded, are as follows: 48% had been trading longer than twenty years, 16% longer than ten years, 12% for 5-10 years and 24% less than five years. Most of them were therefore fairly experienced traders.

Forty percent of the respondents are situated in major cities and another 40% in large towns, while 16% come from small rural towns. More of the respondents (24%) have stand-alone stores than a position in a mall (20%), while 16% are street-facing stores in a smaller shopping strip. Twelve percent own stand-alone stores in suburban areas.

While a consumer will have a pretty clear idea of what to expect upon entering a grocery or electrical appliance store, the sport, outdoor and leisure industry is far more complex.

There are more than three hundred stores across the country that order every kind of equipment that one would need to participate in just about every sport and outdoor leisure activity … as well as the right clothes and footwear to perform them in. They constitute about 10% of the industry.

A further 23% of the stores on our mailing list order equipment, clothing and footwear for all types of sports; with an additional 7% specializing in one specific sporting activity.

About 32% stores cater for people looking for things to wear and equipment to use for outdoor activities.

About 27% of the buyers on our mailing list order stock for stores selling mainly athletic and leisure footwear and apparel — although several buyers represent several stores (about 10-20 stores).

The diverse nature and locations of the stores, would surely result in problems getting stock? we argued.

There was a time when distribution was simple: suppliers sent their agents off to see the store owners in a specific area, whom they all knew by name, family and preferences. With stores closing and opening in more remote areas and more retailers specialising, the task of the agent is becoming more difficult, but most seem to manage.

Finding stock

Only 40% of the respondents report that agents are reluctant to visit them. A high number — 60% of the respondents — do say that they are regularly visited by agents, and place their orders with them … but we have been told hair-raising stories, for instance by a retailer who offered to collect catalogues from an agent who was reluctant to visit him — and the agent then not arriving at the designated meeting point!

But 64% of the respondents said that they mostly have to ask distributors to supply them with products – instead of being approached by the suppliers themselves. Forty percent of the respondents report that suppliers are reluctant to supply them.

The third highest number of respondents (44%) mostly order from catalogues sent to them by suppliers — but only 8% will start stocking products because consumers come to ask for it.

Staffing problems

By far the biggest challenge currently facing independent traders (72%), is finding the right staff. Most respondents (80%) say that they have to train staff from scratch and only 20% say it is easy to find people knowledgeable about the sports/activities they cater for.

Slightly more than a third (36%) of the respondents offer learnerships and suppliers have given product information lectures to only 32% retailers.

The second biggest challenge facing retailers (60%) is getting their stock mix correct.

All the respondents said that they select the products to stock based on quality and durability, with 76% saying that price, good margins, a well-known brand name and the fact that it represents a new trend, will determine if they place a new product on their shelves. Having heard, or read, good reports about a product, sways 68% of the respondents, while 60% will stock a good product if promised a good delivery time.

Interestingly, the five least likely reasons for the respondents to decide to stock a new line are: popularity overseas or competitors stock it (32%), promotions planned by the distributor (20%), it is endorsed by a celebrity (16%), the distributor offers incentives (12%) and because they like the sales rep (4%).

The responses given by the SA retailers about why they select stock, is very similar to the criteria used by 192 retailers in the Netherlands, interviewed in a 1997 study*. As can be seen from the table below, the first four criteria for selection of products are the same in SA and the Netherlands.

The two factors that have the least influence — incentives offered by the distributor and endorsement by celebrities — are also the same in both countries.

Money, money

An equally big challenge, faced by 60% of respondents, is cash flow. But, interestingly, uncompetitive wholesale pricing is only a problem experienced by 44% of the respondents.

While most (84%) believe that the wholesale prices they are offered allow them to compete with other independents, and 68% say that the wholesale prices offered allow them to make a good margin, only 52% say that the price of stock allow them to compete with chains on price.

Delivery of stock does not represent a problem for the majority of respondents, with most of them happy with correct and complete delivery (76%), received mostly on time (72%). A high 72% are happy to place futures orders and 52% are happy with delivery lead times.

High rent (56%), bad manufacturing and direct selling by suppliers (52%) are also problems identified by more than half the respondents.

Interestingly, crime is a low-priority problem: only 32% indicated that shoplifting or crime in the area surrounding their store is a problem. More than half (52%) say that they seldom have a problem with staff pilfering, seldom have a problem with shoplifting (44%). This could, however, be influenced by the type of stock they carry — it is more difficult to walk off with a cricket bat than a T-shirt.

Going online

Keeping up with technological developments is a concern for less than half the respondents (44%)— and as a matter of fact, 72% use the internet for research and 56% place orders via the internet. But only 32% have a website where customers can place orders.

In future, the internet could become more of a threat to brick and mortar traders, as 40% believe that internet trading is one of the future challenges they will have to cope with.

The trend of suppliers opening own brand, or concept stores, where a full range of one brand is sold, is the biggest future threat identified by independents (64% of respondents).

This is followed by the challenge posed by the changing market, with a growing number of consumers taking up niche activities, mostly extreme sports, instead of the traditional sport and outdoor activities. The people who manufacture or import equipment for these niche markets – think kitesurfing, paintball, kayaking etc - are usually participants who sell direct to fellow-participants – or open a store, to cater for fellow-participants. They often do not have sufficient stock to supply other retailers - or are not interested in supplying them. This is a future problem identified by 52% respondents.

The threat posed by the opening of new shopping malls (48%) near where they are situated and the opening of factory stores by suppliers (44%) are other factors they believe could affect future trading.

Customers becoming more knowledgeable and demanding, is a challenge of the future identified by 44% of the respondents … which ties in with their current concern about finding the right staff.

The factors that the SA respondents value when selecting products to stock, are remarkably similar to the selection criteria used by 192 retailers interviewed in a Netherlands study.

Buyers reveal their top brands

Fashion and sport walk together as far as most footwear buyers are concerned: they not only source more well-known athletic footwear brands than any other brands, but their customers also seem to prefer the lifestyle ranges from well-known athletic brands like adidas, Nike and Puma.

Since most of the thousand plus 15-17 year olds we surveyed last year (Sports Trader April, June & August 2005) indicated that they are quite fond of wearing these brands — especially adidas — it was no surprise to find that most stores stock adidas, Puma and Nike, and that they are amongst the top three sellers in most stores. These brands, after all, do have lifestyle ranges.

We were lulled into thinking: so what’s new? Until we looked at the difference between the brands sourced for the bigger chains (more than 20 stores) and the independent buyer sourcing for less than 10 stores.

The difference in brands stocked is significant.

Firstly, the chains stock far fewer brands than the independents: the 21 brands in the chart (All the Brands Sourced by Chains) were all the brands that the respondents said they stocked. The independents, however, indicated that they source 89 different brands ... which could be expected, since 50 individual buyers are bound to all have different customers and therefore source different brands.

Secondly, all the chains stock adidas, Nike and Puma — and are much more likely to stock these brands than any other — and most (88%) stock Reebok. The brand next most popular with chain store buyers is Converse (50%), followed by New Balance (38%).

The brands sourced by most independents look completely different: most stock Jordan (although we can not say with 100% conviction that the respondents understood this brand as the specific shoe, or were referring to the company that distributes many different brands).

This is followed by adidas, Bronx and Soviet (66%). Thirteen brands are more often purchased by independent buyers than Puma (49%), including Reebok (51%). Sixteen other brands are more often sourced by independent buyers than Nike (38%). This could, however, be a strategy determined by the brands themselves, namely that they only supply selected stores and that they would therefore not supply many independents.

The top 20 brands sourced by independent and chain store buyers do, however, make interesting reading when compared to the twenty brands that are the top 3 sellers for the buyers who source them (Top 3 Sellers when Sourced, according to buyers). In other words, these brands might not necessarily be available everywhere, but those who purchase them find that they are good sellers.

Levi’s, one of the top sellers when sourced (according to 68% buyers), is not in the chains that responded. Nor are brands like Loxion Kulcha or Soviet, amongst the top sellers for about a third of the buyers who source them, represented in these chains. Not to mention DC (50%) or Volcom (33%), although it could be argued that these two brands appeal to a niche market.

Performance brands

Another result that we found surprising, was the popularity of performance brands amongst buyers as well as customers of the athleisure stores we targeted — bearing in mind that we did not include buyers for general sport or outdoor stores.

For example, Asics, a specialist running brand and not one you would expect to see on the feet of someone who is lounging around, is in 9th position under Top 3 Best Selling Brand (according to buyers), doing better than brands with a 100% athleisure focus, for example, Hush Puppy or Vans.

Another athletic performance brand that does well is Hi-Tec. However, people do buy certain models of this footwear brand when they are looking for a comfortable (brown) shoe — they often consider the fact that you can go hiking with them as an added perk.

Perhaps this is the same reason why New Balance, which trades on being a purely performance brand, is all over the show. New Balance is one of the ten brands that is a Top 3 Selling Brand in many stores, and a #1 seller in some. It is the brand that is stocked the 6th most in the stores surveyed, and purchased by the 11th most buyers.

Are the sales of these athletic shoes an indication that the country is becoming more fitness orientated? Or is it the comfort provided by athletic technologies that consumers want? Or is it just cool to wear sporting brands and look like you are on your way to a training session? Whatever reason — the sport shoe is still very much a fashion item.

Popularity stakes

You would expect that the footwear brands that ended up under the Top 20 Brands Stocked would be those that are the most popular brands. For some footwear brands this is true, but not for others.

Some brands are not that widely stocked — for instance, footwear brands that have not been in the market for that long, or they may appeal to a very specific market — yet, where they are stocked, they are amongst the best sellers.

On that note, take a look at what percentage of buyers/stores that stock a brand also list it as one of their top selling brands (Top 3 seller when stocked).

Take Levi’s footwear as an example: it is purchased by less than half the buyers that responded and stocked in less than half the stores ... yet it is one of the top three best sellers for the second most buyers. And nearly 70% of the buyers who do purchase the brand say that it is one of their three best sellers. In fact, it does better for the buyers who do purchase it than brands like Nike and Puma.

Saucony is another example of a performance brand that is one of the top three sellers where it is stocked, but it does not feature in the Top 20 Brands Stocked — in fact it is only stocked by 12.7% of all the buyers and 9.1% of the stores they buy for.

What influence does numbers have?

How much difference does it make whether a buyer represents one store, or several? The answer is reflected in the differences between the according to stores and the according to buyers tables.

Taking a look at the Top 20 Brands Stocked tables, you see that Nike is stocked in nearly three-quarters of the stores surveyed, which is considerably more stores than most other brands. But, a far smaller percentage of individual buyers purchase the brand — the same number of buyers who purchase brands like Fila, Millé or Skechers. This indicates a stronger presence where a buyer represents several stores, but not in single stores.

On the other hand, brands like Jordan, Hi-Tec and Dickies, purchased by more than half of the indiviual buyers, are in relatively fewer stores.

But how much of an influence does the fact that a brand is stocked in more stores have on its popularity? Surprisingly little. The brands that are most popular in individual stores (Top 3 Best Selling Brands tables) are equally popular when more stores are taken into account, give and take a few percentage points. The same goes for the Nr 1 Best sellers.

However, when one looks at the popularity (Top 3 sellers) of brands only where they are stocked or purchased by buyers, the picture changes.

As discussed above, Saucony sells well where it is available. The same goes for alternative brands like DC and Volcom, who also seem to have a specialist appeal. Zoom is another brand that is one of the best sellers in the stores that stock it, but is not amongst the 20 brands most often purchased.

Popular with buyers

So chain stores dictate the popularity of a brand with regards to sales? Wrong!

Several brands do not feature on the lists of buyers for chains, yet they are amongst the best sellers in a high percentage of stores and amongst buyers.

See, for instance, the popularity of canvas lifestyle brand Levi, or Olympic, which is one of the top three sellers for about 10% of the buyers that purchase it, but is stocked in less than a quarter of the stores. Loxion Kulcha is another local brand that is not only popular amongst buyers who source it, but is a top seller in many stores. It is one of the top three sellers in a quarter of the stores where it is stocked.

This is a good sign for local brands and international brands that cannot (or that do not want to) get into the big chain stores. It is also a good sign for independent stores looking to attract brands that do not compete with chains.

Apart from certain beach styles — and the exception of one or two brands — the surfing labels supply clothing, not footwear. While surf brands therefore hardly make an impact on footwear sourced, they will play a much more signifant role in the next issue when we look at clothing brands.