A Pursuit of Excellence: Small Business Strategies for Success against Major Retailers (2005)

ABSTRACT The global marketplace has increasingly placed pressures on small retail businesses in the United States. Because of their natural advantages of scale, resources and leverage, large competitors can decimate local establishments. Yet in this difficult environment, certain small businesses thrive, including some that are in direct competition with large chain stores. What are their secrets to success? Is the strategy of each successful small business unique, or do they share similar strategies? This exploratory case study examines six successful, but very different, small retail businesses in a single geographic market, all of which compete against large chains. The study, performed through open-ended interviews with owners and managers, sought to determine what strategies these small businesses utilize to compete successfully with large national enterprises. Many common strategies were found, including some previously unidentified in prior studies. Overall, these strategies emphasize (1) excellence in the cultivation of relationships, especially with customers, employees, suppliers, and the community; and (2) excellence in providing value. Implications for small businesses and for future research are discussed. INTRODUCTION The worldwide marketplace has changed the nature of retail business competition. A generation ago, the primary competitors of a small retail business were other small businesses in the same city. secondary competitors included larger businesses in the general geographic area, within a few hours' drive. Today, however, small businesses compete directly against enormous national chain stores, as well as huge Internet-based and telephone-order businesses. Many local establishments have been forced out of business by competition from unfamiliar companies located in parts of the world they have never seen, which offer products and services at prices the small companies cannot match. Others have lost sales and profitability when large national chains have moved into the area. As Gillette (1998) observed, Small 'mom and pop' businesses across the country have found it tough to compete with Wal-Mart, with resulting closures causing a ghosttown atmosphere in some downtown areas. Yet in this time of increased competition, some small businesses manage not only to survive, but to thrive. How do they do it? What strategies do these businesses employ? Are there specific strategies that are common across successful small businesses from which we may draw inferences and theories? Prior research provides only limited answers to these questions. While a wealth of literature is available on business strategy, the bulk of it focuses on large companies. Similar research examining small businesses is much less abundant. Moreover, the limited amount of research that does exist largely fails to pinpoint specific strategies used by small retailers who successfully compete against national discount chains. A few studies in the 1980's and early 1990's addressed small business strategy from the perspective of Porter's (1980) three macro strategies: cost leadership, differentiation, and focus. Much of this research recommended that because large firms have natural advantages in cost leadership and/or differentiation, small businesses should pursue a focus (niche) strategy, competing on customer service, product specialization, and product customization, rather than on price (Covin & Covin, 1990; Watkin, 1986). However, more recent research has seemingly contradicted this prevailing wisdom, finding that small merchants respond to mass-merchandisers' competitive pressures by placing greater emphasis on lower prices and increased promotional activities (McGee, 1996) and that aggressive pricing strategies are positively associated with performance among small retailers affected by the entry of a large discount chain (McGee & Rubach, 1997). Other early studies on small business strategy (e. …