by Kenneth E. Stone, Ph.D. Mass merchandisers, particularly the discount general merchandisers such as K Mart and Wal-Mart, aregrowing at a rapid rate and have captured market share from smaller competing firms. It is possible forsmaller firms to survive in such an environment, but substantial changes in operations are usually required.This article gives background information on mass merchandisers, reports the results of an Iowa study onthe impacts of one chain, and offers suggestions to smaller firms on ways to compete in this environment. How the large chains operate K Mart and Wal-Mart are fighting it out to become the number one retailer in the United States, relegatingSears Roebuck to third place. Although both firms have been in existence roughly 30 years, their strategiesand operating methods have varied considerably.  Market Size
K Mart expanded rapidly in its early years, locating in large to mid-sized towns and cities allacross the United States. The company located some stores in smaller towns, but like most nationalmerchandisers, its major market thrust was in the larger towns and cities. However, in recent years(apparently in response to competition from Wal-Mart) the company has been opening stores in moresmall towns. Wal-Mart, on the other hand, initially focussed its stores in the smaller towns of the South and Midwest.The company typically would enter a town with a comparatively large store and usually would become thedominant retailer in town. Wal-Mart's expansion was relatively slow at first. However, starting about1980, the company began working its way toward the East and West coasts in a very aggressiveexpansion program. Its sales grew from $1.2 billion in 1980 to $25.7 billion in fiscal year 1990. In the late1980s, Wal-Mart also expanded its location strategy to include stores in larger metropolitan areas. Thiswas usually accomplished by establishing stores in the suburban areas surrounding the central city. TheWal-Mart Company seems to be using a tandem duo of its largest size store (nominally 110,000 squarefeet) along with one of its Sam's Clubs (its membership wholesale-type store) in this effort. Distribution System Both K Mart and Wal-Mart now have the most sophisticated distribution systemsamong all of the retailers in the world. Wal-Mart led the way in adopting the latest scanner checkouttechnology (a key part of the system), but K Mart has recently made major expenditures in this area andnow has a system similar to Wal-Mart's. Since more has been written about Wal-Mart's distributionsystem, it will be described below. (See January 30, 1989, Fortune and December 14, 1989, DiscountStore News, for example.) The heart of Wal-Mart's distribution system is its distribution center. A typical distribution center is aboutone million square feet in size. It has the latest in state of the art inventory control and materials handlingequipment. A distribution center can accommodate about 150 retail stores and they are located in acircular pattern around it. Most buying is done centrally from the company's headquarters in Bentonville,Arkansas. Merchandise is delivered to the distribution centers and then trucked directly to the retail storesdaily. As customers make purchases, sales amounts and the change in inventory are automatically sent tothe computer by the electronic scanner checkout system. This information is then sent daily via Wal-Mart'sown satellite system to headquarters and to the appropriate distribution center. This daily updating ofinventory allows distribution centers to send the precise amount of merchandise to the stores to maintainthe optimum level of stock. Similarly, the inventory information allows buyers to order ahead and keep the proper amounts of goodsflowing into the distribution centers. According to Discount Store News, about 78 percent of themerchandise sold in Wal-Mart stores comes through the distribution centers. The remaining merchandise isdelivered directly from the factory or through vendors and distributors. The efficiencies generated by this type of distribution system are enormous and play a large role in thesuccess of these large companies. Discount Store News reported that Wal-Mart's distribution costsamounted to only 1.3 percent of its sales, compared to 3.5 percent for a major competing discount chainand 5.0 percent for a major general merchandise chain. In other words, for every $100 worth ofmerchandise sold, the cost of getting it from the factory to the retail store was $1.30. It is not hard to seewhy smaller retailers have such a hard time competing pricewise when their merchandise must sometimesgo through multiple layers of wholesalers and distributors. Pricing Mart and Wal-Mart have two fundamentally different methods of pricing. K Mart has alwaysemployed the weekly sale system, where one or two print ads per week are distributed through localnewspapers and advertisers. These sales flyers feature seasonal items and other popular items at veryattractive prices. This is the system used by most other mass merchandisers. The strategy is to getcustomers into the store on the basis of attractive prices on advertised merchandise. It is then believed thatmost customers will assume that all other merchandise has a low price, and will make purchases withoutcomparison shopping. The weekly sale system has encountered problems over the years. For example, many customers havehad the experience of buying non-sale merchandise only to find it at a lower price at a competing store.One of the biggest problems with the weekly sale system is that often there are quick outages of popularitems. The usual solution to this problem is to offer a "rain check," which in the unhappy experience ofmany shoppers, sometimes seems to disappear down a big black hole. Another problem is difficulty inidentifying the real sale item. Many have been frustrated when discovering at the checkout counter thatthey had picked up the non-sale item. Wal-Mart's system of pricing is the "everyday low price" system. Stores do not depend on the weekly saleincentive, but instead have cultivated the idea that everything is low priced at Wal-Mart every day. Thecompany did not invent the concept, but they have implemented it masterfully. Although Wal-Mart doeshave occasional sales, usually seasonally, the sales do not play a large role in their pricing strategy.Consequently, the company apparently spends less on print advertising than its competitors. Televisionadvertising plays a large role in Wal-Mart's marketing strategy and virtually every ad features everydaylow prices. Through advertising and word of mouth, the company has developed a strong reputation forlow prices. Many people strongly believe that everything is, in fact, lower priced every day. People whocarefully comparison shop have found that everything is not at the lowest price at Wal-Mart everyday.However, perception is more important than reality, and most people perceive that nearly everything has alower price at Wal-Mart. Merchandise mix K Mart, Wal-Mart and other discount general merchandise stores try to promote theconcept that the average shopper can find most of his or her everyday needs under one roof at the lowestprice possible. Much of the merchandise in these types of stores is, in fact, aimed at lower incomeconsumers. In many states, approximately one half of the households have disposable incomes of less than$20,000 per year, according to Sales and Marketing Management's 1990 Survey of Buying Power.People in this income category seldom have much discretionary income and most gravitate to stores wherethey perceive they are receiving the best value for the dollar. Although this segment of the populationappears to be the primary target market of the major discounters, surveys have shown that many middleincome shoppers also make purchases in these stores (see December 14, 1989, Discount Store News). five star hotel in OostendeWal-Mart claims to have 36 departments in most of its stores. This is a wide variety of merchandise andby necessity would include primarily fast-moving, popular items. It appears that many shoppers have beenacclimated to shopping first at the discount mass merchandisers, purchasing what they can there, andthen concluding their shopping trips at specialty stores where they purchase the remaining items on theirshopping lists. Service Most of the discount general merchandise stores offer minimal service as a means of reducingexpenses and maintaining lower prices. The most noticeable lack of service is in the area of experttechnical advice. Most of the people working in the departments of these stores are primarily concernedwith stocking shelves and few have enough product knowledge to offer expert advice. There may be someexceptions in such areas as sporting goods, jewelry, pharmacy, etc., where employees are routinelybehind a counter selling, rather than stocking. Other services normally lacking in these types of stores are gift wrapping, in-store credit, delivery, specialorder, special classes, etc. However, many customers seem willing to forego these types of services inreturn for lower prices. The Iowa study It is important that smaller retailers know the probable impact of a discount mass merchandiser onbusinesses in their community. Armed with this knowledge, they are in a much better position to makestrategic decisions concerning their business. The Iowa study was conducted in order to document whathappened after a Wal-Mart opened in towns of 5,000 to 30,000. The latest study shows results throughfiscal year 1989. Some people ask, "Why Wal-Mart? Why not K Mart or Target?" The answer is that Wal-Mart was theonly chain aggressively expanding in the state during a time period when sales tax records were availablefor analysis. The results of the study do not prove causation, but strong correlations should be takenseriously. Data sources Iowa Retail Sales and Use Tax Reports were used to document the sales levels of hosttowns and other towns before and after Wal-Mart store openings. The reports list the sales levels for alltowns with at least 10 business firms. For towns over 2,500 population, the reports also list sales by a twodigit Standard Industrial Classification (SIC) code, providing there are at least five such businesses in acategory. For example, sales are listed for categories such as building materials, general merchandise,food, apparel, etc. Town population figures are central to this study and were taken from the latestestimates of the United States Census Bureau. Pull factor analysis The raw data in these retail sales time series are based on current dollar sales. Currentdollar figures are not a very satisfactory way of analyzing the trends for towns in a state. They do notaccount for price inflation, population changes or changes in a state's economy. The current dollar saleswere converted to pull factors in this study to provide a more equitable basis for comparison. The pullfactor is defined below. PF = PST / PSS Where: PF = Pull Factor
PST = Per capita Sales for Town
PSS = Per capita Sales for the State For example, if a town had per capita sales of $9,000 per year and the statewide per capita sales were$6,000 per year, the pull factor would be $9,000 divided by $6,000 = 1.5. The interpretation wouldindicate that the town was selling to the equivalent of 150 percent of the town population, in full-timecustomer equivalents. In other words, the pull factor is a proxy measure for the size of the retail trade areaof the town. When data are available, pull factors can be computed for the different merchandisecategories within a town and for the total sales of the town. Comparison techniques In this study, pull factors were computed for total sales for all towns in the statesince the establishment of the first Wal-Mart stores in 1983. Pull factors were also computed for eightmerchandise categories for towns over 5,000 population. It would have been desirable to compute pullfactors by merchandise categories for towns between 2,500 and 5,000 population, but many of them haveless than five stores in a category and consequently no sales are reported because of statutoryconfidentiality rules. For each Wal-Mart town, pull factors were established for the year preceding the opening of theWal-Mart store and for each year since. These were compared to the average pull factors fornon-Wal-Mart towns of a similar size (between 5,000 and 30,000 population) and to pull factors forlarger towns (over 30,000 population) for the same time periods. Comparisons were also made to thetotal sales pull factors for towns below 5,000 population in the same time period.The net result is a broadlook at the change in trade area sizes for stores in different merchandise categories in the host towns and inother competing towns. It cannot be stated conclusively that Wal-Mart stores caused all the changes intrade area size, since other variables are always interacting to cause changes. However, when significantchanges are seen to be consistently correlated with the opening of Wal-Mart stores, one can draw solidconclusions in spite of the lack of more sophisticated statistical techniques. Findings The study found bothpluses and minuses for the merchants in the host town. The major plus for most businesses was that invirtually all cases, total sales in the town increased at a rate greater than average for the state. Apparently,Wal-Mart stores attracted customers into town from a greater radius than had occurred before their entryinto town. Two simple rules of thumb explain the winners and losers among host town merchants. Table 1: Sales Change in Wal-Mart Towns versus Same Size Towns (% cumulative) | Business Type | Wal-Mart Towns
After Years | Same Size Towns*
After Years | | | 1 | 3 | 5 | 1 | 3 | 5 | | Building Materials | -6.3 | -6.5 | -5.1 | -4.7 | -7.1 | -10.4 | | General Merchandise | 29.1 | 39.5 | 58.8 | -0.6 | -4.2 | -1.9 | | | | Food | -4.7 | -4.1 | -12.1 | 1.6 | 5.5 | 7.8 | | Apparel | -2.7 | -6.2 | -5.1 | -3.5 | -5.8 | -11.5 | | Home Furnishing | 2.9 | 5.2 | 4.2 | -5.1 | -12.2 | -18.9 | | Eating & Drinking | 0.8 | -0.8 | 2.4 | -0.7 | -1.5 | -0.8 | | Specialty | -5.7 | -12.1 | -19.7 | 0.1 | -5.4 | -9.9 | | Services | -5.6 | -7.9 | -6.8 | -3.5 | -9.5 | -14.2 | | TOTAL SALES | 2.3 | 3.1 | 8.1 | -0.7 | -3.5 | -4.9 | * Did not have a Wal-Mart store. Rule 1 Merchants selling goods or services that Wal-Mart doesnot sell become natural beneficiaries. In other words, since theyare not competing directly, many of them benefit from the spillover of the extra customers being pulled into town by Wal-Mart. Rule 2 Merchants selling the same goods as Wal-Mart are injeopardy. In other words, they are subject to losing some tradeto Wal-Mart unless they change their way of doing business. A basic premise lies at the heart of this study. The premiseis that in areas of relatively static population (such as instates like Iowa) the size of the retail "pie" isrelatively fixed in size for a given geographical area. Consequently, when a well-known national chain like Wal-Mart opens alarge store in a relatively small town, it invariably willcapture a substantial slice of the retail pie. The end result isthat other merchants in the area will have to make do withsmaller slices of the retail pie, or get out of business. Inareas of the country where the population is growing rapidly,there is room for more retail establishments and the effect willbe diluted considerably. Table 1 compares the cumulative real percentage change inretail sales for businesses in Iowa Wal-Mart towns to those ofbusinesses in the same size non-Wal-Mart towns. It should benoted that this data is reported by type of store and not byexact lines of merchandise. Host towns (Wal-Mart towns) As shown in Table 1, there arewinners and losers among merchants in a host town after aWal-Mart store locates there. Data were available for 17 townsthat had a Wal-Mart store for at least one year, 14 towns thathad one for at least three years, and five towns that had one forat least five years. Caution should be used in interpreting thefive-year figures since the sample is so small. Winners The general merchandise category shows the greatestgains in sales after a Wal-Mart store opens in a town. However,it will be shown later that most of this gain is by the Wal-Martstore and, in fact, the competing general merchandise storesusually sustain a loss of sales. The home furnishings category shows a real net gain of 5.2percent after three years. This category consists of furniturestores, major appliance stores, floor covering stores, draperystores, etc. Neither Wal-Mart nor most of the other discountgeneral merchandise stores handle much of this merchandise,therefore these merchants are the natural beneficiaries referredto in rule of thumb 1. Eating and drinking establishments fluctuate between slightgains and slight losses after a Wal-Mart store opens. My studylast year showed larger gains in these types of firms. It wasconcluded that because more customers were coming into town, somewere staying long enough to consume meals. Other non-competing businesses spanning a wide gamut couldalso benefit from the additional traffic brought to town by aWal-Mart store. Losers As shown in table 1, the specialty category of storesshows the greatest reduction in sales with an average realdecrease of over 12 percent after three years. Specialty storesencompass a great number of stores such as drug stores, sportinggoods, card and gift shops, fabric stores, jewelry stores andothers. Many of these stores would be competing head to head witha major department within one of the major discount stores.Building materials stores lost an average of 6.5 percent of theirsales after three years. The building materials category consistsprimarily of lumber yards, hardware stores, and paint and glassstores. Most of the evidence points to hardware stores sufferingthe brunt of these losses, since they are selling many of thesame items that the discount stores carry. Apparel stores suffered sales reductions of 6.2 percent afterthree years. The apparel category consists of various clothingstores and shoe stores. It is usually assumed that most of thesesales reductions occur among the stores selling low endmerchandise. Food stores (grocery stores) also show an average 4.1 percentreduction in sales after three years of Wal-Mart operation. Thisis a surprise to many people. An analysis of purchases in Iowafood stores shows that between one quarter and one third of thepurchases in grocery stores are non-food items, such as healthand beauty aids, cleaning supplies, paper products and petsupplies. It appears that many consumers merely transfer thepurchase of these types of items from the grocery store to anearby discount store. The services category shows a sales reduction in both Wal-Marttowns and similar size towns without Wal-Mart stores. Thiscategory is weighted heavily by hotels/motels, theaters, etc.When compared to the cities, it appears that these types ofbusinesses are declining in most smaller towns. Total sales for towns with Wal-Mart stores were up acumulative 3.1 percent more than the state average after threeyears. Same size towns Over 30 towns with a population in the 5,000and 30,000 range, where there was no Wal-Mart store, wereanalyzed for the same years and in the same manner as were theWal-Mart towns. The results are shown below. Winners The same size towns (5,000 to 30,000 population) inthe state without Wal-Mart stores showed gains of 5.5 percent infood store sales after three years. This was the only category toshow gains. Over one third of the grocery stores in the statehave gone out of business in the last 12 years. These failureshave occurred mainly in towns that had fewer than 1,000 people.When a small town loses its grocery store, residents then have totravel to a nearby larger town to shop. The towns in the 5,000 to30,000 population class have been the primary beneficiaries ofthis additional grocery trade. Losers Home furnishings stores suffered the largest losses oftrade. There has been an ongoing trend of more and more homefurnishings trade going to bigger cities. Specialty stores in the non Wal-Mart towns suffered some lossof sales (5.4 percent after three years), but not nearly as muchas the Wal-Mart towns. Other types of stores in the non Wal-Mart towns sufferedroughly the same percentage losses of sales as did the Wal-Marttowns. Total sales, however, were nearly a mirror image and weredown 3.5 percent after three years of Wal-Mart competition. Netting out sales To get a better idea of the internal impactof a Wal-Mart store on a host town, it is useful to "netout" the sales. Basically, this means making an estimate ofthe Wal-Mart store's sales. It was estimated that for the averagetown in Iowa, Wal-Mart sales were $13 million last year. Figure 1shows the netting out process based on this estimate and actualsales changes for all other businesses. Based on Figure 1, the following conclusions can be made: - If the Wal-Mart store had sales of $13 million and the totalsales of the town only increased by $4 million, then there hadbeen a total reduction of sales in the town of $9 million forexisting merchants.
- If the Wal-Mart store had sales of $13 million and the generalmerchandise category (of which it is a part) increased by only $7Million, then existing general merchandise dealers suffered salesreductions of $6 million.
- If general merchandise stores accounted for $6 million of thetotal $9 million reduction, then the net reduction in sales forother existing merchants must have been $3 million.
Small towns Four smaller towns within a 20 mile radius ofeach Wal-Mart town were compared to all other similar size townsfurther away from Wal-Mart towns. Figure 2 on page 39 shows theresults over four years. It is fairly obvious that nearby smalltowns lose trade more rapidly than other towns. After four years,the towns within a 20-mile radius of a Wal-Mart store hadcumulative net sales reductions of 23.5 percent while the samesize towns much further away had sales reductions of only 10.8percent. Larger cities At the time of this study, there were noWal-Mart stores in cities above 50,000 population in Iowa,although they are currently entering. There were only two areaswhere the cities appeared to be affected by Wal-Mart stores inthe surrounding areas. General merchandise sales were down nearly7 percent and grocery store sales were down nearly 3 percentafter three years of Wal-Mart stores. The apparent major reasonfor these reductions is that local residents have to make fewertrips to the cities to shop. Strategies for co-existing in a discount mass merchandiserenvironment Many small retailers will need to develop new businessstrategies after a Wal-Mart store or other discount massmerchandiser opens in their area. The following suggestions arebased on extensive observations in Iowa and study of situationsin other states. Attitudes and actions In general it is best to take a positiveattitude toward the opening of a new mass merchandise store inyour area. The following thoughts are offered in this regard. Ina free enterprise economy, all firms are free to compete.However, local officials should be careful not to offer undulygenerous incentives to large firms that could place smaller firmsat a disadvantage. Recognize that a discount mass merchandise store will probablyenlarge your town's retail trade area size. Try to figure outways to capitalize on the increased volume of traffic to town. It is possible to co-exist in this type of environment. You may need to change your methods of operation as describedbelow. Merchandise tips The following suggestions are offered withregard to merchandise mix. - Try not to handle the exact samemerchandise. For example, at least three of the largest massmerchandisers sell a particular brand of men's jeans for around$10. I have seen cases where smaller merchants sell the samebrand jeans for $14. Customers automatically detect that thesmaller merchant is 40 percent higher priced and often assumethat everything else in the store is 40 percent higher. A betterstrategy would be to sell another brand that is not directlycomparable.
- Spanien HotelsSell singles instead of pre-packaged groups. Mass merchandisersoften sell pre-packaged merchandise that contain multiple items.Customers often need only one item. Independent merchants canoften meet these needs by unbundling packages and selling itemsas singles. For example, a crafts store may gain new customersand make more profit by selling singles of various supplies suchas templates, paint brushes, etc. Try to handle complementarymerchandise. In many departments (such as hardware, electrical,plumbing, lawn and garden) the mass merchandisers handle onlyfast-moving merchandise. Astute competing merchants should expandtheir lines to be more complete than their giant competitors.Customers will soon learn to go directly to the more completestore if their needs are out of the ordinary. For example, acustomer building a back yard storage shed requiring 15 pounds ofnails and 100 bolts will be sadly disappointed if he or she shopsat a discount general merchandiser and finds only smallpre-packaged assortments. Their needs will be much better met bya hardware store that has a wide assortment of these items inbulk quantities.
- Look for voids in the mass merchandiser's inventory. For example,most discount general merchandisers do not handle thehigher-priced name brand athletic shoes desired by so many peopletoday. A smart competing sporting goods dealer would handle afull line of better athletic shoes. Consider upscale merchandise.Not all customers desire or demand lower-priced merchandise. Forexample, there are cases of smaller children's wear stores whichprosper in the shadow of a discount general merchandiser bycatering to the tastes and preferences of middle-to-upper incomeclientele and to the "grandparent trade" where money isoften not as much of a factor.
- Find a niche that you can fill. Smaller merchants can oftensucceed by merely finding the various voids in the massmerchandisers' inventory and filling them as described above.
Marketing tips There is always room for improving marketingpractices. The following tips are offered to merchants regardlessof their competition. - Extended opening hours are a necessity! Lifestyles havechanged dramatically in the last generation. Now it is quitecommon for a household to have multiple wage earners workingoutside the household. Most of these people simply cannot get tolocal stores that stay open only from 8:00 a.m. to 5:00 p.m.Downtown merchants and other independent merchants cannotseriously compete in this environment unless they cooperate andoffer similar convenient opening hours.
- Look for ways to improve your returns policies. Most massmerchandisers have very liberal returns policies. Unfortunately,many smaller independent merchants cannot offer comparablepolicies because of their lack of leverage with major suppliers.In the long run, they need to work through trade associations andbuying groups to achieve comparable leverage with suppliers. Inthe short run, they need to use common sense. For example, if acustomer purchases a piece of lawn equipment in May and brings itback shortly because of a malfunction that required factoryrepair, the dealer would be well advised to give the customer anew replacement immediately (or at least offer a loaner) untilthe repaired item is returned. I know of a case where thecustomer was left empty-handed until the repaired item finallycame back in August. Needless to say, he was not happy.
- Sharpen your pricing skills. (Eg; lower prices on items thatpeople purchase frequently.) It is my contention that manyconsumers do not know the "going price" of much of whatthey buy. They tend to know the price of the things they purchasefrequently, or the things they have seen advertised recently.Discount mass merchandisers recognize this and tend to focustheir lowest prices on these items. The average consumer thenassumes that prices on all other items must also be less.Conversely, many local merchants have gotten a "badrap" on price image when they have not been careful inpricing some of the "hot items." Independent merchantsneed to determine which items customers tend to know the price ofand make special efforts to keep these prices competitive.
Focus your advertising. Stress your competitive advantage. Everybusiness must have one or more competitive advantages in the eyesof the customer in order to succeed. For example, Searsestablished a huge competitive advantage when it adopted"Satisfaction Guaranteed" many years ago. WithWal-Mart, "Everyday Low Prices" is a strong competitiveadvantage. Large firms incorporate these competitive advantagesinto nearly every advertisement. Unfortunately, many smallermerchants do not get their full money's worth from their adsbecause they often fall to promote their competitive advantages.For example, a drug store with 24-hour prescription service andfree delivery ought to incorporate those facts into every ad.Likewise, an apparel store that features special orders andin-store credit should stress those features in its ads.
Service tips Superior service can become an importantcompetitive advantage for many smaller businesses. Large chainstores usually don't have the flexibility to offer many of theseservices. - Emphasize expert technical advice. It Is difficult to findworkers in discount mass merchandise stores who know themerchandise. There are many examples of smaller merchants whobuild a loyal clientele because they are able to help customersanalyze their problems and help them find the right tools,supplies and equipment.
- Offer deliveries where appropriate. A certain segment of ourpopulation has a need for the delivery of prescription drugs orheavy equipment. Typically, mass merchandisers cannot respond tothese needs. Some smaller merchants can carve out a certainmarket share by offering delivery service.
- Offer on-site repair of certain items. Nearly everyone has a needto have some item repaired or serviced occasionally. Largerdiscount stores usually cannot readily provide this service.Independent merchants can draw a substantial volume of trade totheir stores by providing repairs and service of merchandise.
- Develop special order capability. It is not possible formerchants to carry every conceivable item in inventory. However,they can make arrangements with certain suppliers or cooperatingpartner stores to priority ship needed items. Fax machines andexpress delivery services are making this feasible today. Soinstead of letting a customer walk out the door when an item isnot inventory, it is better to say, "I'm sorry I do not haveit in stock, but I can get it for you in two days."
- Offer other services as appropriate. Independent merchants candevelop many loyal customers by offering "how to do it"classes, gift wrapping, rentals of items that will boost sales ofcollateral merchandise, etc.
Customer relations tips In past years, small businesses hadthe reputation of excellent customer relations. However, nowadaysmany consumers perceive that they are treated no better in smallfirms than in larger ones. Research has shown that poor customerrelations is the primary reason that customers quit doingbusiness with a store. The following suggestions are offered forall businesses. - Make sure customers are "greeted. "According to surveys in Iowa, customers are very offended by thefailure to be greeted or acknowledged when entering a store. Thisis particularly true when the customer is in a buying mood. Allstore personnel should be trained to greet customers.
- Offer customers a smile instead of a frown. All customers preferto do business where they are treated in a friendly manner.
- Make employees "associates." Firms like Wal-Mart and J.C. Penney call their employees associates and treat them as partof the team. Independent merchants can emulate this. Regularstore meetings could be held where everyone can participate inplanning and problem solving.
- Solicit complaints. Many times customers have a bad experience ina store, but they are reluctant to complain to store personnel.Instead, they complain to other people. Good merchants wouldrather hear of the complaint first so they can find a remedy.They can provide an environment where customers feel comfortablein complaining by soliciting complaints through ads, throughsigns at the checkout counters, and by signs on shopping bags.
- Train employees often. In the eyes of the customer, the employeeis the business. Training employees can have one of the highestpayoffs of any investment in the business. Training is availablethrough Small Business Development Centers, university extensionservices, community colleges, parent companies, franchisors, andothers. Also, there is a wide array of video tapes availabletoday where training can be conducted in the store.
Summary and conclusions When a discount mass merchandise store opens in a small-tomedium-size town with little population growth, there will beboth positive and negative effects. The total retail trade areasize will expand. There will be some beneficial "spillover" sales that accrue to some firms (primarilyrestaurants, home furnishings stores, building materials firms,and other noncompeting firms). However, other existing merchantsmay suffer losses of sales unless they make adjustment to competein the new environment. In Iowa, competing general merchandisefirms have suffered the greatest losses, while specialty stores,service firms, and apparel stores also suffered substantialdecreases in sales. Towns of a similar size without a large mass merchandiser havesuffered sales losses in home furnishings, service firms,building materials, and apparel, that are partially attributableto the discount stores nearby towns. The largest towns and cities continue to gain sales in allcategories except general merchandise and groceries. Since theseare trend reversals, it appears that discount mass merchandisestores are holding customers in the local area to shop forgeneral merchandise to a greater extent than before, therebycausing fewer shopping trips to the city. The smallest towns suffer at the hands of all the larger townsand cities. The best strategy for merchants in these towns is toget back to the basics of running a good business and focus onmaking service a strong competitive advantage. The major conclusion reached from this study and analysis isthat it is possible to coexist in the face of competition fromdiscount mass merchandisers. There are many documented cases ofmerchants surviving and in some cases thriving when operatingagainst such formidable competition. However, most of thesemerchants did not continue business as usual. They made many ofthe changes suggested above, including major changes inmerchandise mix. | 
