5 Recession-Driven Opportunities
While the current recession poses many challenges to pet specialty retailers, it also presents some clear opportunities.
Clearly, the current state of the economy is a source of angst for retailers of every ilk, and for good reason. Navigating through what billionaire Warren Buffett describes as an “economic Pearl Harbor” is an undertaking fraught with peril–even for the pet specialty trade, which has built a reputation for being somewhat recession resistant.
While it can be all too easy for business owners to see gloom and doom behind every door in this type of selling environment, it’s important to keep a positive outlook. The recession is having a profound effect on every industry–many of which have been hit much harder than the market for pet products–and this pervasiveness is creating some real opportunities for retailers who are brave enough (and healthy enough) to take advantage.
There are five areas, in particular, where pet store owners and operators may find that the recession has opened new doors: real estate, advertising, construction/remodeling, staffing and local competition. While each of these areas brings its own set of opportunities and challenges, a common thread runs through most. The current state of the economy has made this a buyer’s market, and retailers who are willing and able to leverage the value they bring to the table as a prospective client, tenant or employer can position themselves for success once the economy recovers.
Opportunity #1: Commercial Real Estate Bargains
As we have all seen, the U.S. is facing a big crisis when it comes to real estate. Some experts estimate that home prices have plummeted as much as 27 percent over the past several months, and the market for commercial real estate is not fairing much better.
Commercial real estate prices–particularly when talking about retail space–are being driven down by simple case of supply and demand. On one side of the equation, there is a softening of demand for these spaces, as the recession has slowed the entry of startups and the expansion plans of established retailers. Add to this the unfortunate fact that economic pressures are driving a startling number of retailers out of business, thus increasing the amount of retail space available, and the result is a real estate market that puts buyers and renters firmly in the driver’s seat.
“If a retailer needs new space, now is the time to make a deal, because landlords are a lot more receptive to discounts, such as free rent up front,” says Richard J. Amstater, partner, RJL Real Estate Consultants, in El Paso, Texas (www.rjlrealestate.com). “Developers are being a lot more aggressive because they don’t want empty space. This benefits local and regional retailers who are doing well but couldn’t afford to compete with national retailers for prime locations and brand-new buildings before.”
Of course, a retailer will not find the same deals in every shopping center. “It really depends on how successful that mall has been,” says Amstater. “If it’s pretty much full, you know the landlord has greater options and doesn’t have to make as many concessions. But if you’re looking at a strip shopping center with a lot of vacancies, the retailer has a lot more leverage.”
A retailer doesn’t necessarily need to relocate or open up a new store to benefit from the current commercial real estate market, though. There may be savings available in a pet store’s current or expiring lease.
“We’re seeing retailers taking advantage of the climate by going back and asking for rent reductions,” says Amstater. “Maybe it’s asking for additional extensions, or renegotiating their option rent, or taking out percentage rent, there are a lot of things that retailers can do to improve their situation.”
Whether a retailer is considering a move to a new location, the addition of a store or the renegotiation of a lease, it would be a mistake to assume that the bargains will be around forever. “It’s a cycle,” adds Amstater. “What you’re going to see is a slowdown on new construction, which will give developers an opportunity to fill their space without competition. In a year or two, when a lot of new construction projects are put on hold and not built, then the market will firm up and the vacancy rate will decrease.”
Opportunity #2: Affordable Construction/Remodeling
Another area that has been hit hard by the recession is the construction industry; and that spells savings for retailers who are interested in remodeling their stores. In addition to lagging demand, declining materials costs are making it more affordable than ever for a small independent retailer to make significant changes to their sales floor, says Jerry Birnbach, F.I.S.P., principle, RDD Associates Inc., a New York-based retail design firm (www.rddassociatesinc.com).
“Freight companies are dropping the surcharges that were in existence because of [rising oil prices in 2008] and steel prices have also dropped,” he says. “I’ve seen several downward price changes because of that.”
But Birnbach is quick to note that every area is going to have different dynamics when it comes to the impact that the recession is having on the building industry. “Go out and really shop,” he suggests. “Talk to two or three [different contractors] and really work them over. Say to them, ‘I’ve got this quote, can you beat it?’”
The key here is in making sure that you’re comparing apples to apples, which tends to be a big problem when it comes to pricing out construction. “The only way you can level the playing field is by getting a real set of drawings that will define all of the work that needs to get done,” notes Birnbach. “This way, the retailer knows that all of the contractors being considered are bidding on the same thing.
“It’s an area where novices can really get clobbered. You may only get one shot at this thing. Get a professional [consultant]; the fee will pay itself back three times over in their ability to buy it better, come up with a cheaper solution, and have the real desired effect on the bottom line.”
Birnbach also notes that pet specialty retailers can find great deals on store fixtures today. “There are tons of stores going out of business, which means there are a lot of store fixtures available,” he says. “There are vacated stores full of lighting and other fixtures that are going to end up getting sold for ten cents on the dollar.”
While the help of a good consultant will go a long way in helping to root out bargains on store fixtures, retailers can easily find attractive deals via the Internet. In fact, a simple Google search for “used retail store fixtures” brings nearly a half-million results.
An investment in a major store remodel will be all for naught, however, if a retailer does not couple it with a sound merchandising plan. “If their [merchandising strategy] is broken, they can do all the remodeling they want, but it’s not going to affect the bottom line,” Birnbach says. “The bottom line is going to be affected by creating a store environment that’s appealing and is maximizing its space to get more products sold.”
Opportunity #3: Declining Advertising Costs
Advertising is another area in which pet specialty retailers can find some recession-driven bargains. As big corporate advertising budgets shrink or are put on hold, new opportunities are opening up for smaller companies, which could not have competed with the big spenders of the past.
“There’s a ton of opportunities out there for companies that have elected to continue being proactive,” says Tim Lord, a sales associate with Capitol Media Solutions, an Alexandria, Va.-based full-service advertising agency. “It’s a buyer’s market for everything right now. If you have money and you’re comfortable in your economic situation, I’m sure you can secure a sweetheart deal.”
To illustrate his point, Lord mentions the new breed of mini-infomercials that have been popping up across the television dial. “On television you’re seeing a preponderance of small, quirky infomercials during prime time,” he says. “Normally, you would have only seen those in the wee hours on some obscure little channel, not during primetime on a major network.
“The reason that they are able to be featured on a major network during prime time, is because some of the larger, more routine advertisers are on the sidelines. They have been placed in slots that ordinarily they either wouldn’t be able to afford or simply wouldn’t have the opportunity to purchase.”
Of course, the attractiveness of television advertising will depend on how big of an audience a prospective advertiser is looking to reach, as well as the programmer’s ability to reach that audience without a lot of overkill–after all, there’s no reason to spend money on advertising to consumers who will never visit your store.
However, other media platforms, which specialize in reaching local and regional audiences, are also feeling the pinch of declining ad revenues and offering up some attractive incentives to clients. For example, says Lord, newspapers have been hit particularly hard during this recession.
It’s not just in purchasing media space that retailers can potentially find some great deals; there are also bargains to be had on the creative side. “Most of us in the advertising industry are probably considering doing things that we ordinarily wouldn’t,” says Lord. “We are always considering ways to make deals, whether it’s cutting a cost here or cutting a cost there, or reducing this or improving that.”
While all of the deals going around in the advertising industry may seem too attractive for a retailer to pass up, it is essential that any prospective ad campaign be approached with careful consideration to ensure that it makes the most efficient use of the store’s marketing budget.
“In today’s environment, you have to be much more thoughtful and do your due diligence,” says Lord. “Take your time and really evaluate each opportunity, and then work the one or two opportunities that you’ve selected as fully as you can.”
Opportunity #4: A Deeper Staffing Pool
While rising unemployment rates have most retailers worried about the health of their customers’ pocketbooks, they also represent another opportunity during this fiscal crisis. The fact is that professionals from all walks of life are finding themselves out of a job, and many are willing to be flexible in looking for their next source of steady income. This means that the pool of potential store employees has deepened to the point where retailers may be able to attract applicants with considerable work experience and even management skills.
“There’s an abundance of people looking for employment right now,” says Kathy Marie, vice president of Hutch Retail Staffing in College Park, Md. “Many more-qualified people are taking lower level positions just to have an income. People will declassify themselves all the way down to $10 per hour, from the 20s, because they’ve got to make that mortgage payment.”
Of course, the more attractive a retailer can make the terms of employment, the higher the level of talent they will be able to attract. For example, offering a full-time position that comes with benefits can be great point of differentiation for a prospective employer, says Marie.
“A lot of people are doing multiple part-time jobs right now because it’s so difficult to find full-time jobs,” she explains. “This is a losing situation for the employees, because they have no benefits. Right now, people are looking for the benefits more than a certain per-hour salary.”
Whenever a retailer considers hiring someone who’s overqualified for a position, it’s only natural to be concerned about how long they’ll be able to retain that person on the store’s staff once the economy recovers. This, says Marie, shouldn’t necessarily be a concern.
“Depending on the structure of company and the specific location, you can get somebody that’s overqualified and you can work with them so that they know the ground-level work; and hopefully by the time the economy recovers, they’ll be ready to move forward to a management position, which will potentially bring a salary that’s more in line with what they think they should be making.”
What about the potential difficulty of managing someone who is used to being the manager? Again, Marie says it may not be as difficult as one might imagine.
“Having too many chiefs and not enough Indians can cause a problem,” she admits. “But overall, I would say [an employee’s management skills are] going to be an asset. Most ex-managers, when in a layman’s position, will have enough respect for their manager to listen, watch and do. And hopefully there will be opportunity to grow in their position.”
As with most endeavors, success or failure in assimilating high-level talent into a store’s staff will depend on the unique circumstances of the situation. But with pet retailers always on the lookout for dependable employees and many hard-working people looking for a paycheck today, Marie sees it as a clear “win-win” for all parties involved.
Opportunity #5: Thinning Competition
It may be a morbid thought, but the fact of the matter is that the current recession is thinning the herd of pet product retailers. While some pet store owners will likely see this as a foreboding reminder of the precariousness of their business’ long-term success, more optimistic retailers will see the dwindling competitive field as an opportunity to step in and grow their market share.
According to Anne Obarski, director of Merchandise Concepts, a St. Charles, Mo.-based retail consulting firm, while a pet retailer can learn a lot from a shuddered competitor’s mistakes, a close look should also be given to what those failed stores did right. “If you know of competitors who have fallen by the wayside, look at what their drawing card was and set yourself up to fill that new void,” she notes.
Whether it’s fresh-baked treats at the front counter, eye-catching window displays or some type of in-store event, there is bound to be something that a closed store’s former customers are going to miss; and incorporating these popular elements into the store is sure to help attract shoppers who are looking for a new destination for their pet-related purchases.
However, Obarski does offer a word of warning about going overboard in trying to be all things to all customers–particularly when it comes to product selection. “Letting inventory become too wide and too deep can kill a retailer,” she says. “Turnover slows and prices get too high.”
There is also a more direct way to pursue a failed competitor’s former customers. Now, many retailers compile as much information as possible about their customers, as well as their pets; and it is quite possible that a storeowner who is going out of business will be willing to sell that information for the right price. The key, says Obarski, is in what the buyer does with that information once it’s been purchased. It is essential to have some type of plan on how to reach out to these customers to introduce them to the store, whether it’s through direct mail, email or even a phone call.
Ultimately, says Obarski, a retailer’s success in drawing and, more importantly, keeping new customers will rest in the shopping experience provided. This makes it important for specialty retailers to play to their unique strengths–sound advice and a friendly staff. “This is the time to work with the staff to upgrade their knowledge and customer service skills,” says Obarski. “Developing a strong, knowledgeable staff that is efficient, understands the customers, and goes above and beyond is essential.”