Small Retailers: A Dilemma For Tech Services Providers

A couple of weeks ago, I shared some thoughts about the struggles of small town retailers, along with some recent data from RSR’s E-Commerce study that indicated that small retailers place far higher hopes on digital than the largest retailers do as a way to secure their futures. While that may seem a little counterintuitive (after all, the largest retailers have the most wherewithal to develop the digital side of their selling environments), the smallest retailers see digital as a way to make the shopping experience more enjoyable for their consumers, and thus insulate themselves from large impersonal competitors that otherwise could crowd them out with their big assortments and super-low prices.

But bridging that hope with reality isn’t so easy. The problem for small merchants is that it’s hard for them to find technology services providers that are focused on very small enterprises and that they can afford. In my piece, I concluded that, “despite small operators’ high hopes for a digitally-enabled tomorrow, they are completely in the dark about how to go about making that dream a reality”.

In A Different Place

The differences between the expectations of large vs. small retailers when it comes to digital selling are further exposed in the responses to RSR’s soon-to-be-published study on Mobile in Retail. For the study, our definition of small is much broader than the E-Commerce data that I shared a couple of weeks ago (<$250M in annual revenue compared to <$5M), but directionally the results are still instructive.

For example, when we queried retailers about the top three business challenges related to mobile, the largest retailers (>$5B) expressed their greatest concern about “consumer privacy concerns over how retailers collect or use data”. Retailers in the less than $250M group don’t even get there; instead their top concern is that “consumers expect to use mobile as part of their shopping experience and we need to be there”— far more than the largest retailers do (78% compared to 47% rated this as a top challenge). I suspect that the reason for this difference is simply because large retailers already have mobile solutions in place, and smaller retailers don’t. What reinforces that line of thinking is another difference in the responses: while over ½ of the largest retailers express a concern that “we’re seeing significant online traffic from mobile sources and need to respond”, only ⅓ of smaller retailers worry about that, while twice as many smaller retailers are concerned that “we don’t know what the customer perceives as valuable in a mobile offering” compared to the largest retailers.

The inference is pretty clear — the larger the retailer, the more likely it is to have something in place that is already delivering a digital experience, whether or not the retailer (or the consumer) is happy with it. Small retailers are just in a whole different place — they know they need to do something, but they don’t what it is or know how they can afford it.

Avoiding The Urge To Go Toe-To-Toe

I remember very clearly when Walmart came into our West Coast marketplace. We obsessed about how much market share the Arkansas giant was going to pull from us, and had models (based on sad experience in some of our outlying districts) of how long they would continue to pummel us with their everyday low prices before we:

  1. closed a store, or
  2. figured out how to differentiate from them.

One day, our Chairman of the Board, who could sometimes be irritatingly Yoda-like, said, “the answer is simple; figure out what they are doing, and then do the other thing!”

It turns out that that guy was pretty smart — that’s what smaller retailers are trying to do with digital. In the upcoming mobile study, the response data shows that the big guys like the idea of downloadable apps that offers consumers advanced search and selection capabilities, competitive price checks, and the ability to schedule instore pickup for digital orders. The small guys? They just want to give consumers redeemable digital coupons. But smaller retailers are also much more interested than the largest retailers in giving employees enough good information to better assist customers. That makes sense too; after all, the largest retailers probably assume that their employees won’t stick around too long, while many of the smaller operators are, if not actual owners of the business, at least emotionally invested in it.

And that’s the difference that the data seems to be leaning towards. Smaller retailers want to give consumers and owners/employees just enough to help in the interaction between retailer and consumer. They aren’t trying to over-complicate the value offer, just bring it up-to-date. The biggest retailers want to use digital as the ultimate in self-service to overcome what is otherwise a pretty bland service offering.

The Challenge For Technology Services Providers — And The Opportunity

There’s still the question: which technology companies can help these small retailers reach their goals? The survey response data suggests that smaller retailers:

  1. don’t have a lot of money to put down, and
  2. are concerned that the “mobile” world is changing too fast for them to invest now.

But ironically, it’s also the smallest retailers who are most interested in a streamlined technology platform.Streamlined means not a lot of bells and whistles in this case, and it also means an E-Commerce website that is responsive to different (read that: mobile) form factors. The largest retailers still prefer fancy stuff: downloadable mobile apps, beaconing, NFC for payments, etc.

The technology services company that can crack that floor between mid-sized and small retailers on a large scale could have a lot of fun. While there are Silicon Valley-style startups like San Francisco’s Bizness Apps focused on the small business space, large technology providers largely ignore that group of retailers, because it just doesn’t fit well into their sales models.

That seems like a serious oversight; according to the National Retail Federation, “the overwhelming majority of retailers are small businesses, with more than 98 percent of all retail companies employing fewer than 50 people”.