A market-share game
From car dealers to gift shops, restaurants to lawn and garden suppliers, Central Mass. independent retailers will continue in 2006 to face the same challenge they grappled with this past year - making sales in a shoppers’ market with more competition than ever before.
Look for new niches, increased services, the ever-present one-day sales, ground-breaking incentives, and more consumer-friendly settings to continue to dominate the retail scene next year, experts and retailers say. As long as consumers have enough disposable income to hit the malls, showrooms, dining rooms and hotels, they’ll get deals in 2006. Smaller, independent retailers are expected to be in the thick of the competition."You may be able to say it’s more of a shoppers’ market than ever," says Robert Sheehan, vice president of research for Finard & Co. LLC, of the current retail climate. "It’s a market-share game."
Retail experts label 2005 an OK year, though not a stellar one. While the critical holiday sales season hadn’t ended at press time, Jon Hurst, president of the Retailers Association of Massachusetts, estimates retail sales to climb 3 to 5 percent this year. Peter Christie, executive director of the Massachusetts Restaurant Association, says restaurants saw a 5 to 6 percent revenue growth in ‘05 but very little profit..
The forecast: more of the same - or perhaps modest improvement - next year, barring any major disasters. Car dealers will continue to struggle with what seems to be a saturated market, malls will keep imitating the village feel of the downtowns they displaced, and restaurants will still strive to keep prices low despite rising costs. Electronics, fast casual dining and the teen-to-20-something market will likely still be hot areas for sales.
Since New England is one of the last regions in the nation to be targeted by so-called big-box retailers, small to medium-size retailers in Central Mass. are still dealing with the affects of their arrival here. Wal-Mart, Target and Lowe’s, will continue to expand here, experts say. While they’ve helped shutter many independent retailers in recent years, many more independents still hold their own in the region, Sheehan and other experts say. The key is finding a niche or a service big-boxes can’t deliver.
A Basket Case:
A destination stop
Lisa Russell Tee, owner of with stores in W. Boylston and the Solomon Pond Mall, for example, still makes a "comfortable living" running the store she started in 1988. While Tee will be closing the mall store in January after at 10-year lease there (see "Basket Case closes Solomon Pond Mall store," Dec. 12 issue), she says she expects 2005 to be a "very healthy" year for sales at her West Boylston store, which she expects to be level with last year. Sales at the mall store were down but have picked up due to its clearance sale to prepare to close.
A Basket Case, which grosses over a million dollars a year selling Godiva chocolate, Crabtree & Evelyn soaps and Swarovski crystal, has a niche that works. Tee knows her customers and gives them personalized service, she says. Her West Boylston store is a "destination," a necessity for small retailers’ survival these days. Big-box competitors certainly have a price advantage, but Tee says she’s learned to buy "wiser" and play up her customer services.
Charles Napoleon, a Southboro-based retail consultant for smaller stores, has been working with Tee. While the last three years have been difficult for small independent retailers and 2006 will continue as such, they can survive and flourish with the right strategy. Big-box retailers have only begun to refine their gift mix over the last 3 years, Napoleon says. Independent gift stores unable to re-merchandise in response have been hard hit in recent years. But those who re-invent themselves around a niche and merchandise to promote it with customer rewards and events, are still doing very well, Napoleon says.
Overall, Napoleon says 2006 is going to be a "very good year for the big guys" (with some 6 percent increase in sales) and "for the little guys, it’s going to be another rough year."
Rotmans: On the home front
Independent retailers offering home furnishings and appliances are upbeat about this year and next, despite big-box competition. Bernie Rotman, vice president at Rotman’s Furniture in Worcester, says his furniture and carpeting store has held the line on sales for 2005 after seeing a slight decline in 2004, making it a successful year. Despite the many new homes in the region, he says, "people are reluctant to fill those homes with furniture." That reluctance - not big-box competition from furniture and flooring giant Lowes, has impacted his company’s sales.
Rotman’s has a loyal customer base in Worcester County and beyond, Rotman says, that count on his store’s service and quality products for "serious purchasing" of flooring. The store has developed a long-term relationship with customers, whose return rate is very high.
In 2006, Rotman expects the "pent up demand" for furnishings for those new homes to bolster Rotman’s sales. He’s looking for a 10 to 15 percent increase in sales next year. Rotman’s is expanding its 180,000-square-foot showroom but Rotman says he isn’t sure if it will expand its staff of 250 full- and part-time employees. The store will continue to hone its technology to increase efficiency and will continue a multi-media advertising effort. It will also offer customers strong incentives in 2006, he says.
Percy’s: Picture this
Alan Lavine, sales manager at Percy’s appliance store in Worcester, won’t discuss 2005 sales specifics beyond saying that "they’ve increased" and "we have no liens." Lavine says business improves every year and credits his service-oriented, well-trained staff of 34 with competing successfully against Lowe’s, Sears and Wal-Mart. "We build better friendships with our customers," he says. "I guess we’re better listeners."
Percy’s also offers luxury products that many of the big-box competitors don’t. The home theater market has been a growing segment for his store in the past four years, Lavine says, adding that the digital TV market is just starting to take off and should be a growth area in 2006.
Klem’s: Weathering the weather
Over at Klem’s in Spencer, rainy spring weather, not competition from big-box companies, weakened’05 sales, says General Manager Jessica Bettencourt. But the situation has inspired her to promote Klem’s unique services. The store offers a varied product mix, including lawn and garden supplies, pet care supplies and a full hardware.
The 85-employee store was enjoying a 10 percent increase in sales in early 2005, until it hit one of the rainiest Mays on record, Bettencourt says. Since May is generally Klem’s biggest sales month of the year, she says, the store had a loss that month and only recently managed to recover with a 2 percent gain on the year for revenues. Bettencourt is hoping sales, of just under $10 million a year, will be up by 5 percent when holiday business is tallied.
Bettencourt’s biggest hope for 2006 is that she doesn’t face another wet May like this year. If not, Klem’s will likely hit its usual mark of a 5 percent increase in sales, she says.
Klem’s strives to carry a wider selection of products than the big chains, and to offer a better array of services. It has crafts, toys, clothing and shoes, and also stocks auto supplies and "real" tractors, she notes. To promote its pet supplies, Klem’s offers pet training classes and a rabies clinic. It is also considering opening a pet grooming facility and the installation of pet-tracking microchips.
On the lawn and garden front, Bettencourt says, customers have long relied on Klem’s expertise for diagnosing plant problems. "We have people come in all the time with a plastic bag with a plant and a bug in it," she says.
Bancroft Motors: Roller
coaster car sales
Several years of "full-throttle" incentives in the car sales market - including the employee-discount phenomenon of 2005 - made this year a "roller coaster" for Bancroft Motors, with dealerships in Worcester and Auburn. Bancroft Vice President Larry Glick says when General Motors first began offering the employee-discount program in July and August, some Bancroft franchises had the biggest sales months in their history. But in September and October, he says, his company "paid for" those heady months with a drastic drop in sales that only began to rebound in November. The rise in gasoline prices only exacerbated the slowdown, he says.
Sales for Bancroft Chrysler/Jeep are down by 10 percent in 2005, Glick notes. But Bancroft Nissan, which opened at a new location on Route 20 in Auburn in February, has seen a 37 percent increase in sales. Glick credits the increase to the move to what has become an "auto mile" with the increase.
The biggest challenge ahead for his industry, Glick says, is coping with the oversupply of vehicles being rolled out by U.S. automakers, despite decreased demand from market saturation and foreign competition. "It’s been a buyers’ market since post 9-11," he says.
Glick expects automakers to keep the incentives coming in 2006. He says his company will stress service, parts and used vehicle sales to offset the difficult new car sales market.
Hotels: Hospitality brightening
On the hospitality front, it’s been an improving, but challenging, year for restaurants and hotels, say experts, who expect even better growth in 2006 as the region’s economy continues to strengthen.
Lodging in the region had a positive 2005 and is poised for a "great 2006," says Art Canter, executive director of the Mass. Lodging Association. While average daily room rates in Central Mass. stayed flat or even a bit below last year, Canter says, occupancy rates improved considerably, especially in Metrowest. Hard hit by dropping occupancy in recent years, Canter says Metrowest had nearly an 8 percent increase in occupancy over last year, far outstripping a 1 percent hike in Boston and a 3 percent jump in Worcester. But, he says, Metrowest still has a ways to go to hit the national occupancy average in the low 60-percent range.
The gain in Metrowest hotel occupancy, Canter says, heralds the return of the corporate market so central to lodging in that area. And the spillover effect of a brisk convention season in Boston could bolster business in that area and beyond as well. Canter expects improvements in corporate and international market segments to rebound in 2006 and, with the continuing positive leisure market, make next year better than this one. However, in area where there is an oversupply of hotel rooms, he says, the challenge will be to get the rate you need to cover expenses and still remain competitive.
The Mass. Restaurant Association’s Christie says the region has lost some restaurants but gained new ones. "This has not been a shake-out year," he says. Bright spots: People are dining out more than ever, fast casual is still "on fire," and people are responding to the healthier menus the industry is cooking up. Christie looks for a 6 percent revenue growth for restaurants in 2006, as the economy continues to improve with most people back at work. But pressures on profit margins, particularly from energy costs, are also likely to continue, leading to eventual menu price hikes.
Christie says the 5 to 6 percent growth in restaurant revenue was positive but the rising commodities cost in 2005 made it tough to make a profit. The year started with elevated meat and dairy prices, grew more challenging with post-hurricane-disaster produce prices and is finishing the year with "through the sky energy costs," he notes. Nonetheless, Christie says, most restaurants haven’t passed along the expenses by upping menu prices yet. "It truly is a case of people giving up their margins in order to retain market share," he says.
Micky Baca can be reached at mbaca@wbjournal.com
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