MSU Extension

About a year ago, a well-known big box store was built on the edge of town. Last month, one of the community’s longest standing supermarkets announced they will be closing its doors. Yet, reputable studies show that when the big box store comes to town “in virtually all cases, total sales in the town increased at a rate greater than average for the state.” So what went wrong?

Iowa State University’s Dr. Kenneth E. Stone, wrote a paper on the studies concerning impacts of big box stores; Competing with the Discount Mass Merchandisers offers the following findings:

• “For most businesses . . . , in virtually all cases, total sales in the town increased at a rate greater than average for the state.” Apparently, the large brand name big box stores attracted customers into town from a greater radius than had occurred before their entry into the town. After the first two or three years, however, most of these “towns reached a peak in sales and then began a decline, with about 25 percent declining below” the pre-big box store level. “This decline appears to be caused by a saturation of” big box stores.
• “Merchants selling goods or services different from what [the big box store] sells become natural beneficiaries. In other words, since they are not competing directly, many of them benefit from the spillover of the extra customers being pulled into town. . . .”
• “Merchants selling the same goods as [the big box store] are in jeopardy. In other words, they are subject to losing some trade . . . . unless they change their way of business.”
• Grocery sales declined in the first year, and remain lower over the next several years. People buying groceries and other goods commonly sold in a supermarket, switch to the big box store. The additional people attracted to the town with the big box store do not spill over to shop at local grocery stores.
• Retail sales for small towns near the city where the big box store located “declined in all categories after the opening of the [big box stores].”

Therefore, the northern Michigan city that lost one of their local grocery stores should not have been surprised; but there are also other things that should be ongoing. First, a city facing this kind of new competition needs an actively aggressive downtown association like a Downtown Development Authority or the equivalent.

Second, the downtown needs to know the demographics of its shoppers, so that merchants can cater to those groups and tastes. Work with a college, university, regional planning commission, or marketing firms to create marketing reports for this information. This also means thinking regionally. In the largest sense, regions in Michigan are multi-county districts in the state represented by the Michigan Prosperity Regions. That could be the market area for the larger city or cities in each region. There are also multi-county sub-regions that could be the market area for many of the smaller cities in a region. The big box store is drawing from that larger sub-region or region. The downtown for the city with the big box store should be working to expand its market area to be that same larger sub-region or region. Several Extension systems in the United States emphasize the importance of this regional concept. For an example, see the University of Wisconsin Extension’s material on downtown revitalization. The expanding drawing can include having events, improving the quality of life, and other placemaking activities. See Placemaking as an Economic Development Tool.

As a group in a downtown business district, extending the stores’ hours open in the evening is an absolute necessity. The average two-income families can virtually never shop between 8 a.m. and 5 p.m.; this lack of open availability from local stores in evening forces many customers to go to the big box store.

“Seventy-five percent of sales are done after 5:30 p.m.” Robert Gibbs, an internationally recognized retail expert, said. More of his thoughts for revitalizing downtown were offered at a presentation “Proven Techniques for Increasing Commerce in Michigan Towns, Cities & New Town Centers.”

Have an outside retail expert visit and conduct an assessment of the downtown area. Arrange for this expert(s) to meet individually with each merchant. The private conversations are to improve business practices, as well as window and store floor displays. Then, have the expert, or team of experts, present overall impressions at a meeting where all downtown stakeholders can attend. A fresh pair of outside eyes will see things local people miss, as well as provide valuable suggestions to improve the shopping area.

The downtown organization should focus on improving convenience and designing streets for the pedestrian, bicyclist, public transportation, and not just the automobile. This "Complete Streets" approach is currently being used in Marquette, Michigan.

First Impressions and all of the suggestions stated above, can be accomplished with assistance from Michigan State University Extension.

Devise a unified downtown marketing strategy and pay for the general market study of the downtown shopping area. After that, develop a marketing plan or strategy to promote the downtown. Have an arm of this marketing strategy targeted at the big box store customer(s). This may include participating in a “First Impressions” program. First Impressions was developed by the University of Wisconsin’s Center for Community & Economic Development and designed to help communities improve the entry into town and general appearance of their town. The entry way is the route that big box store customers will travel to get to downtown. The goal is to have those big box store customers also come into downtown and shop there also.

In the conclusion of Dr. Stone‘s paper, he offers the following tips for individual retailers or store owners:

• Try not to handle the exact same merchandise as the big box store.
• Sell singles instead of pre-packaged groups of merchandise.
• Try to handle complementary merchandise. Big box stores tend to handle only fast moving goods. Customers will learn to go to a local store when looking for something out of the ordinary.
• Look for voids in the box store’s inventory, and carry those items.
• Consider upscale merchandise.
• Get rid of merchandise that does not move.
• Find a niche that you can fill (be different, be specialized).
• Know your customers; demographics of the trade area and cater to those ages, ethnic, and income groups.
• Look for ways to improve returns policies.
• Lower prices on items people buy frequently. Use those to draw in customers that also buy other items.
• Focus your advertising on underscoring competitive advantage. So the competitive advantage is stated in every single ad.
• Make sure your employees are experts on your merchandise – so they can accurately help customers with their problems and needs.
• Offer deliveries.
• Offer on-site repair and service for your products, even if it is for only some of your products.
• Develop fast covenant special order capacity.

Dr. Stone’s report includes several additional suggestions for retailers. Dr. Stone, before his retirement, has provided consultant services to at least one of the northern Michigan cities. Dr. Stone’s knowledge and concepts have been proven to be true, correct and withstand the test of time.

An Executive Director of a multi-county economic development office says, he learned that many local retailers that close after a big box store comes to town uses the big box store as a convenient scapegoat; when in reality the cause was their poor business practices. They were on their way to closing before the big box store arrived.

“I've seen great examples of towns thriving after the arrival,” the Executive Director said. In another part of the state Petoskey is a great example -- its downtown is much stronger now. One example of a local business being successful is a hardware that diversified and did not try to compete toe to toe. They grew from a downtown hardware store to four store locations in three cities.

Those in Extension that focus on land use to provide various training programs on planning and zoning, which are available to your county. Contact your local land use educator for more information.