5 Ways for Local Business to Thrive in the Digital Era

The other week, Amazon launched a new mobile app. It’s called Price Check and it’s got many local businesses and retail trade groups angry and running scared.

It’s available in the US now and will be rolled out elsewhere over the coming weeks.

The Price Check app lets smartphone users photograph, describe or scan the barcode for any product while at a brick-and-mortar store.

Amazon then instantly comes back with the Amazon price plus the option to order there and then.

Understandably many consumers love it – more choice and instant access to reviews & ratings. It’s not the first price checking app and it won’t be the last.

The app has generated a huge amount of free publicity for Amazon. But the real story is about much more than just the app…

What’s all the fuss about?

One criticism is that the service will turn local retailers into Amazon showrooms, and shoppers into free price-gathering spies for Amazon. This is one way to look at it but I’ve not seen any suggestion that what Amazon is doing is illegal or improper in any way. In fact I’m sure that this is just the tip of iceberg for what is to come.

Another objection is that Amazon, as a purely online retailer, does not pay sales tax on transactions in many US states. This of course gives them a price advantage. This may or may not change soon but purely-online retailers will always win on price regardless as their costs are lower.

The fact is that the mobile web is exploding in popularity. Meanwhile, the number of US mobile buyers in the US is forecast to nearly triple by 2015. This means that more and more people are researching and buying online while on the move or while inside a brick-and-mortar store.

Meanwhile our local businesses are imploding. If you think the recession is solely to blame then think again:

Bottom line: While traditional brick-and-mortar retail is dying, online retail continues to boom and mobile online retail is about to change the very nature of retail forever. The recession is merely speeding up the shake-out of those that do not know how, or are afraid to adapt.

Why local retailers can no longer rely on just ‘being local’

People like to buy on the spot & take home rather than waiting on the post, but:

• We like to research online and check out what our friends and others have to say about an item before we buy.
• We like being able to find the best price which will nearly always beat the in-store price.
• We like to buy from the comfort of our own home, or while on the move.
• We don’t like the hassle, the time and the cost of travelling and parking to get to and from the store.
• Waiting on the post for a day or two is a small price to pay for being sure you’re getting the right product, in less time, with no travel and parking costs or hassles, and for a better price – and all from the comfort of your favourite armchair or on the move to doing something more productive or more fun.
• Sometimes however, even next-day delivery is not good enough. Sometimes you just need-it-now: bread, milk, whatever. For example when everywhere else is closed and its dark and late, I use our (expensive) but open and near grocer (or 24×7 garage) when I need something right now. Online cannot compete with this market. And it can support higher prices in exchange for convenience, especially if open at the right hours. The supermarkets have moved in however with their 24×7 smaller ‘local’ and ‘express’ versions, pushing the independents into the less profitable nooks and crannies.

People like to handle and try before buying, especially food, clothes & shoes, but:

• Companies like Zappos have proved that people are prepared to buy shoes online so long as there’s choice, availability, fast delivery and a no-quibble returns policy. Technology is also now starting to make virtual 3D shoe fitting a reality.
• Currently 9% of clothes in the US are sold online representing $31 billion, and set to increase to 35% by 2018. This would put one in three brick-and-mortar clothes shops out of business.
• People often claim that they’d never buy food online. I love food and cooking and I’ve been buying my ‘commodity’ groceries online for years. But, I also love the real-life sights, smells, feel, cheek-by-jowl experience of buying ‘irregular’ food from local farmers markets and unique independent artisan stores. There is a continued opportunity here for local businesses that get the formula right: non-commodity products, great service, enjoyable experience.

People like the reassurance that they can return somewhere close to home, but:

• Returns via Amazon and other online stores are becoming easier than returning to the store.
• My wife returned something she’d bought online from Boden the other day. No problem. She simply printed a label, reused the packaging and dropped it off at the local newsagents on the way to work. They collected from there and made the refund. Quick. Painless. Free.

The stark fact is that local stores can no longer rely on simply being local and trying to sell ‘widgets’ for the lowest price.

What about the BIG brick-and-mortar stores?

Supermarkets

Two key trends among the UK’s 4 big supermarkets:

1. They’re finding it increasingly hard to expand their food sales, but they are selling a lot more non-food products. About a quarter of the big four UK supermarkets’ £19 billion sales was non-food in the year to early 2011. Non-food sales at Sainsbury’s are increasing at three times the rate of food sales and they aim to increase their non-food sales to 45% of their total sales by 2020.
2. They’re selling through their own online channels at a much faster rate than they are through their brick-and-mortar outlets.

The recent UK Government-sponsored Mary Portas report into how to reverse the decline in the UK High Street found that supermarkets now allocate more than a third of their floor space to non-food.  It also found that Sainsbury’s is the 7th largest clothes retailer in the UK.

Meanwhile Amazon is stepping up its sales of food products in the UK. The battle between the pure-play internet retailers, like Amazon, and the traditional supermarkets for food as well as non-food products is going to be ferocious.

It’s a battle for who can sell the most commoditised products (widgets) for less: food and non-food. And it’s one that is increasingly being fought over the internet.

Big-box stores

What will happen to the so-called big-box stores? Those huge brick-and-mortar stores that are competing to sell commodities (widgets), purely on price? They’ve got even bigger in an attempt to win the race to the bottom. And they’ve been driven out of town to coalesce as soul-destoying ‘malls’. You usually need to drive to them, and often queue to find a parking space, and sometimes to get out. Time and money down the drain.

The experience inside the mall and the individual shops is so dismal you just want to escape as soon as possible.

If you can find anyone working there they are invariably badly trained, surly and with no knowledge of the products. They often in my experience don’t even have the item you want in stock.

There are of course some exceptions (well, one) like John Lewis in the UK which excels at customer service and has a healthy online presence. But sadly, many are well on the way to winning the race to the bottom – and down the pan.

How can a local retail business thrive in the internet era?

This afternoon I bumped into a friend who’d just returned from one of his regular trips back to his childhood hometown of San Sebastian, Spain. Having told him about this article I’d just been finalising, he explained to me how things are very different in Spain. I know they have relatively high unemployment but their local businesses at least in San Sebastian are doing just fine.

Unlike the UK or the US they never allowed the big chain stores to take over. So everyone gets their bread, fish, vegetables, clothes, etc from small independent shops. Often just a short walk away. The local sales tax ensures that a much higher percentage of the revenue goes back into the community than the same amount spent at a corporate chain. Less transportation of goods means the environment benefits too.

I think we in UK, the US and other places where genuinely local businesses have been brought to the brink of extinction can learn from places like San Sebastian.

Ultimately any local business that tries to sell standardised products (commodities) and to compete on price alone is in a race to the bottom. And that is a race you cannot and really do not want to win! Leave that to the corporate giants.

Fortunately, consumers are not only concerned with price but also want convenience, good customer service, an enjoyable experience, and a sense of community.

So, how can a local business survive and even thrive in the internet era? Here are five ideas:

1.  Convenience

• Ensure your business is easy to get to on foot, bicycle, public transport and/or is close to free parking. Thanks to the recession and the underlying shakeout there are some bargain rents to be had in many city and town centres.
• Keep all products in stock, or at least offer the option to deliver within a few days. Whenever a local shop tells me they don’t have something in stock and to come back in a week I vow never to return.

2.  Customer experience

• Ensure a customer experience in a way that can only be had offline: Quirky. Unique. Fun. Human.
• Provide a sensory experience like live music, or the smell of freshly brewed coffee or baked bread.
• Check out this story at Forbes on how the future of local business is in selling experience for some more ideas.
• Another great example are the Apple Retail Stores. (I’ve just finished reading the Steve Jobs biography and I was struck by the care and attention that Jobs personally put into the design of the experience of the stores)

• Make it: Delightful. Helpful. Human.
• Make sure your staff are knowledgable about the products and services on offer.
• Make it proactive and responsive to customers.
• Some examples of bigger local stores built around their customer service are Richer Sounds and John Lewis. Both now have major online channels as well as their traditional brick-and-mortar outlets.

4.  Community

• Just like in San Sebastian, the economics of local business can benefit the local community more than a branch of a national or global brand. This may not directly drive more business but for some it can tip the balance. I know it works for me. For example I’ll sometimes buy a book from a friendly, helpful local independent book store rather than Amazon: even if it’s a little more expensive. Why? Because it helps the local community. But this only works if the service, experience and convenience are all great.
• The possibility of meeting people you know, or getting to know new people face to face at a local business can be a big draw for many.
• There are more and more ways to strengthen and build your community both offline and online.

5.  Use the internet to keep customers loyal and attract new ones 

• Whether you are or not, your customers are online. You need to find them and engage with them. If you don’t, then your competitors will.
• You will almost certainly benefit from having an online presence and that probably means having your own website.
• Use the internet to raise your profile, attract & build online relationships with customers, and drive them to your local business.

Of course, none of this works unless you’re offering something that local people want or need. And, selling widgets (like Amazon or Tesco does) is increasingly not going to work either.

But you’re not selling widgets.  Right?  You’re selling an experience, personal service, convenience, and community. Finally, prices have to be competitive… for the all-round package… for the local area.

In the last year or so my local neighbourhood has seen a bakers with an in-store cafe selling fantastic bread, coffee and cakes recently open their 4th shop in the area, a new fishmongers which sells out of the freshest fish every day, and a new family butchers with almost permanent queues despite a second shop they recently opened around the block.

Why are these local businesses thriving? It’s not rocket science.

Sure, they’re offering something that people want, and at a fair price. They’re easy to get to. They offer a unique experience and great personal service. They also provide a real-world meeting place for local people to come together: old-school community. As a result customers like me keep going back for more, and we tell our friends to go too. It’s as simple as that.

One last thing … as great as Amazon are at selling widgets at a low price, these local businesses have nothing to fear from them and their Price Check app because Amazon will never be able to compete with them on convenience, customer experience, personal service, or local community. Boom!

What do you think?

Let us know in the comments below, and don’t forget to sign-up for more stories like this.

Update on 9 February 2012: I’ve just come across some great examples of how wonderful a physical book store could be and had to share: The 20 Most Beautiful Bookstores in the World