Monday, December 18, 2006

COMPETITION

This is a subject where being anon. might have been helpful.

I've always maintained that I'd rather have a good competitor, than a bad competitor, because a good competitor lives by the same rules I do. There really isn't any secret formula to business, despite the way the media tries to make stars out of some businesses and bums out of others. We all have rent and overhead. We all have choices between taking money out or reinvesting, where to locate, how to price our product.

For instance, the location of a business can be a make or break choice. But....there is no right or wrong way to go about it. You can pick an expensive location with high foot traffic, or an off the beaten track location for cheaper rent, or a store on the busy road with no foot-traffic, but plenty of drive-by traffic. All of these are valid choices. You just have to tailor your business to your choice.

For instance, you pick a location on Division, and your rent is .85 a foot. Your space is 500 sq. ft. You only have to make a little over 1000.00 a month to pay for that spot. But because you are off the beaten track, you won't be getting much drive-by and/foot-traffic. On the other hand, you could have a space that is twice as expensive, but the variable is that you have more foot-traffic. The results to the bottom line might be the same for both stores.

The variables between each business may be somewhat different, but the same basic problems are there for all of us. People like to pretend they've invented a better mousetrap, but that is pretty rare.

No. I have rent, you have rent. I have employees, you have employees. I have to take a living income out of my store, you have to take a living income out of your store. If you are selling the same product I am, the differences may come down to simple character issues like, honesty, reliability, steadiness, people skills, promotional skills, display skills. But the product is costing you pretty much the same, the prices you will need to charge will be pretty much the same, your overhead is going to cost you pretty much the same, and so on.

So it is easy to see, almost immediately, if a competitor is living by the same rules as you are, and if they aren't.....they probably won't last very long. There are certain key phrases I hear that tell me that they are probably not serious competitors: "I don't need to make money." "I'm just trying this out, and if it doesn't work, I just go back to what I was doing." "I don't charge retail. I sell for half, and make up for it by volume."

There are certain early decisions that tell me if they have a chance. Renting a spot way too big and expensive for the product is one, hiring a manager from the beginning instead of working the store themselves, is another. Splashing the media with ads, and having constant SALES is another. Spending too much money early on frills....and so on.

The biggest factor, and the most unknowable, is the motivation of the owner. When things get tough, (and they always get tough), will the owner be able to knuckle down and survive?

So you add up all the variables, and it turns out most every mom and pop type business is going to make just about enough to earn a living for the owner/s; (I exclude both service businesses and resturants from this, cause they have a whole different set of rules) Some businesses will make more money than others, based on how much the start-up costs, and so on. But a comic store is a comic store is a comic store, and there aren't any rich comic store owners.

This is a huge, subject, and I'm going to visit it over the next few days.

2 comments:

Steven said...

And sometimes propinquity counts for a great deal. That's why areas around hospitals tend to be filled with competing medical clinics. That's why Nashville's storied Music Row has every single record label on the same street.

Down in the Old Mill, the Helly Hanson folks report that they're "doing quite nicely, thanks" after REI opened across from them. Their target demographics are identical, so net traffic has increased for Helly Hanson, and they benefit indirectly from REI's enormous advertising budget.

That *good* competition.

dunc said...

Another example would be used bookstores. When my wife opened the BOOKMARK on the corner of Third and Greenwood, it was the third used bookstore on that block.

The reason being, simiiar businesses have similar needs. In the case of used bookstores, there is the need for a larger, but cheaper location with visibility.
A semi-industrial zone where the buildings are either too big for most retail, but too small for most other uses.

It didn't work out for the Paperback Exchange, but I think maybe other things were at work there. We tried really hard to create a "BOOKSTORE CORNER" concept.