I've been watching with interest the startup of Paizano's Pizza in Baker City.
Kina recently posted the following under an entry called Full Disclosure, so I think it's O.K. to reproduce:
"It wasn’t cheap to open this place. We’re paying out the nose to make it work. But we believe in it. We believe in our product, we believe that this town can support it, wants it, and will continue to make it work. We obviously can’t do it alone. We aren’t the richies from Bend. We work incredibly hard and we are true to everything we do or say."
She's being just a bit circumspect about what's going on, but I can guess.
When we first opened our (3rd) store in Redmond, we felt very welcomed by the community. Redmond was less than half the size it is now, and still a very small town. But we were told that the town needed a store like us, and we were rewarded with pretty good business for a year or two.
And then, one day, business fell off the table. My manager finally informed me that a store two doors down from us was carrying sports cards. I had talked to one of the owners of that store quite often, not realizing I was being pumped for information. It even turned out they were sending their kid down every day to check our prices, and then systematically pricing slightly lower. (Which is known as 'cut-throat.')
Thing is, they proclaimed themselves as 'true' Redmondites; that we were rich carpetbaggers from Bend who were strictly in it for the money. That we charged too much. These people had kids in the local school system, and belonged to a rather large church that turned out to be a significant number of collectors and so forth.
I have to tell you, the Redmond store was always fringe -- it didn't take much to get us to leave.
I remember the HUGE feeling of relief when we closed.
Six months later, our competitor was also gone.
Small towns are funny creatures. They will welcome the 'new kid' in town; they will welcome any business that is different and creative; but there is a negative side to small towns. They tend to be very suspicious of outsiders, very clannish. The smaller the town, the more they are that way.
So much so, I swore I'd never open in another small town. The margin for error is just too small. Of course, Redmond is twice that size now, and by definition most of the residents aren't 'local' in the traditional sense.
I'm not all that sorry that Bend has gotten big enough that no one group of customers, no one clan can put me out of business if they don't like the way I do things, no one rumor campaign or bad mouthing campaign can drive away every customer. There is room for diversity in Bend.
The irony, of course, is that I'm not adverse to playing the 'local' card myself.
All the time.
But hopefully, I'm not using it as a bludgeon on other newer businesses.
Every time I talk about being a "native Bendite" I'm playing that card. Every time I talk about being in business for 28 years, in downtown Bend, I'm playing that card.
And of course, complaining about 'gentrification' is in a sense playing the 'local' card -- with the imputation that the 'newcomers' are forcing out the locals. Every time I talk about people having lived here "five minutes" I'm implying I'm an old timer. But, hopefully, I'm open to new experiences. I shake my head sometimes at what I see, but I'm bemused by much of it as well.
As I've said, it's not like I was ever part of some 'in' crowd.
Still, I think in every case it's a very small minority of people who try to hurt you using these techniques; and the best advice I can give is to pretty much ignore it, to take the high road. You can't put much more of stake in a community than moving there and opening a business.
Eventually, you become the 'local.'
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Thanks, Dunc. I was feeling pretty full of piss and vinegar until I read your post this morning.
I know you can't respond in like manner. Someone comes in and says, "So and so says you're a jerk." And your immediate reaction is to say, "Oh, yeah? Well tell him he's a asshole...." or whatever.
And yet, I also believe you have to respond in some manner.
Maybe the best way is to say, "I hope that you'll give us a try and decided for yourself."
Something like that.
There may be no 'good' way to respond, but there are lots of bad ways....
The thing that I don't get, and please give me your take on this, is that to me it seems that the people that have been here the longest, are often the ones most open to newcomers...most accommodating, if you will.
I find that the people that have been here 5,10,15,20 years, are the ones that complain the loudest about newcomers. They are the ones with the most NIMBY attitudes.
I know it's dangerous to stereotype, but I run into this phenomenon often enough to lend the theory credibility.
I think anyone who lived in Bend in the '80's can never be completely 'anti' growth. At least, we understand why Bend threw open the doors in the '90's. We probably just didn't think it would go this far.
On the face of it, I should be unhappy with what's happened to downtown; busy, crowded, lack of parking, high prices, snobby attitudes.
But....up until about 5 years ago, I hardly had any walk-by traffic, people complained about prices even more, and parking wasn't a problem because few people shopped on my end of the street.
It's interesting that the other shop in Redmond also got out after you left. Perhaps they could not sustain their aggressive pricing over the long run?
More generally, do you ever see situations where one business should be able to make it, but ultimately NO business can make it because of the need to constantly resort to cut throat methods?
In other words, one business feels compelled to outspend/undercut the other guy just to stay alive, but then ends up as a failure as well?
I'd say -- more often than not heavy discounting for smaller specialty stores is suicidal. Anyone and everyone thinks they can 'beat' the other guy by being cheaper. Usually, they beat themselves first.
I found out later that my Redmond competitors bragging of only 25% markups (unsustainable for a small specialty business in my opinion -- the 40% margin seems to be a law of nature, almost) was based on a sweetheart deal in their rent.
Either the building sold or the landlord asked for the going rate, but either way, it was the end of the business. Once you've won over the customers by discounting, you can't really go up in price. (You can always go down, but you can never go up, once you've set the pattern.)
Cut-throater's almost never survive, in my opinion, unfortunately, sometimes they take down good businesses along with them. Especially businesses who follow their example....
Targeted discounts, or small discounts, can be useful.
But for specialty stores, heavy discounting is usually fatal.
Remember, on a 40% margin, you are giving away 25% of your profits when you offer 10% off. Or 50% of your profits at 20% off. And 20% discounts aren't enough to entice most people, anyway.
So what if they got it cheaper? How, why? Chances are, the same deal is available to your competitor, so your competitive advantage will disappear.
But because you're a specialty business, your volume isn't probably high enough to justify the lower rates.
Seems smarter to me to keep plowing your profits back into inventory, so you'll be more likely to have the item someone wants, even if at full price.
Someone told me early on, that asking the retail price is the sign of a good business. It means that you've overcome the discounting bias through other means, such as service, knowledge, selection, location, whatever.
In a way, discounting is trying to bribe the customer -- who will always be vulnerable to the guy who discounts more than you. And there is always a guy willing to discount more than you.
Sports cards got so competitively suicidal that there were stores selling below cost. (Don't ask me to explain --- they'd make gambles and make huge profits on some product, and give away the rest. But it was a gamble that always got them in the end....)
Because, in the end, the chains stores can discount so much better than you can, that you'd best have another strategy.
The impulse to discount, and make up for it in volume, is strong in our culture. It's the dark side.
I offer fair prices for fair service and selection and knowledge and experience and convenience and so on. There are always people who walk away, but you have to let them.
In Paizano's case, for instance, they are using quality and premium cheeses and meats. They aren't Domino's. The same virtues which make some people like them will be something other people dislike them for.
But you make money from the people who like you......
The small businesses that I've seen last over the long run are not heavy discounters. In fact, I'm hard put to think of a specialty retail store in Bend who has....
Interesting ... so it appears that there's quite a bit of flexibility in how your products get priced. But it seems like some manufacturers/publishers have a tactic to avoid price wars among the retailers of their products: Resale Price Maintenance (if I remember correctly from Industrial Organization class).
Aren't there many products for which there is a price set by the manufacturer at which you must sell the product? I'm thinking Snicker's bars and bags of potato chips. I guess the manufacturer wants to keep people from buying low at a big discount chain and then taking it to some other town with higher prices.
Do you see much of that? From your comments it sounds like you might think that Resale Price Maintenance is a good thing, as it keeps upstart retailers from discount themselves into oblivion, and sets the stage to differentiate yourself on the basis of location and service.
I've heard the theory; I think it was just upheld in the courts.
But in practical terms you hardly ever see it. Most people are afraid of being accused of "restraint of trade".
There isn't a whole lot of practical ways to keep people from discounting, without it becoming more expensive than the damage done.
So...it really does come down to the individual retailer.
I prefer product with Suggested Retail Price with a standard margin, which I then normally charge. Sometimes, as in sports cards and toys, you are allowed to set the price. That is, you're given 'net' price.
There is a suggested price on the advertising in sports cards, which is a ridiculous 15% or something; which might work for Target who's getting it 15% cheaper, but which would make it impossible for me to carry the cards.
So it's standard operating procedure on toys and cards to set your own prices.
It's a game. Comics and books and toys all pretty much have decent margins (40% or more) and have prices marked on the actual product which I can charge without explanation or apology.
Sports cards and comics and anime have ridiculously low margins which AREN'T marked, because the manufacturers know perfectly well that the margins are impossible.
I've often told the card collectors or the anime folk, if they ask, that the choice it to carry or not to carry, but not to charge the same as Walmart.
Remember, I'm dealing with specialty items and relatively low cost items at that.
Not sure how Resale Price Maintenance works for bigger ticket items, or completely mass market items like Frito's or Coke.
I've only seen two companies really try to police prices in my hobbies at all: Games Workshop, (Warhammer) and, weirdly enough, Beanie Babies
Yeah, with mass market items like Frito's and Coke I think the manufacturers must have A LOT more control -- like there only gets to be ONE distributor of Coke in an entire region. There are some high profit margins out there in the food processing industry.... the decidely un-hip breakfast cereal industry (Kellogg's, Posts) consistently has some of the highest markups over their costs of ANY industry ANYWHERE. They are extremely sophisticated at keeping new upstarts at bay (mainly by swamping the market with a dizzying number of new brands). Economists have been studying that industry for years.
On the other hand, the big news of the last 10-15 years has been a shift in market power away from manufacturers to retailers (at least in the food biz). Now the retailers are so big that manufacturers have to pay to have their product placed on the shelf (slotting allowances). I'd hate to be a small food manufacturer and try to get my product on the shelf at Safeway. (anyway, that's why we have farmer's markets)
Perhaps one day we will one day see the balance of power shift back to manufacturers, away from the retailers.
Maybe the above story applies to the mass market book industry (Barnes and Nobles), but probably not comics and other smaller niche markets. ???
Actually, Beanie Babies are a great example of how hard these things are to police.
I was getting them from a lady who was getting them from a store in the valley. The lady in that store was selling them for the suggested price, but she was offloading some of them to her friend, who was really only interested in the bears.
I bought the other beanies from her in bulk, at a couple dollars more, and sold them for a couple of dollars more; (with the occasional bear thrown in.)
There was such a mania for beanies, that I could sell them even at the higher prices.
Several times I had people imply that I was doing something wrong by selling them on the secondary market. But that's America; the world of garage sales and e-bay and Amazon stores. You can't stop someone from selling something at the price they want. Maybe you can stop authorized stores, but even they find ways around it, as detailed above.
I should make it clear that I don't believe there is anything wrong with charging more if there is a demand; just as I will charge less if there is no demand.
Isn't that what the free market is all about? I don't believe anyone has ever said to me, "I'm sorry, you're charging too little....here's more money."
The word we're not using is monopoly. Monopolies and cartels can set the price structures -- supply and demand.
I think, in many cases, that we have defacto monopolies. Just about any industry that has the two category killers; Home Depot and Lowes; Staples and Office Max; Barnes and Nobles and Borders; Hollywood and Blockbuster -- these are almost monopolies to all intents and purposes.
They don't fit the current legal definition -- but many of them would have fit past generations legal definitions, around the early part of this century.
The results are the same...
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