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Recession = Time for the Resurgence of the Small Business

Written by: John Porter

Article Overview: Small business has struggled against large national and international brands. The ability to be flexible during the recession can give the small business owner an advantage over their larger competitors.

Recession = Time for the Resurgence of the Small Business

During the past 10 to 15 years, we have seen a massive increase in big box stores and department stores, and a proliferation of corporate, publicly traded businesses. During this time we have seen the decline of small to mid-size companies. Since most of the large corporate stores have been focused on volume, the primary reason for the decline of the smaller businesses has been an inability to compete on pricing. Now with the recession this focus on volume could backfire as there is a large amount of fixed capital and without the volume of sales to cover the cost and debt load they are carrying large retailers will suffer. According to Barbara Farfan, "There are many retail chains that will be forced out of business in 2009 by their own debt structure and the global credit crunch." Some major retailers have already closed their doors.

Major retailers have massive stockpiles of inventory which they have invested heavily in and with the contraction of consumer spending are not able to sell that inventory as quickly or at the prices expected when they acquired it in the first place. As a result the margins they were counting on are no longer there. As these retailers go out of business there will be a large amount of below cost clearance inventory sold to consumers, which no other retailer staying in business can (or should even try) to compete with.

Unlike the large retailers, the small local retailer can choose to trade for advertising and other core costs more easily because there is less red tape and bureaucracy in decision making. Local retailers can either trade directly with suppliers where there is a fit, or a retailer can expand their ability to trade by joining a trade exchange and putting the legwork of creating multi-directional trades in the hands of the exchange rather than taking on that extra work themselves. The better exchanges already have a large number of trading partners to whom you can market your products and outlets for you to utilize that trade credit.

Many retailers are responding to the recession by discounting products and services to increase sales. The problem with this "increase" in sales is that each sale has an inherently lower margin and consumers become more and more trained to wait until the product they want is on sale. According to Gavin Duncan, CA, controller Tradebank Inc., "Being able to move products through trade provides two advantages over discounting, one you don't 'devalue' the rest of your inventory since you are maintaining your retail price point, and two you have a ready market with money available to purchase your product."

Trade exchanges can improve your business by helping you to:

1) Expand your advertising

2) Introduce you to fellow business owners who have influence in the community

3) Improve cash flow

4) Obtain new business

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Article Tags: bureaucracy, consumer spending, contraction, core costs, debt load, debt structure, department stores, farfan, global credit crunch, legwork, margins, massive increase, mid size companies, proliferation, recession, red tape, retail chains, stockpiles, trade exchange, trading partners



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