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The retail war story of the past few decades has cited one of two wars: Amazon and e-commerce against big brick-and-mortar retailers and every big man against small Main Street entrepreneurs. But amid the current economic turmoil – marked by inflation, supply chain bottlenecks and shifting consumer spending trends due to rising prices, according to Covid – small business experts say. that Main Street should be more optimistic about the advantages of downsizing.
The build-up of inventory and subsequent discounts from the biggest retailers, including Walmart and Target, shows that even the best can mislead this consumer economy. In fact, small business owners, closer to both supply and customer relationships, can more quickly manage a rapidly changing environment.
That’s advice from Nada Sanders, Northeastern University distinguished professor of supply chain management. She told CNBC’s Playbook virtual summit on Wednesday that she’s been “bleak and doom” in the past, but is now upbeat about Main Street’s chances in the current economy.
“I really see this as a huge opportunity. I really do. Especially for small businesses,” Sanders said.
She outlines three areas where entrepreneurs should focus, and the first is directly related to the woes of big box retailers: forecasting.
“The big companies are really grappling with that,” said Sanders, an academic expert on forecasting. “We obviously see that with retailers. Walmart, Target.”
Talk directly to customers to understand changing consumer needs
Her opinion is that the biggest companies have become too reliant on inventory algorithms to forecast data, but in the current economy, which has already defied many historical stereotypes, historical data in this space is not really good data right now. It’s not clean data, it doesn’t indicate a volatile future,” she said.
This gives small business owners the ability to connect directly with customers to understand what their needs are, a potential advantage that algorithms cannot calculate.
Whether a small business is B2B or B2C, Sanders said face-to-face communication is the “real answer” for them right now in dealing with changing consumer behavior.
“What I’m seeing with the big companies, they’re trying to hire futurists and try to figure out how to really predict demand. But every time we look at the numbers, the Indexes. consumer prices, all of them, we look backwards,” said Sanders. “The fact of the matter is, we’re in a very fast-changing landscape and I think we have to look ahead. Small business owners really need to connect and use judgment to forecast and understand what their customers need.”
“As a small business owner on a tight budget…you don’t even need really heavy AI, which I think a lot of small business owners, they’re a bit worried about. …You can actually. created a Sanders saying, “When you’re a small business, you have end-to-end control that a large business doesn’t have. I see this as a really big opportunity,” she added.
Main Street thought it was working in a recession
It would be a leap for many entrepreneurs to adopt this view. The data shows that the current sentiment on Main Street is pessimistic. The Latest CNBC | SurveyMonkey Small business survey for Q3 2022 shows that small business confidence hits an all-time low, with the largest percentage of small businesses citing inflation as their biggest risk.
In the Q3 survey, a growing number of small businesses forecast sales to decline over the next 12 months as the economy, in their view, has slipped into recession. The disappointing sales outlook was the biggest contributor to confidence dropping to all-time lows. And as small businesses face higher input, labor, transportation and energy costs, very few (just 13%) think now is a good time to pass on increased prices to customers, according to the report. survey.
How to set prices in times of inflation
But pricing is also an area where small businesses can effectively and directly communicate with their customers and find solutions.
Jeffrey Robinson, executive director and executive vice-chancellor of the Rutgers School of Business and co-founder of the Center for Urban Entrepreneurship and Economic Development, said at the Playbook for Entrepreneurship virtual summit. Small business that a big mistake business owners make is not figuring out the price of a product until it’s too late. In times of high inflation, entrepreneurs need to base any price tag on new items on a detailed breakdown of its production costs. The traditional way businesses set prices – deciding on a product and then when it’s available, looking at what competitors are charging – is not how it works in this economy. Inflation requires small business owners to price, first and foremost, understand their costs.
“All those prices along the supply chain have gone up,” says Robinson. “Shipping costs… anything related to shipping, those costs add up. So evaluate and value the product or service you’re providing along with those costs. That fee, before setting a price, allows you to set the price at the right level,” he said.
And then the hard part: explaining to the customer. Robinson says that the direct relationship that small businesses have with their customers should also be seen as an advantage.
“We have relationships. Let’s talk,” he said. “Discover. You have to explain to them that costs have increased for these components.” To do this, I had to change some prices,” he said.
Helping customers understand where a business is in relation to inflation in the supply chain, he said, will help set prices accordingly. In the end, says Robinson, it’s really no different from a restaurant that always displays the price of fish on the menu as “market price.” That may be an oversimplified example, but it resonates in the current situation.
Some restaurants have posted signs during the current inflationary period to be transparent with customers about price changes. Robinson didn’t specifically consider that approach, but did say that every business needs to have some form of conversation with customers and prospects about the fact that the price two years ago won’t be the price of today. While survey data suggests small business owners are wary of this conversation, Robinson says they shouldn’t be.
“I believe a lot of consumers understand that, especially if you’re in the business-to-consumer type of business,” he said. “It’s about transparency… helping people understand that prices are changing.”
Mapping the supply chain with key suppliers
Conversations with suppliers are equally important, and Sanders says data shows that on average 80% of a company’s spending goes to about 6% of its suppliers. Those are the business partners to focus on, and where you can pick up the phone and build a relationship. “As a small company, this is really what it is going to be,” Sanders said. “What I think you need to do as a small company is really be able to map the supply chain for your key items, talk to your suppliers, really build relationships with your customers. work,” she said.
According to Sanders, most large companies don’t have good visibility below their tier-one suppliers, so many items become harder to track the further down the supply chain, “tier four” , level five,” she said.
A small business can map out its supply chain and work with partners to visualize the entire chain and identify risks. For now, inventory issues in retail can make small business owners more reluctant to stock up — even though it’s the start of the peak shopping season, back to school, and then the holiday season. Sanders said she strongly believes in running a “lean” operation, but in the current economy, “we need to make some caveats about what lean means.”
Under certain circumstances, small businesses will have to stock up on excess items, important items with longer sales periods, and where price increases are expected. All businesses should also consider their manufacturing processes and whether alternatives exist that can lead to more cost-effective operations. Carrying more inventory is “a fly in the face of lean,” she said, but she adds, “the advantage for a small business is to actually be able to manage it, upstream and downstream, simultaneously, and coordinate those things.”
The biggest problem in the economy right now is the mismatch between supply and demand, and that’s where Sanders comes back to the problems Walmart and Target have faced and why small businesses should take an opportunistic view of the problem. situation and be proactive in conversations about both customer-side supply and end-customers in their operations.
“Big companies are dinosaurs. … They are very heavy, bureaucratic. As a small business, you are very lame,” she said.
The key for small business owners is to not just look one way, either downstream (customers) or upstream (suppliers). “But look at those things at once, really marry those people, observe them, and connect with the customers, connect with all the vendors,” Sanders said. “The big companies can’t do that. They’re stuck because they have huge vaults. As a small business, you don’t have that, so take advantage of that now.”
