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Much has been written in the past about “evil” big name corporations squeezing out the little guy. Mom and Pop stores as well as niche retailers that focus on one product or product line have been drowned in the wake of stores that can offer everything under one roof.
Offering a wide range of products can be seen as hedging ones bets – being big enough to monitor consumer trends and curb inventory to meet demands.
On the other hand, one-product companies can be more cost-effective in targeting their marketing approach. Once one figures out how the product ties into a current trend, the biggest obstacle is ensuring the supply pipeline remains clear.
Which approach is better? Can small retailers truly be competitive against such a force? And what are the implications for investors?
Focus: Good Or Bad?
Though focusing on a single product can result in providing the best product in the market at an effective cost for customers, it limits a company’s potential to expand into other markets.
Should the company, in efforts to be more diverse or competitive, move toward producing a range of products, it will need a large investment to separate production lines. Buying additional equipment, more payroll for workers and management, as well as establishing and maintaining supply pipelines could all be expensive additions.
A focused approach is, however not without some key advantages. The first advantage is, of course, cost effectiveness. Marketing is also a key advantage for single product companies. Competition is also a factor.
One market that has continued to remain steady is home décor. Reports are showing the housing market making a slow return, thus people are buying and decorating new homes. Even in the recent tough economic times, people were still purchasing décor items in attempts to spruce up their homes to sell.
Companies that offer décor items, such as Wal-Mart (NYSE: WMT), Target (NYSE: TGT), and Home Depot (NYSE: HD), offer a wide range of products but are less capable of creating customized products for customers. All three of these retailers are more or less a ‘one trick pony’, in other words, they compete on one level: Price Point. Offering the lowest cost home décor item while still maintaining mass appeal is now the name of the game. The only variation from this is Home Depot, who can offer a slightly higher price because it targets a consumer base that enjoys the ‘do it yourself’ approach.
Companies that desire to be competitive against such titans should look to focusing not only on specific products, but by making customization easy. One such example is Pennsylvania based SwagsGalore. This company allows customers an “Almost Custom” option; the ability to pick the fabric, color, and style they desire and have it shipped within 3 to 14 days. Customers can find items that they could never find at a Wal-Mart or Target.
In addition, they will find a knowledgeable staff that knows their products inside and out. It is often the case that, in order to keep payroll at a minimum, associates have no clue about the product. Places like Home Depot often combat this through hiring those with expertise in a certain area.
However, the main competitive advantage niche stores like SwagsGalore have over the big namers is the quality of merchandise. While Wal-Mart and Target offer low cost merchandise, it is also low end. Cheaper cost doesn’t necessarily translate into good value and a specialty store can seize upon this and offer good, quality merchandise that lasts and offers a good value to the customer.
Singularity of focus is often a powerful business strategy. Doing one or few things well can make for an effective business model and solid company. While Wal-Mart and Target are the clear leaders in convenience, smaller companies such as SwagsGalore can still be extremely competitive through a focused approach.