Local retailers try to find their niche in Internet-savvy world

Schumaker Furniture, as seen in this image from Google Maps in 2008.

 

By Heidi Marttila-Losure, Dakotafire Media

Reporting by Doug Card, Britton Journal, and Garrick Moritz, Faulk County Record

 

Don Schumaker knows that Internet sales are taking some of his furniture business. He knows, because some of those shoppers start the process in his store.

“I’ve had people come in and we measure a job for them,” said Schumaker, owner of Schumaker Furniture in Britton, which will celebrate its 60th anniversary this fall. “Then they take samples out, take the numbers off samples, and order it online. It’s becoming common practice in the industry and getting bigger.”

There is even a term for it now: “showrooming,” when shoppers browse in brick-and-mortar stores and then slink off to buy items more cheaply online from e-tailers that don’t have the overhead costs of a physical store. Smart phones have made the practice even more common, as customers can covertly comparison shop right in the store.

Schumaker added that many dealers are charging $50 to $100 to cover the time they put into a measuring project that doesn’t lead to a sale.

He says it’s difficult to know the extent of the loss of business due to online sales, but he estimates it’s 6 to 8 percent.

“Some people want to get the cheapest price and nothing else makes any difference,” he said. “I’m sure some realize they are hurting the community, but when it comes down to the pocketbook, it doesn’t make any difference for a lot of people.”

While broadband Internet has been touted as a key for growth and economic development in rural communities, the experience of Schumaker and other rural retailers shows that online access doesn’t benefit everyone equally. High-speed broadband access can mean that businesses have access to markets they wouldn’t otherwise have—but it also means that consumers have easy access to many more shopping options, and local retailers can face stiff competition.

A help to some, a harm to others

The proportion of money that shoppers spend online is increasing nearly every year. According to Forrester Research, Inc., e-retail is estimated to make up 9 percent of total retail sales in 2016, up from 7 percent in 2012 and 2011 and from 5 percent five years ago. Since overall retail spending is basically flat, that means the increase in online shopping has come at the expense of brick-and-mortar retailers.

Online shopping is likely affecting sales at Lee & Hanson, Inc., a men’s clothing store in Britton that’s been in business for 111 years.

“I’m not sure how to gauge online sales, but I can assume it affects us due to the ease of it and everybody is busy working,” said Roger Furman, who has been at the store for 42 years. “It’s easy to go online when you’re home at night.”

He has also noticed a significant change in buying behavior in those 42 years, and easy online shopping may have made that change even more noticeable.

“The more money people have, the farther away they shop,” Furman said. “When they have more money at their disposal they are looking for more variety, and it’s hard for a small town store to keep up with styles, especially for kids. Companies also don’t like to sell to us because we don’t do enough volume.”

While the Internet has hurt some rural businesses, others have used the Internet to increase sales.

Colleen Pfeifer and John Pfeifer, co-owners of VoWac Publishing in Faulkton, say online sales are an important part of their business. They get both calls and orders for their phonics texts and curriculum from their website.

“It’s the way the world is and how we communicate,” said John Pfeifer. “Our logs have shown people who come to check us out online are from all over the world. It’s certainly made it easy for us to do more legitimate business with people we might not have ever had any interaction with otherwise. And online orders are certainly a great way to keep our product moving to our customers.”

Some businesses are a better fit for online retailing than others. Sharon Huss, manager and co-owner of Uniquely Yours, a variety store in Faulkton that has won national awards for its creative displays, is one retailer that tried online sales and dropped it.

“It wasn’t very successful, or at least not successful enough to keep maintaining the website,” Huss said. “Our inventory changed so frequently that we couldn’t keep up with maintaining it, so we eventually just let it go. It’s not what the store is really about anyway. We like people to come into the store, get a cup of coffee and have a look around.”

The sales tax question

The success of local businesses is a concern for local and state governments, as well as for the businesses and their communities. If local businesses have fewer sales, the state gets less sales tax revenue. Any municipality with a sales tax also has less money coming in.

Theoretically, if a North or South Dakotan makes a purchase online and does not pay sales tax during the transaction, he or she owes the equivalent use tax to the state—which would balance out the amount lost from local business sales. In practice, however, few people know they are required to pay use taxes for online purchases, or go to the extra effort do so.  In 2010, then-S.D. Gov. Mike Rounds estimated that the state loses $35 million a year in unpaid use taxes, or about 3 percent of the state’s budget.

This also, of course, puts the local retailer at a disadvantage.

Schumaker said that charging 6 percent sales tax in his store when no tax is charged during online purchases makes a difference, especially for a bigger-ticket item like furniture.

“If somebody spends $5,000 on furniture, that’s $300 in sales tax, and that’s a factor,” he said.

Furman said the bigger loser is the state. “We lose, too, but the state has no way to collect sales tax, and that lost tax grows every year,” he said.

A recent South Dakota law requires that online retailers doing business with a South Dakotan must inform the customer that he or she is legally required to pay use tax on that purchase. Whether shoppers will ante up with this new information is still in question: Figuring a year’s worth of online purchases—or filling out a state tax form, for that matter—is not something most South Dakotans are used to doing.

Social media connections

Even if rural businesses aren’t selling directly online, many have started using social media to connect with current and potential customers.

When Jeani Amacher, owner of Dizzy Blondz in Britton, started her business six and a half years ago, selling her jewelry and custom banners on eBay was a significant part of her business. She and her staff no longer do that because they keep busy enough through the store in Britton. However, they do use Facebook to market products.

“Any time we get new purse or some new product we want to tell people about, we take a picture and tell about it on Facebook,” Amacher said. “We have a lot of people come into the store after seeing (a post on) Facebook.”

Facebook is also a key part of the marketing for Uniquely Yours in Faulkton. Huss said she uses it to post photos of new displays and get the word out about upcoming events.

John Pfeifer says he connects with new VoWac Publishing clients through social media. He even leaves open invitations to play online games of Scrabble with potential customers.

“It does help to make connections with people who can become our customers,” he said. “Though when you open the door wide like we’re doing, then you also invite other things in. Flamers, spammers and solicitors are all things we have to deal with.”

Internet will remain a factor

While Facebook is free to use, it requires an investment of time to be effective as a marketing tool. Getting online sales going requires both money and time.

“It isn’t a free service to build a website and keep it working,” said Colleen Pfeifer. “Web site design, server space, all that has to be paid for and be worth paying for.”

Regardless of whether a business has decided a presence on the Internet is worth paying for, the upward trend in online sales means that the Internet’s presence in the retail world is not going away—and, according to a Feb. 25 article from The Economist, retailers ignore it at their peril.

“After a panic at the turn of the millennium about the impact on their industry of online shopping, bricks-and-mortar stores settled into making only modest alterations to their business model or, ostrich-like, trying to ignore it. Few have so far made the radical changes needed to meet the threats from, and tap the enormous potential of, e-commerce,” according to the article. “Such inaction threatens retailers’ survival.”

 

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Drop (or limit) products that don’t compete well with online sales. Music and video sales, which can now be downloaded instantly, are one example, according to a February article in The Economist. Another less obvious product is diapers—customers know what they want and don’t feel the need to go to a store to lug them home. Focus on products that customers want to try before they buy. But also follow the next suggestion:

Focus on creating a rapport with customers. If “showrooming” is a problem, make sure that service is a priority—for example, providing good advice from knowledgeable salespeople. The key is building a relationship. “Too many retailers think only of getting a quick sale,” according to the Economist article. “They are the most at risk from ‘showrooming.’”

Make sure the store is a fun place to visit. When online shopping presents an easier option, retailers need to make sure a visit to a store is pleasant and even entertaining. A trip to the Apple store is also an experience in modern architecture and design; a visit to a Disney store, although sometimes trying for parents, is a 30-minute adventure for children. Think creatively to determine what “fun” means to your target market.

Use location-based marketing. Even if you are not planning on selling online or marketing through social media, you should make sure shoppers can find you if they are in your area. With the ubiquity of smart phones today (nearly one-third of Americans own one), that means making sure you can be found in mobile searches. Start at www.getlisted.org, where you can see where your business shows up in the online world. Top three places to get listed: Google Places for Business, Yelp and Foursquare.

 

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TOP 10 REASONS  TO BUY LOCAL

Adapted from “Ten Reasons” on LocalFirst.com

1.  Significantly more money recirculates in your local community.

When you purchase at locally owned businesses rather than non-local businesses, more money is kept in the community because local businesses frequently purchase from other local businesses. Purchasing local goods and services helps grow area businesses as well as the local tax base.

2.  Unique businesses create character and prosperity.

The unique character of our communities is what brought us here and keeps us here. Our tourism businesses also benefit.

3.  Environmental impact is reduced.

Local businesses make more local purchases and require less transportation. They are usually located in town rather than on the outskirts. This reduces sprawl, congestion, habitat loss and pollution.

4.  Most new jobs are provided by locally owned businesses.

Small, locally owned businesses are the largest employers in the United States.

5.  Nonprofits receive greater support.

Local business owners donate more to local charities than non-local owners.

6.  Customer service is better.

Local businesses often hire people with more specific product or service expertise.

7.  Local business owners invest in community.

Local businesses are owned by people who live in this community, are less likely to leave, and are more invested in the community’s future.

8.  Public benefits far outweigh public costs.

Local businesses require less infrastructure and more efficiently utilize public services compared to chain stores.

9.  Competition and diversity lead to more and better choices.

A marketplace of several small businesses is the best way to ensure innovation and low prices over the long-term.

10. Investment in the greater region is encouraged.

A growing body of economic research shows that in an increasingly homogenized world, entrepreneurs and skilled workers are more likely to invest and settle in communities that preserve their one-of-a-kind businesses and distinctive character.