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The story of the retail battle over the past few decades has cited one of two wars: Amazon and e-commerce against big retailers, and every big person against small high street entrepreneurs. But in the current confusing economic environment — marked by inflation, supply chain bottlenecks and volatile consumer spending patterns due to post-Covid high prices — small business experts say Main Street should be more optimistic about the merits of being small.

Inventory builds and subsequent write-offs from the biggest retailers, including Walmart and Target, show that even the best can go wrong with the consumer economy. In fact, small business owners, being closer to relationships at both the supply and customer ends, may be able to manage a rapidly changing environment more nimbly.

That’s the advice of Nada Sanders, Distinguished Professor of Supply Chain Management at Northeastern University. She told CNBC’s Small Business Playbook virtual summit on Wednesday that she had been “dreary and tormented” in the past, but now she is optimistic about Main Street’s chances in the current economy.

“I actually see this as a huge opportunity,” Sanders said. “I’m really doing it. Especially for small businesses.”

She cites three areas that entrepreneurs should focus on, the first of which is directly related to the problems of large retailers: forecasting.

“Big companies are really struggling with that,” said Sanders, an academic expert in forecasting. “We see it, of course, with retailers. Walmart, Target.”

Talk directly to customers to understand the transformation of consumer demand

Her view is that the largest companies have become too reliant on inventory algorithms to predict data, but in the current economy, which challenges many historical patterns, “Historical data in this space right now isn’t really good data. It’s not clean data,” she said. into a volatile future.

This gives small business owners who can communicate directly with customers, to understand their needs, a potential advantage that cannot be calculated by an algorithm.

Whether it’s a B2B or B2C small business, Sanders said direct contact is a “real answer” for them now in dealing with changing consumer behavior.

“What I see with the big companies, they are trying to hire futurists and trying to figure out ways to actually forecast demand. But every time we look at the numbers, the CPI, it’s all looking back,” Sanders said. I think we have to look forward. Small business owners really need to communicate and use judgment to predict and understand what their customers need.”

“As a small business owner on a tight budget… you don’t even need really heavy-duty AI, which I think a lot of small business owners get a little nervous about. … you can actually create a lot of gains through,” Sanders said. Really simple solutions, “When you’re a small business, you have overall control that a large company doesn’t have. I see this as a really big opportunity,” he added.

Main Street already thinks it’s in the doldrums

It would be a leap for many entrepreneurs to come to this view. The data shows that current sentiment on Main Street is pessimistic. Show the latest CNBC poll | Small Business SurveyMonkey Q3 2022 Small business confidence is at an all-time low, with the largest percentage of small businesses citing inflation as their biggest risk.

In the third-quarter survey, a growing percentage of small businesses expected a decline in sales over the next 12 months because the economy, in their view, is already in a recession. Pessimistic sales forecasts were the biggest contributor to the drop in confidence ever. As small businesses face higher costs in input, labour, transportation and energy, few (only 13%) say now is the time to pass the price increases on to customers, according to the survey.

How to determine prices during inflation

But pricing is also an area in which small businesses can communicate effectively and directly with their customers and find solutions.

One of the big mistakes business owners make is not setting prices on new products, Jeffrey Robinson, dean of Rutgers School of Business and executive vice-chancellor, and co-founder of the Center for Urban Entrepreneurship and Economic Development, said at the virtual Small Business Playbook Summit. Products until it’s too late. In a time of high inflation, entrepreneurs need to base any pricing of new items on a detailed analysis of the costs that go into producing them. The traditional way companies set prices — deciding on a product and then once it’s available, look at what competitors are charging — is not the way to operate in this economy. Inflation requires small business owners to set prices and, first of all, understand their costs.

“All of those prices along the supply chain have gone up,” Robinson said. “Shipping costs…anything that includes any element of transportation, these costs have gone up. So evaluating and evaluating your product or service that you provide along with these costs, before setting a price, allows you to set the price at the appropriate level.”

Then comes the hard part: explaining it to the client. Robinson says the direct relationship between small businesses and their customers should be seen as an advantage as well.

“We have relationships,” he said. “Speak.” “Find out. You have to explain to them that the costs of these components have gone up. In order to do this, I have to change some prices,” he said.

He said that helping customers understand the situation to which a business is related to supply chain inflation will help in setting prices in an appropriate manner. In the end, Robinson said it’s really no different from a restaurant that always showed the price of the fish on the menu as the “market price.” This may be a simplified example, but it is reflected in the current situation.

Some restaurants put signage up front during the current inflationary period to be transparent with customers about price changes. Robinson didn’t think about this method specifically, but he said that every company needs to have some kind of conversation with customers and potential customers about the fact that prices two years ago wouldn’t be today’s prices. While survey data shows small business owners are wary of this conversation, Robinson said they shouldn’t be.

“I think a lot of consumers realize that, especially if you’re a B2C,” he said. “It’s about transparency…helping people understand that prices are changing.”

Map the supply chain with key vendors

Equally important is the conversation with suppliers, and Sanders said the data shows that, on average, 80% of a company’s spending goes toward 6% of its suppliers. These are the business partners to focus on, where to pick up the phone and call and build a relationship. “As a small company, that’s really what things are going to be like,” Sanders said. “What I think you need to do as a small business is to really be able to plan your supply chain for your key items, talk to your vendors, and really build partnerships,” she said.

Most large companies don’t have much visibility below their first-tier suppliers, Sanders said, so it becomes difficult to trace many items back to the supply chain, “level four, level five.”

A small business can map its supply chain and work with partners to visualize the entire chain and identify risks. Right now, retail inventory issues may be making small business owners even more reluctant to stock up — though it’s the start of the peak shopping season, with back to school and then the holidays. Sanders said she firmly believes in running a “simple” process, but in the current economy, “we need to implement some caveats about what lean means.”

In some cases, small businesses will have to stock additional items, important items with longer lead times, and where price increases are expected. All companies should also take a look at their production processes and whether there are alternatives that can lead to more cost-effective operations. Carrying additional stocks “flies in the face of the lean,” she said, but added, “The advantage of a small business is really being able to manage it at the same time, upstream and downstream, and coordinate that.”

The biggest problem with the current economy is the mismatch between supply and demand, and here Sanders returns to the problems Walmart and Target have faced and why small businesses should take an opportunistic view of the situation, and be proactive about conversations about both supply. side and the end customer side of their operations.

“Big companies are dinosaurs… They are very heavy and bureaucratic. Not a small business, you are very agile,” she said.

The key for small business owners is not just looking in one direction, either downstream (customer) or upstream (supplier). But look at those at the same time, really marry them, watch them, connect with customers, connect with all the sellers,” Sanders said. “Big companies can’t do that. It’s stuck because they have huge silos. As a small business, you don’t have that, so take advantage of that now.”

Lesson learned for Walmart’s Main Street, target stock fail – Digital Tech Blog

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