Load Me Up: Should You Expand Your Retail Niche?

Hi. It’s mid-July, so as typically happens to me every year at this time, my left brain has gone on vacation. It’ll be back before too long as I work on a column about finding more click volume for your campaign when it just doesn’t seem possible. In the meantime, the right brain (“you can call me Dr. Nick”) is firmly in charge. What better time than now to trot out an existential dilemma: how big should your niche be? Related to that: how excited should you be about your products, and other products you don’t yet sell but probably should?

Is small really the new big?

In some categories of offline retail, we’ve had conclusive answers to such questions for decades.

Huge investments in new (larger) stores, and/or increasing the density of locations, were big (correct) bets placed by winning U.S. grocery chains (like Kroger) and drugstores (like Walgreens), as shown in Jim Collins’ Good to Great. Sticking with the old narrower selection was a great way to go extinct. North of the border, Shoppers Drug Mart surged ahead primarily because it followed the new store design and product breadth wisdom. Canadian Tire staved off seemingly impossible competition from Home Depot by similarly focusing heavily on new store orthodoxy.

How many flavors does Ben & Jerry’s have? Locations? How big is their distribution? Even well before they were acquired for $326 million, did anyone still labor under the misapprehension that they were small? But it is important to remember that they started with one location in a renovated gas station.

Anyway—that’s our offline heritage. If you run a small to midsized niche online business, what to do?

To quote my friend Matthew Good:

Picture yourself at the MGM Grand
Murphy’s fighting Occam, you’re in the stands

So I wanted to ponder how important it is for online retailers to broaden their product lines (as against the stereotype of niche marketing being successful). The stereotypes we typically hear are things like: focus, focus, focus. Bad companies emerge from good ones through “deworseification.” Pick the thing you can be best in the world at. And so forth. Is there any good way of measuring whether such assertions are true?

Ever notice how, even in small niches, the biggest player in that niche will disparage the other (even narrower, smaller) competitors, claiming they don’t amount to a hill of beans? Niche players like to feel their oats like anyone else. Often, the next impulse is achieve further breakout.

Listen to voices of experience

Let me tip you to the conclusion first, so you sense where I’m going. Most of those who advise you about “finding your niche” speak in platitudes, and have no clue. A lot of them position their advice towards very small online “information” businesses playing around trying to make a few bucks on click arbitrage or ebook sales. These people know very little about the dilemmas faced by established retail businesses.

As an antidote to this, you might want to read Ries and Trout on positioning, or Jim Collins on how to develop a Big Hairy Audacious Goal. Things do become much clearer if you develop a sense of how a small niche can make a transition to taking over a wider industry.

So what separates a permanent niche miner from a company that begins to expand its tentacles? The question’s too wide open, of course. Amazon might have wound up shipping a reasonable number of, say, used books, had things gone in one direction. Instead, they made the transition to a $30 billion retailer.

Contagious excitement won’t cost you a penny (just your soul, and the entirety of your very being)

Lacking clear answers, though, we can certainly see how small to midsized retailers—online and off—who undergo recognizable and surprising spurts of growth, seem to have something in common beyond the executional wisdom and recruiting skills of the larger enterprises that Collins tracks in Good to Great. That intangible seems to be: contagious excitement.

So as I researched this topic, I realized that it’s impossible to divorce the subject of “niche size” from the related (all too easily forgotten) point that from the consumer’s standpoint, retail should be fun! You don’t sell anything to people who don’t already want to be sold, so once that hurdle is crossed, why isn’t selling related items to them part of your business model? So, if “excitement” is synonymous with most successful businesses, can’t we agree that in many cases, the most successful businesses are so excited that they source or invent new products or packaging that specifically cater to their existing customers’ needs and wants, or possibly create new needs and wants?

These desires have to come from somewhere, and last time I checked, my wife’s determination to plant a rare dark-black lily in our backyard (while insisting that I pull out all those ugly orange ones) has very little relationship to feeding our family, or anyone else’s. Our neighbor’s mania to expand his garage to a double, in order to better protect his 1997 non-classic pickup truck, is similarly illogical. What explains this behavior? In short, of course, it’s classic post-materialistic behavior. Up the scale of Maslow’s hierarchy, if you will. People are looking for something to get fired up about… so give it to them. When that’s done, don’t stop there! Is it all that much more complicated than that?

The market isn’t your country club

Many businesses relegate themselves to oblivion through snobbery. They don’t have a market mindset—they have a cliquish “society” mindset.

Voodoo psychographics is the only way to describe the way some folks think.

I’m talking about wacky assumptions like:

• People with middle-class incomes aren’t willing to spend on high-ticket items
• People who get their hands dirty for a living aren’t interested in culture or lifestyle products, or don’t understand advanced high-tech products or features
• People with high incomes aren’t bargain-hunters
• Only losers wear a cheap watch
• Most Americans don’t “read books”
• Cool Whip is tacky
• Cadillacs are tacky

It wouldn’t take much energy to debunk most of these. Even on the last point, which I tend to agree with: would you think Cadillacs were tacky if Elvis personally gave you one? Aha! So you’ve changed your tune!

Disposable incomes are as elastic as they’ve ever been, thanks to wide variances in credit limits, family living situations, and willingness to mortgage the future or deprive oneself in some areas in order to splurge in others. Tony Blair and Bill Clinton wore cheap watches. And the millionaire next door drives a Ford. For some reason that hardworking guy down the street from you has a $3,000 snow blower when all you have is a $30 shovel. Answers as to why, in order: it’s politically expedient; it’s politically expedient; read the book; ego boost plus back problem.

Sadly, (1) business owners sometimes project their own snobbish distinctions onto the behaviors and norms for their customers; (2) over-profile specific consumer types rather than just trying to increase sales; (3) forget that consumer retail is supposed to be fun, at least for the buyer.

Too many business owners are deathly afraid of being called out as some sort of “huckster mattress king”. Well, guess what—if you’re trying to get someone to buy something from you, you already are! If you’re not trying…cough, I don’t know what to say, other than: you’re not trying.

Ray Allen agrees!

Thinking about business owner snobbery reminded me of a lengthy rant from (former ad exec) Ray Allen of AmericanMeadows.com, owner of a successful online wildflower store and farm. Ray’s also a Google Ad Words Poster Child.

I’ll quote most of it at some length because… well, because it’s hilarious (and don’t forget… long copy works… even for articles, sometimes). Some names and locations have been changed. Ray was just coming off a successful presentation at the 2006 Internet Retailer conference when he wrote to me:

I developed this PowerPoint presentation with really pretty wildflower photos and lots of screen shots. I even quoted from Ogilvy; you know me. It was mostly about copy, and how to write competitively. As examples, I showed my little AdWords next to dead sleeping competitors’ AdWords, and mine were for our Fall Seed Sale, or Spring Sale. As I went along, everyone loved it, except I noted a rather holier-than-thou smirk on one woman’s face in the second row. Everyone was eating it up, taking notes, I was cracking jokes about how CT hates NH, etc., all that stuff, and she just sat there waiting.

During the Q&A, the asked her zinger… and I could have predicted… “Well, ah, Ray…that was lovely, but… but… how do you feel about all the … uh, uh (then she pronounced the word as though it had four letters) promotion (gasp). This is a woman named Jane McNally. She is an artist, and also a real snot. CT is full of them. (“Sigh. Nooo, we don’t use Internet Advertising. It’s so tasteless. Etc.”)

Meanwhile, she has a website with a shopping cart, but you know… all that horrible advertising stuff! I’ve always hated her, but of course she doesn’t know that. So my answer. I smiled, and said, “Well Jane, competitive copy doesn’t have to be price-oriented; I just used my sales as an example. Perhaps it’s a new product. Perhaps it’s a seasonal message. All are competitive. (And they were all in my speech, !#@$!$!!)

Then I gave her what she deserved. “And Jane, even Tiffany’s has sales.” (She never has one.) … even if they may be called Savings Events, etc. It’s part of merchandising.

You know the type! How tiresome. I was so glad to get back to Miami and all my smiling Cuban capitalist friends!

Cool products and relentless “folksy” promotion = massive turnaround

Another retail anecdote, if you will, from north of the border.

Son-of-a-grocery-and-bakery-magnate Galen Weston attended the University of Western Ontario with future merchandising geek Dave Nichol, who joined the Loblaw company in 1972, making President by 1976. In the late ’70’s and throughout the ’80’s, Nichol masterminded their private-label product merchandising strategy, launching private label sensations such as No Name, President’s Choice, Too Good to Be True, “Memories of…” Sauces, and Green products, to name a few. A food connoisseur, Nichol also maintained editorial control over a folksy “Insider’s Report” full of anecdotes about rare and wonderful fruits and product formulations for exotic sauces and prepared frozen meats… and especially, sinful desserts. Much like the grandiose J. Peterman as portrayed on Seinfeld—but adding up to more total bottom-line impact—Nichol’s Insider Report had us believing that he was searching the corners of the earth for the right lemons to zest into some new line of cookies, or that he’d discovered a rare type of polar pig in Antarctica for a new line of sausages.

Loblaw Corp. went from near bankruptcy in 1971 to a huge and profitable success by 1984. After Nichol left the company in 1994, it continued to grow rapidly until several difficult industry trends stalled its progress.

Nichol’s relentless “discovery” of new products and the over-the-top merchandising of foodstuffs put Loblaws in good stead in a competitive grocery market in the 1980’s—no doubt taking advantage of high margins on the private-label items. The picture of eventual decline after Nichol (and his dog, Georgie Girl) left is complex. But among the reasons, arguably, is that the loss of a “voice” made the company rudderless. No one was there to tell people to buy the private-label products.

More recently, fresh-scrubbed company scion Galen Weston Jr. has taken the helm, and appears in limp commercials touting reusable shopping bags that will keep “a billion—a billion!” shopping bags out of landfills. Weston has been quoted as saying “Nichol was a foodie, and the problem is, I’m not.” In other words, I don’t like the business I’m in.

Life was more fun with Nichol around.

Offline can still teach online

Why all the focus on offline retail here?

Arguably, and not counting what eBay and Amazon know, most of what we know about retail is what we know about offline retail. E-commerce came of age less than a decade ago. (According to a recent press release by an industry association, among the top ten innovations in e-commerce in this decade were: widespread broadband adoption, wi-fi, Amazon, eBay, Google, and Google AdWords.)

The stage has barely been set for the basic viability of e-commerce, then. At this stage, many online retailers don’t yet fully know what their customers want, or at least, they’re not as confident as they should be that their customers will buy more from them if they unlock some secrets to developing that deep connection with customers in an oh-so-cluttered retail world. Thanks to relentless merchandising, new products like exotic bulbs, and a website redesign, Ray Allen’s average order size has risen to $84 from $62, for example.

It’s far too early to lock down our sets of assumptions about customer proclivities online. So why not take a step back and look at the obvious data about what people are willing to buy, and how rapaciously they are often willing to consume, in the offline world?

Back to bigger being better…

While niches are romantic, size and breadth do create remarkable experiences in themselves. It might be an added bonus, image-wise, that Zingermans.com “feels homey,” so that when I order pastry or bread online, I assume it’ll arrive fresh-baked. But they’re also remarkable because they’re big, to be honest. Lululemon (now on the cusp of an IPO) got noticed by a niche clientele partly because they pretty much just started with yoga pants, but they’re a business story today because they offer pretty much everything.

So when Seth recently told an anecdote about how great this little candy story on Ontario Hwy. 11 is—so great that people are willing to park on one side of the highway and walk across the bridge to get there; so great that they are more of a destination than all the gas stations and gift shops along the way—I filed it in the “not sure” category.

And then I read something that made me realize what a real business success story is: the excitement contemporary consumers are exhibiting for Giant Tiger, a Wal-Mart-like Canadian tortoise that has grown from a single Ottawa store in 1961 to $1 billion in annual sales today. (We could talk Wal-Mart, of course—but let’s keep it on a human scale, OK?) Not only are summer cottage-goers flocking to these stores (when you’re looking for a second set of placemats and dishes, and emergency toys to satisfy bored kids, even well-off people love to economize). The reasons for the success aren’t terribly complex, but they are detailed: it amounts to studying the model over many years and tweaking every aisle and product choice to cater to trends in demand. It doesn’t stop there: advertising messages and public relations strategies need to be relentless and ever-evolving, too.

The “intangible factor” has to be there for any of that to get done. The business owners have to be excited enough about the trends in demand that they care enough to constantly update their stores and products. On top of that, though, there might be a lot of other factors involved. We’ve all seen the little retail store experiments (or dying older stores) in small towns, doing about the same thing as Giant Tiger. Tiger also has capital, franchising agreements, a strong ad budget, and has made good choices about location. They’re up against Wal-Mart (and many others), needless to say.

In any case, while the little candy store described by Seth may have an interesting niche and share that level of excitement, when you multiply it by the degree of difficulty and dollars turned over, it’s a clear loser and Giant Tiger is the real business story: Giant Tiger also sells candy to the cottage crowd.

If the candy store is merely good, Giant Tiger is somewhere close to great—ugly yellow paint, cinder-block walls, and all (if I remember correctly from that first Ottawa location). Retail here is fun, but it’s no niche. It’s fun to the tune of 175 stores and growing.

I’ll be back next time to look at some case studies of “how big should my niche be” decisions faced by real ecommerce businesses. In the meantime, lest you think the secrets to success are subtle, I’ll leave you with a quote from Jim McIngvale, the mattress king: “Late to bed, early to rise, work like hell, and advertise.”

Erratum

I fooled you on one point. Cool Whip is tacky.