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Competing with the big guys


Since it opened in the 1940s, Hiland Park Hardware has changed owners, undergone some remodeling and added new merchandise, but has otherwise remained the same neighborhood hardware store it was decades ago.

The world around it, however, has changed dramatically. Other neighborhood stores have been replaced by 200,000-square-foot big-box stores operated by out-of-state retail chains that tout billions in quarterly sales and marketing budgets that dwarf that of any local competitor.

Hiland Park Hardware owner Bill Wheeler, who bought the store from his uncle 19 years ago, competes daily with big-box stores that, because of their immense sales volumes, receive discounts on everything from product orders to credit card processing fees.

“I think it’s wrong,” Wheeler said. “That’s one thing bad with our economy. We need more people to understand that we are the backbone of the neighborhood, the backbone of the country. We keep the money in the neighborhood; we don’t send it to Minneapolis or Chicago.”

Still, Wheeler and several other local business owners won’t even think of backing down as more national chains, from kitchen supply stores to coffeehouses, creep into Greater Des Moines. The owners say they identify a niche market and drive it home through customer service and specialized products. Some have established local chains of their own, and on occasion take a lesson from those big competitors. But many also say they find benefits in a community that emphasizes the importance of buying locally more than other communities its size.

“Des Moines is very loyal to its small businesses,” said Teresa Adams-Tomka, owner of Kitchen Collage in the East Village. “And not just in Des Moines, but in the entire Golden Circle area, people are very interested in doing business locally.”

Creating an identity

It’s been about 10 years since George Davis, along with his wife, Jan, and Bryan Marker, opened Grounds for Celebration in Beaverdale. Since then, they have opened four additional stores and expanded some of them, but have also seen the arrival in the Des Moines market of Starbucks Corp., a 9,500-store chain that expects to open 1,800 new coffeehouses globally in fiscal 2006.

Davis knew he was outmatched when it came to advertising and marketing, but hoped Starbucks would have the same effect in Greater Des Moines as it had in other markets, where its advertising helped educate consumers about upscale coffee drinks, thereby also boosting sales at independently owned coffeehouses.

“That hasn’t happened in Des Moines, primarily because they’re not spending money in Des Moines (on advertising) because they’re spending it on buildings and sending the money back to corporate,” he said. “They’re basically not advertising, and they don’t have to anymore because they’ve got such a strong brand name.”

Davis said he and his partners remain focused on what makes Grounds for Celebration unique. They serve lunch and homemade gelato, roast their own coffees, know many of their customers by name and create neighborhood gathering spots in their coffeehouses.

“We have such an identity ourselves, so I try not to let them dictate how I do business,” he said. “I try not to focus on what other businesses are doing that are seemingly competitors of mine because then I can’t focus on what I need to do, which is create the best coffee in Des Moines.”

Still, Davis can’t help but be frustrated by people who have never set foot in one of his coffeehouses and instead are regular Starbucks customers.

“Coffee is my life. It’s what I do; it’s what I love,” he said. “I know probably 90 percent of my customers’ faces, and I have five different locations and I’m in all of them every day. That’s something the Starbucks CEO can’t say.”

Location, location, location

Business owners such as Davis have heard it before: Location is everything. But what do you do when your toughest competitor has the funds available to buy land in any high-profile area in Greater Des Moines?

Grounds for Celebration and Boesen the Florist are just two Greater Des Moines businesses faced with that competitive challenge daily. Rather than place their stores in high-traffic sites, Davis and his partners have chosen to locate within neighborhoods such as Windsor Heights and Beaverdale and create coffeehouses that serve as gathering spots for a number of groups and organizations.

Boesen the Florist has faced increased competition from companies such as Wal-Mart Stores Inc. that market to customers who want to grab flowers from convenient locations while running errands or commuting. Rather than ignore market demand, the florist reacted by establishing a partnership with Dahl’s Food Marts, and now operates eight shops inside grocery stores throughout the metropolitan area.

Co-owner Tom Boesen said he is also faced with online competition from Internet-based companies such as 1800flowers.com and virtualflowers.com. He said these companies do nothing more than serve as order collectors that collect exorbitant service charges from their customers. As a response, Boesen’s is working on a new approach to its Web site that the owners hope will bring back those Internet shoppers.

“All of our competitors, we try to learn from them and copy the good things,” Boesen said. “And the things they lack on, we try to knock them dead.

“We know they can afford convenient locations and buying in bulk, but I think it starts and stops there. I think we can get better employees and train them better. I can’t always compete on locations. But in our business, I’m as far away as your phone. So every day we’re thinking about what we have to do.”

Supply chain

Boesen and other local business owners face similar circumstances when it comes to working with companies that, as a business practice, offer discounts to large national chains that purchase supplies and merchandise in volumes exponentially larger than those of smaller operations. Discounts to these chains stretch as far as processing fees on credit card transactions. Those extra costs, the owners say, have to be passed along to the customer.

“These companies say they’re friends of small business; I think they’re full of malarkey,” said Wheeler of Hiland Park Hardware.

Anne Jackson, owner of Siren, a women’s clothing boutique in West Glen, has not tried to compete for volume discounts, but instead tackles the supply chain issue by providing a limited selection of designer clothing lines that aren’t likely sold elsewhere in Greater Des Moines, or perhaps even in Iowa. Most mall clothing stores purchase their inventories in bulk, she said, leaving dozens of women walking around town in the same style of shirt. But she goes after the shoppers who want to stand out from the crowd.

“I am shocked at Americans’ desire to look and be like everyone else,” she said. “We try to get a unique product in here that differs significantly from the chain. So we go to market and our goal is to pick out things you can’t get anywhere else. We’re getting more experienced at buying for people so we can offer more personalized service. We have customers in mind who we buy for.”

Midwest Clothiers, owned by Dave Lemons and Tim Sitzmann, operates Mr. B, Sarto, Reichardt’s Clothing, Badowers and The Backroom. The company also strives to provide customers with a unique clothing selection. Though operated under one umbrella, each store has a separate buyer, which Lemons said eases the custom-ordering side of the business and enhances customer service.

“That (buyer) knows what’s coming and when it’s coming,” he said. “Typically at a large store, you don’t know what’s going to happen tomorrow, let alone six months from now.”

But faced with inventory and cost issues, some stores choose to back away from some merchandise when they know the competition can’t be beat. Wheeler eliminated small home appliances from his inventory, but filled the extra space with additional hardware materials. Kitchen Collage’s Adams-Tomka won’t sell some items that stores such as Williams-Sonoma Inc. carry in bulk.

“We try to maintain that we’re a specialty store and we’re specific about what we carry,” she said. “We try to follow trends and offer the latest in cookware gadgets and coffee machines and electrics and other kitchen items.”

Local chains

Boesen’s, Midwest Clothiers and Grounds for Celebration have found that by forming a chain of their own – though they don’t like to call it a chain – they still can’t compete for the volume discounts, but can keep their overhead costs down.

In the past, Boesen’s has bought out some of its competitors, which has allowed it to cut costs by consolidating such operations as bookkeeping and delivery rather than have each store perform those tasks individually.

“We certainly come from the philosophy that if you don’t grow, you die,” Boesen said. “In having such a large market share, and the Des Moines area not growing all that fast, we have to buy revenues.”

Lemons said Midwest Clothiers is able to operate five stores with “less backroom expense” than if each store were fully independent. But the company still builds each store with its own brand identity to maintain a sense of individuality.

Davis and his business partners now operate five coffeehouses in Des Moines, and the first store licensed by Grounds for Celebration will soon open downtown. But unlike a large national chain, each coffeehouse must remain profitable for it to stay open.

For those stores to continue to survive, several owners say consumers must be committed to supporting local businesses. Lemons said part of the reason for opening Sarto was to introduce designers that were new to Des Moines, and to recapture some of the dollars spent on those designers’ items in other states.

“I think we need to keep hammering at people that they need to shop local,” Wheeler said. “Otherwise, the big-box stores will take over and will dictate what will be available and what people will pay.”

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