Small Business and Big Box? They’re More Similar Than You Think
“Big box companies are the death of small business!” So the ethical consumers cry.
While yes, many small businesses have not been able to compete with the lower prices a major company with economies of scale can provide, an overwhelming amount of small businesses have realized if you can’t beat them, you should join them.
Small businesses partner with companies like Amazon, Walmart, Target and others to increase their distribution and form a partnership of manufacturer to retailer or small retailer to bigger retailer. When consumers are walking out of the store with an armful of Walmart bags or checking out their online shopping cart on Amazon, they may still be supporting small businesses who sell under the umbrella of the giant retailer.
Small Business Is The Backbone Of Major Retailers
If a major retailer tried to manufacture, market, sell and distribute every product in their thousands of stores, they would have immense fulfillment issues.
One of the biggest nightmares for retailers is having profitability interrupted by out of stock items. Then add the challenges of managing products across multiple channels, aligning inventory and delivery, coordinating with suppliers and manufacturers, all while connecting in-store purchases and pickups with online orders. Online shopping has increased the need for third party vendors because big names have such massive scale operations that they simply can’t fulfill all of their online orders themselves or offer the endless product lines needed to satisfy every customer.
Small businesses that sell on the website of a major retailer and drop ship their products are able to gain brand exposure without the costs of marketing and storefront space. With drop shipping, the merchant sells the product while the vendor ships it. This way, the merchant doesn’t have to worry about inventory, can lower overhead costs, offer a bigger product line, pick vendors with locations across the US, and saves on start up costs for building inventory. Sites like Wayfair and Overstock are primarily composed of furniture drop-shipped from small business vendors.
Look at any shelf at big-box stores. The store will likely have its own brand as well as name brand products of inventory for household staples and commodities, but alongside them are products supplied by small businesses. If you go online, you can find infinitely more.
How Big Box Helps Small Business
The natural search engine of big-box company websites allows for increased discoverability of small businesses selling on the website.
By selling through a major name, the small business can save on marketing, web design and management, customer relationship management and more. That leaves the vendor with maintaining their end of having enough inventory and analyzing customer demand patterns, having enough storage, shipping and packaging efficiently, and generally upholding their end to keep the supply chain running smoothly.
While some merchants will have the vendor drop ship and order directly to the customer, other merchants, like Amazon prefer to handle shipping and stocking inventory on their own. Fulfillment by Amazon has the vendor send their inventory to a warehouse, so all the vendor has to do is coordinate with the manufacturer to keep it in stock. This mega ecommerce site can process over 400 orders per second at peak times, bringing in revenues of nearly $90bn a year. The supply chain relationship between vendor and merchant ultimately comes down to the preferences of the merchant.
After much criticism, Amazon has been making a greater effort to promote the relationships the company has built with small businesses. Amazon facilitates the storage and sale of goods from third party vendors and has seller pages to allow consumers to research the business: are they buying from an overseas manufacturer or a local small business? Shoppers can take advantage of Amazon Launchpad, a new section of the website dedicated to special deals from small and emerging brands. The website can be a critical tool for e-commerce-only retailers looking for a platform to gain exposure. Consumers may be surprised to learn that more than half of items sold on Amazon Marketplace come from small and medium-sized businesses.
Maintaining Cash Flow In Retail
Running a retail business is quite the balancing act when it comes to maintaining a steady cash flow. Seasonal rushes and changing consumer behavior causes supply chain headaches, while growing pains constantly arise from delayed fulfillment times, high fulfillment costs, and the inability to offer competitive shipping options and prices.
Scaling a business is tough no matter the industry. With retail, much of the growing costs come from inventory and storage. Retailers looking to grow while keeping cash flow smooth often take outside funding. This allows them to stock up on inventory and expand product lines without straining cash flow allocated for payroll, rent, packaging and shipping, etc.
Other retailers struggling with cash flow but not necessarily looking to expand use outside funding to stock up on inventory when prices drop and create better partnerships with manufacturers and distributors to lower costs.
The retail industry is one of many moving parts. While big box stores certainly have a competitive advantage from their ability to do most operations in house, their relationship with small businesses is closer than most consumers think, mostly due to white labeling and umbrella operations. If your conscience feels bad for not supporting small business, research the product you are buying under the big box name. Your local Superstore is supported by more small businesses than what meets the eye.
Contributed by Alex Shvarts, CTO of FundKite, one of the fastest growing FinTech companies providing funding to small businesses. Alex helps business merchants looking to grow their companies with a boost in working capital. Alex strives to strengthen the industry with new programs and ideas, and in turn he has created a brand for FundKite that stands out from competitors.