Small local businesses face toughest odds in recession

Independent stores spread the word: Shopping local can help a neighbor in hard times

Staff WriterJune 27, 2010 

  • When: Thursday through July 7

    Who: The 70 associations that are members of the American Independent Business Alliance will be celebrating their members, including the 163 members of ShopLocal Raleigh.

    What: Many local stores will be offering special deals, sales and promotions to celebrate.

    More: Visit the ShopLocal Raleigh website shoplocalraleigh.org

At the Moxie Kids store in Cameron Village, racks that were once filled with colorful children's clothing are slowly emptying.

Fixtures are for sale.

The store is counting down its final days in business.

The co-owners, Penny Ashley-Lawrence and Gina DeFrank, say there was no one thing that doomed the store.

The slowdown in consumer spending was, of course, the most important factor. But it was not the only one. The store had too much cash tied up in inventory. A flood last year closed the store for three weeks at the height of its busiest season. And as the credit crunch swept the lending industry, the bank cut back the store's credit line.

Those are small things. Individually, they could have been absorbed; and a larger chain could have handled them more easily.

But coming at once, they were enough to kill a small local business.

Now, with Independents Week coming up the first week of July, area retailers are reaching out to try to spread the word that shopping local could help a neighbor get through a rough patch.

It's not just their stores that are at stake, they argue: It's jobs, it's taxes.

Many have not been shy about saying they're in trouble. But even such heartfelt pleas sometimes fall on deaf ears as shoppers continue to flock to mega-stores that offer one-stop shopping and lower prices.

"The mom and pops out here are good people, and they're really trying hard," Ashley-Lawrence said. "And they'll do anything before they close their store."

The recession has been tough on businesses of all sizes.

Some of the nation's largest retailers, including Circuit City and Linens-N-Things, have gone belly up in the last few years.

But for independent businesses, there's less room for error.

For Moxie Kids, the bank's decision to cut the store's line of credit meant not enough money to order inventory.

"I get the mechanics behind [the bank's decision], but I'm not sure it was fair," Ashley-Lawrence said. "In 2009 we actually had our best year in terms of profit. We really figured out how to buy well. Our profit was up 60 percent. But the problem is, we just didn't have enough inventory, and we couldn't come up with the cash to keep buying."

It's hard for independent businesses to know what to do in times like this, said Jeff Milchen, co-founder of the American Independent Business Alliance, which helps groups like Shop Local Raleigh organize and operate. Independent businesses are generally known for carrying more expensive specialty items, so they have to choose to keep selling more expensive goods or stocking cheaper items and risk losing their core following.

Price versus value

"The big box stores are basing their appeal on price alone," he said. "So when times are tough, people tend to think on a shorter-term horizon and may spend $99 on a lawn mower at Wal-mart instead of a couple hundred on one that's going to last for 20 years. If people are thinking about cheapness as opposed to value, then the independents are going to lose in most cases."

It's hard to know exactly how many small independent businesses there are, but Milchen said some estimates are that 98 to 99 percent of all businesses are independently owned.

In such industries as retail and restaurants, chains are much more dominant. The Chicago research firm Technomic estimates that 36 percent of restaurants are run by chains.

Many independently owned businesses in all industries have closed over the past two years, succumbing to the credit crunch, the drop in consumer spending and the bills.

"That traffic fell off, but the rent didn't," Ashley-Lawrence said. "So we started paying more per person who walked in the door."

Many are trying to fall back on their relationships with customers to try to drum up business, issuing honest appeals for more business - something a large national chain would probably never do.

Direct appeal for help

Earlier this month, Paul Katsirubas sent an e-mail newsletter to customers of his Wine 'N Things shop in Raleigh encouraging them to buy their wine from local owners.

"We have done everything we can possibly imagine to help Wine 'N Things weather our country's current financial situation," he wrote, "but we are slowly running out of money, out of credit, and out of time."

And he got a little philosophical, asking "Does occasionally shopping at big boxes make me a bad dude? I'm not sure. What it does mean is that perhaps I could be a bit more conscious of the economic power that I possess in spending my cash."

Wine 'N Things, which also has a store in Fuquay-Varina, has just fallen victim to the economy, Katsirubas said. The store in the Stonehenge shopping center on Creedmoor Road in Raleigh will only last another few months if things don't improve, though Katsirubas said he'd try to keep the Fuquay-Varina store open as it is doing slightly better.

All cards on the table

"We're trying to take a philosophical approach to it and say, 'Here it is; all our cards are on the table,'" he said.

Since he sent the newsletter out on June 9, he said, there has been a little response.

"I think a lot of our regular customers are really increasing their purchases and trying to help us out," he said. "But there's been no huge uptick."

A toy store folds

Though such pleas are heartfelt, they often don't help enough to keep a company in business.

Earlier this month, Tookie's Toys owners John and Katherine Hodges closed the doors of their one remaining store in Cameron Village after nine years in business.

In their goodbye e-mail message to customers, they wrote, "Your locally-owned independent businesses need you now more than ever! Shopping locally makes a significant difference to our community."

John and Katherine Hodges declined to be interviewed for this story.

The goal of the coming weeklong celebration of independent businesses is to get shoppers to realize that spending their money locally has an impact beyond one store, said Jennifer Bradshaw, new executive director of ShopLocal Raleigh.

A pyramid of people

"They are our friends and our neighbors and they need help," she said. "You have to remember that that's your neighbor and that's your neighborhood. It starts with the store, but it impacts this pyramid of people."

Still, the entrepreneurial spirit that many small business owners possess is still strong, Ashley-Lawrence said. Moxie Kids will continue to operate online via its website for now.

"We have customers online from all over the world," she said. "If we can break into that a little bit more and put our resources into that, we may be able to reopen at some point in Raleigh somewhere else."

sue.stock@newsobserver.com or 919-829-4649

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