Using the Internet to level the battlefield for independent retailers

The idea behind Goliath Falls, launched last July as an offshoot of product promotions company Promotions Unlimited Corp. of Racine, Wis., is that the Internet can create efficient and timely communications among retailers and between retailers and Goliath Falls as an aggregator. The company can leverage those efficiencies to reduce prices for independent retailers

“We’re out there to fill a void for independent retailers, which represent $450 billion to $1.5 trillion worth of product opportunity,” says Steven Greenberg, chairman and CEO of Goliath Falls. “We’re building an online community for independent retailers to boost margins, stay competitive and have access to the best products.”

Goliath Falls was created to take advantage of the Internet’s reach combined with the retail experience of Promotions Unlimited, the Greenberg family business that currently counts 7,000 retailers as clients. Promotions Unlimited has provided promotional program circulars and coupon books to independent retailers for the past 40 years. But over the last 10 years, Greenberg has seen independent retailers get squeezed out of the product market.

“The pressure was not so much due to the rise of the one-stop shopping retailers as it was the one-stop selling, where suppliers were more focused on selling products to the biggest retailers at discounts and making money off selling wholesale to the independent stores,” Greenberg says. Paying full wholesale price has forced smaller retailers to sell their products at higher prices and put many at an extreme, usually mortal, disadvantage.

Part of the problem was that, because suppliers focused on the bigger retailers, the smaller retailers had no way to get information about product promotions, let alone get access to the suppliers and manufacturers selling them. But while Promotions Unlimited was naturally sympathetic to its own market, and wanted to do something to help, it didn’t want to become a wholesaler to small businesses

“Traditional wholesaling is an ugly business and we didn’t want to get into that,” Greenberg says. “Instead, we wanted to take the fragmented independent retailer market and make them a unit under Goliath Falls.”

For no charge, independent retailers can sign up for a Goliath Falls membership to get access to the company’s web site. If a retailer does not have a computer, the company will provide one and train staff to use it, in exchange for a commitment to buy at least $25,000 worth of goods in the first year. Goliath Falls’ web site service provides access to buying groups for the latest consumer products from Crest toothpaste specials to Razor Scooters. Partner deals offer retailer discount services to help run a small business, such as payroll, insurance and long-distance phone service, among others. Last, retailers can access information on the product deals on the web site. “This gives retailers somewhere to go to find out what’s hot and buy it in the same place. Having the knowledge of the product and the ability to buy it at their fingertips will allow smaller retailers to compete with the K marts, Wal-Marts and Targets,” Greenberg says. Goliath Falls takes an undisclosed percentage of all the sales made through the site and receives compensation from the site partners who offer business services.

Goliath Falls’ staff of four buyers procures goods in the drugstore, variety goods, grocery, hardware and crafts categories, which are stored in a rented 25,000-square-foot warehouse in Minneapolis. While maintaining inventory is risky for any company, Greenberg says having the Internet is a fast way to unload excess goods. “We can use the hot buys section of our site to reduce the price of goods and sell them to the retailers,” he says. Goliath Falls also does aggregate buys for merchandise that comes direct from the manufacturers, as well as the merchandise it buys and stocks itself. Goliath Falls’ relationship with Promotions Unlimited also gives the company an established connection to the manufacturers.

“The fact that the company has been in the retail business gives them a running start.” The challenge, he says, is to get a critical mass of these smaller retailers,” says James Okamura, senior partner at retail consultancy J.C. Williams Group Ltd. “It makes a world of difference if you’ve got retailer connections and brick-and-mortar roots.”

Greenberg says critical mass for Goliath Falls means at least 1,000 retailers using the site regularly for goods procurement. Currently, 1,000 stores are using the site, with 1,000 more on the way and 3,000 others using the site for its other services. The web site still is in a beta phase and is just starting to see repeat buyers.

With a telesales team of about 15, the company is focusing on independent retailers nationwide, including Alaska and Puerto Rico, and is honing its efforts on Promotions Unlimited’s customer base of 7,000 retailers. Although the company uses the Internet for connecting retailers, Goliath Falls understands that it will take more to serve the small retailers than just setting up a web site. The company’s team of 13 account managers calls on retailers regularly and also passes on information on the latest products available through the site. And the company also plans to use hybrid marketing, via direct mail as well as the Internet, to promote products. In addition, it will add a chat room to the site for retailers to swap ideas, Greenberg says.

Ben Franklin Stores’ Director David Larsen says using Goliath Falls not only makes it easier to get information and buy goods, it is also faster than the old system and will eventually help change the dynamics between suppliers and retailers. “We have a lot more buying power and we have the ability to get products much quicker,” he says noting that some special buys can take up to four weeks to receive. “Traditionally, it has been very difficult to get information from suppliers and manufacturers because vendors will go first to a chain store that can make quicker buying decisions, with a better payout, than independently owned stores,” Larsen says. “With Goliath Falls becoming a buying power, vendors now will hopefully go to Goliath Falls first.”

While access to information and product buys online provides a faster way for small retailers to stock their wares, it’s also less labor intensive for a middleman such as Goliath Falls. “One of the biggest efficiencies gained is in the paperwork,” says Okamura, who notes that pre-Internet buying groups were paperwork-intensive. “There were a lot of transactions done by phone, FAX and mail. Automating this process by using the Internet allows the middleman to do more business with less labor,” he says. Okamura says, however, that signing up small retailers that do not have computers may mean more work: “They’ll have a lot of preaching to do,” he says. But Greenberg believes Goliath Falls’ grassroots approach is on track. “Right now we’re investing in the infrastructure and educating retailers,” Greenberg says.

And Goliath Falls has plenty of solid financing, which will help the company expand to retailers outside the Midwest. Goliath Falls has investments from Promotions Unlimited, as well as $10 million from Compaq Computers and is expecting to close a huge deal at the end of this month. “We’re working on additional funding that looks promising because people believe in our domain expertise and our ability to help consolidate the fragmented independent retailer market,” Greenberg says.