January 31, 2001, 11:24 AM

Using the Internet to level the battlefield for independent retailers

Since the rise of the super retailers who have invaded every consumer market promising wide selections, volume discounts and huge retail facilities, many Main Street retailers have gone out of business, unable to compete for low-cost/high-demand products. Although it sometimes seems like it, not all Main Street retailers have disappeared. And Chicago-based Goliath Falls Inc., an aggregate online buying service for independent retailers, wants to use the Internet to help the remaining Davids of the retail world fight against the Goliaths in getting discounts on merchandise.

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.”

Fighting the fragmentation

Greenberg estimates there are 400,000 independent retailers, defined as merchants who operate one or two stores and have aggregate annual sales of $500 billion-or $1.25 million per retailer. Including all stores that are not part of the largest retail chains raises that number of stores to 900,000, representing $1.5 trillion in annual sales. Goliath Falls hopes to bring those retailers together by aggregating purchases in five vertical markets: drugs, variety goods, groceries, hardware and crafts. Today there are a little more than 2,000 stores involved in Goliath Falls, who do about $2.5 million in sales per store per year and procure $1.3 million wholesale goods per year.

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.

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