The New and Improved American Small Business

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"I think the thing that all small-business owners need to know is that retail -- never mind bookselling -- is a Darwinian business," says Barnes & Noble CEO Len Riggio. "It's almost a rule that if any retailer makes a substantially high return in his business, then somebody will come in to compete. If you have a great store, you are rewarded with another store next door."

Why should Schwartz escape? Barnes & Noble, Borders, Books-a-Million, and Crown Books have been rolling out superstores at a furious rate, terrifying independents, and raising the stakes. In just three years the huge stores have come to dominate the industry. Barnes & Noble now has more than 250 locations, Borders more than 60. Both plan to double in the next five years.

"The superstores are moving into locations where independents have developed the market. Booksellers may have grown the market for 20 years -- and here comes a superstore of 30,000 square feet, saying, 'OK, thank you very much, we'll take some of your market," says Vicki Worthers, national account manager for Simon & Schuster. "It looks very predatory."

In Denver Joyce Meskis's renowned Tattered Cover battles four Barnes & Noble superstores that ring the city like wolves. In Minneapolis, home to several strong independents, Barnes & Noble has plunked down 25,000 square feet within two blocks of Baxter's, a local favorite.

Moreover, "Waldenbooks has as much trouble with the superstores as the independents do," says Waldenbooks CEO Charlie Cumello. Kmart, which purchased Waldenbooks in 1984, took a $140-million restructuring reserve last year, in part to cover the cost of closing 187 poorly performing mall stores. The retail giant also purchased Borders Books in 1992 and has pumped it full of expansion money. Today the average Borders, which also sells music, exceeds 40,000 square feet -- including the espresso bar. The bigger the market grows, it seems, the bigger the new stores are. Whereas a store of 10,000 square feet was once considered large, most superstores now cover close to 30,000 and carry commensurately deep inventory. "The growth in malls is over," Cumello says. "It's the size of your stores that has become the major issue today."

Schwartz and Domnitz have no illusions. They know they are threatened by the Barnes & Noble store. The Brookfield store's budget projects a 10% to 25% hit to sales. But that store is expected to recover, partly on account of a 6,200-square-foot expansion that brought its size up to 15,000 feet.

Domnitz argues that independents should compete with superstores only up to a point. "The issue is what books you have, how well you know your market, and what people are looking for when they walk into your store. We have the right 60,000 titles. What good does it do to have 200,000 titles when no one wants those books?"

The view of Waldenbooks' Cumello betrays less emotion: "You'll find instances where superstores go in right next door to independents and do three times the revenue. That tells me that the customer wasn't being served in the market."

Domnitz considers the evidence. "We have to be the best retailers in the marketplace. We have to know our systems, our numbers, everything there is to know about this business, and we have to work on those five factors that bring people to our stores. We need this to be the most attractive, most well-stocked, best-serviced, most value-oriented, most selection-driven experience that anyone could possibly have."

In other words, he and Schwartz -- like company builders of every size everywhere -- have to be pros. "Today," Domnitz says, "each of our stores is well capitalized and perfectly located. Our help is trained to the teeth. And sales from 40-30-20-10 have been tremendous.

"Last year we had our best year ever," he continues, sounding not a little like a general itemizing reasons to enter a battle with hope. "So now that Barnes & Noble is coming to town, we say, 'Come on. Let's go to war."

BEFORE AND AFTER

The Five Attributes That Set Professionalized Small Businesses Apart

They're Automated

"About half of all small businesses are now computerized," says Jay O'Connor, product manager of Intuit Software, in Menlo Park, Calif. More than 500,000 businesses use Intuit's QuickBooks, a business-accounting software program, and roughly 30% of the 6 million customers who have bought Quicken, the company's best-selling personal-accounting software, use it in their small businesses.

With such resources, "the quality of the information we get on our businesses has improved dramatically over the last 10 years," says Robert Worrell, president of the Bank of Grays Harbor, in Grays Harbor, Wash. "Instead of keeping the information in their hip pockets, people use their personal computers to help them get out their monthly statements -- whether they are in manufacturing, logging, or fishing."

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