If your retail business is sink or swim, these tips will make you Michael Phelps…

Today’s small retailers have more to contend with than ever before, but sometimes all it takes is a hard dose of reality to cut through the confusion and get back on track.

To that end, here are three facts every small and mid-sized retailer should face up to if they want to keep kicking in the coming years:

1. Price Competition Will Kill Your Retail Business

Profit margins (and the factors that drive them) vary hugely from industry to industry, but in general, if you’re a smaller retail business competing against the major league, big box stores, trying to compete on price is going to land you in a world of hurt…

The more you sell, the lower your margin can be – while still covering your costs and providing you a paycheck.

If you sell 1,000 widgets a day, you can charge a lot less than someone only selling 100 and still manage to stay in business.

If there’s a bigger retailer selling the same widgets as you, price competition is a no-go. The math just doesn’t support it…

Just ask Peter Gasca, who sees both the supply and demand side of volume-based price differentiation as a developer and supplier of specialty toys to retailers large and small:

“Small retailers quite simply cannot compete with the likes of Walmart or Amazon on price and expect to survive, no matter how you slice it.

We compete on experience.”

You can provide better service, you can provide better widgets, you can provide added-value options…

You can give your customers an experience that is worth paying more – compete on value, not on price.

2. Selectiveness, Not Selection, Spells Success

You need to have the products your customers are after to keep selling them…

But that doesn’t mean you need to have the same products people are buying elsewhere.

Often, that’s the best way to a quick demise.

Find out who your customers are…

Not just the people shopping with you now…

Not the people shopping with your competitors…

Find the people who should be shopping with you in order to create the business and profitability you want.

Target your customers with care by carrying the things they really want, and don’t assume they already know what those are.

Do some research, find the next greatest thing, and put it in your shelves (physically or virtually – there’s plenty of room for niche retailers online). I talk about this extensively in The Predictable Profits Playbook, in the chapter titled “The Growth Factor.”

Small businesses need to specialize, and that goes double for retailers. Don’t compete by trying to carry a broad selection, compete by being selective – with your products and your customers.

Specialty retailer Zara has been shaking up the apparel world with this precise strategy…

Instead of trying to predict everything the fashionistas might be after next season, casting a wide net to maintaining a deep inventory, Zara restocks its shelves as often as twice a week with a very limited selection of items that are hot right now.

And they’ve been transforming cashmere into cash flow in a way that has their competitors turning green with envy.

3. Know Thyself… And Thy Niche

Before you can start competing on value, or make selectiveness effective, you need to know who you’re targeting…

Who is the ideal customer for your retail business?

If you just said, “everyone,” we’ve just uncovered the biggest problem facing your business.

Let me introduce you to the Pareto Principle – an economic fact of life that crops up again and again in practically all human endeavors.

Simply stated, 20% of all effort produces 80% of all value.

In practice, that means 20% of your time each day produces 80% of that day’s progress…

20% of your reading produces 80% of your knowledge gains….

And 20% of your customers generate 80% of your sales.

Focus on finding and attracting the right 20%. The other 80% of your customers – the mediocre shoppers – will only generate 20% of your business… They’ll find you anyway.

And it will hardly matter when they do.

You’ll be nice and cozy with your niche generating the real money needed to keep your retail business thriving.

I’ll have more tips coming soon about how to identify your niche – and how to create marketing materials just for them. Keep coming back, or sign up for my monthly newsletter by joining The Predictable Profits Insiders’ Club.

In your corner,

Charlie