CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM Liz Schwartz holds a cup of coffee at her Coffee Talk shop in Kaimuki. The place opened in 1992, right before Starbucks began expanding everywhere in the islands. By catering to customer needs, such as Internet access and fresh food, she has survived.

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Growth of big boxes
not necessarily
a death knell

When Wal-Mart opened a store in Hilo seven years ago, Leslie Hill found herself right across the street from the neighborhood's new retail bully.

But rather than fight a battle she could not win, she's bobbed and weaved, reinventing her Paradise Plants Home & Garden Center.

Plants are still in. But garden tools and many other items are out. Wal-Mart's price advantage is too great. In their place, Hill has brought in furniture and other home decor items such as rattan window coverings and flooring from Asia. There's a book section and an in-store experience marked by carpeted floors, and wafting world music.

Sales are now better than ever and on the way up, she says.

"They say you're a success if you stay in business at all in Hilo, so I guess we're doing pretty well," said Hill, who plans to expand soon into 2,000 square feet of vacant space upstairs from the 10,000-square-foot store.

Not everyone has proved as nimble; a number of Hilo retailers bit the dust.

But Hill's case proves there is indeed life after the big-box stores for businesses that are able to shift gears.

"It's a wasted effort to fight them. The world is changing and we have to adapt to them," said Andrew Poepoe, Hawaii district director of the Small Business Administration.

"Not everyone can rise to the challenge, but good entrepreneurs can operate well in any conditions," he said.

Large national chains have already won huge swathes of local retail turf. But experts also agree that there will be plenty of Hawaii businesses able to meet the challenge, and that they'll likely emerge as better-focused, more efficient businesses for it.

The key is to analyze your competition's focus, find an Achille's heel and exploit it.

Competing on price is nearly impossible against Costco, Home Depot, Starbucks, and their economies of scale. But price isn't everything.

"It's about product, convenience and service," said retail analyst Stephany Sofos. "There is still a big market for those things and people are willing to pay a bit more for them."

Liz Schwartz, owner of Kaimuki's Coffee Talk, seems to embody all three. The coffee shop first opened in 1992, just before Starbucks launched its store-on-every-corner blitz of the islands.

But Schwartz has found a niche with "more personality," as she terms it. There's a bank of computers with Internet access, food prepared fresh on the premises, regular musical performances, poetry readings and other Bohemian trappings, not to mention an extensive line-up of full, frothy coffees.

"It has a feeling you don't find in a strip mall," said Schwartz, who also invested this year in hardware to make wireless Internet access available for her laptop-toting customers.

It's also located in an area brimming with university students, professionals and other coffee-dependent segments of society. But the key, Schwartz said, is tapping into the innate loyalty of local people with warm and attentive service.

"That loyalty is part of the charm of doing business in Hawaii. If you can connect with them through good service, they'll keep coming back," she said.

Once left to fend for themselves, small businesses also now are armed with an array of programs geared toward niche marketing against the big boys, from programs affiliated with the Small Business Administration and similar organizations, to the growing array of small business counseling services offered by local lenders keen to make sure their loans stays healthy.

As a result, the impact of each new national chain is diminishing, said Rian Lau, associate state director of the Hilo-based Hawaii Small Business Development Center Network.

"We're not seeing the big trauma that we saw 10 years ago. It's already affected the majority of the businesses that would be affected and I think our small businesses have gotten more nimble and have learned to adjust," he said.

In the process, Hawaii's small-business sector is being transformed, Sofos said. The typical Hawaii small business once was an immigrant family that started a business to generate cash flow to feed their families, she said. But doing business today requires a sophisticated knowledge of marketing, financial management and the technologies that enhance efficiency.

"It's the wave of the future. If you don't take those things into consideration, you could be dead in a year. So this has made a lot of the small companies smarter," she said.

It's a gut-wrenching process.

Since the big-box-invasion took off in the mid-90s, revenue at McCully Bicycle and Sportings Goods has been halved, said owner Ben Takayesu.

He's tried to stanch the bleeding by changing the way he orders bikes, consolidating orders into fewer, larger shipments, and has thereby reduced his shipping costs 15 percent to 20 percent.

The store also continues to rely on its reputation for service, particularly on bike repairs, but is finding qualified bike specialists scarce in a tight labor market. Takayesu admits he has a lot of adjustments to make.

"I'm worried for all of us," he said of local bike outlets. "It's getting very competitive."

But the arrival of the big-boxes needn't sound the death knell for small businesses, particularly if they find a way to ride the larger retailers' coattails.

Schwartz, for example, feels that Starbucks' ubiquitousness has aided Coffee Talk by helping create today's massive market for coffee.

"They've expanded people's knowledge about coffee. Because there are so many Starbucks and they're so successful, maybe those who had never tried a latte now know what it is," she said.