CONDITIONS `HARSH' FOR SMALL RETAILERS

Almost two decades ago, E.F. Schumacher wrote about the disadvantages of depersonalization in big business in his book "Small is Beautiful."

But for small retailers 18 years later, being lilliputian against goliath retail chains can be not only ugly but fatal now.

Dun & Bradstreet Corp. reports that retail business failures, mostly of little companies, swelled 15 percent last year. Retailers in certain categories books, hobbies, gifts, jewelry and sporting goods, were particularly hard hit.

The surge is furthering the decline in small retailers' contribution to the national retail economy. The rate, which totalled 66 percent in 1958, has now eroded to less than 50 percent and continues downward.

Economic conditions for retailers in Southeast Missouri have been uncharacteristicly harsh since last summer due to various factors. The situation has added distress to some businesses that have been on the edge already.

"In the last six months we have seen some extremely unusual conditions in this area," said Buz Sutherland, director of the Small Business Development Center at Southeast Missouri State University. "We have gone from the earthquake scare to the Persian Gulf War and to people being unsure of the economy. The economy is based on what we think as consumers. Scared consumers don't buy and confident ones do buy."

Banks and other lending institutions are scrutinizing closely requests for capitalization for new businesses. "We look more closely than before at business loan applications," said commercial loan officer Bill Yuede at Boatmen's National Bank of Cape Girardeau. "The bank wants payback based on cash flow as opposed by collateral backing the loan. The last thing we want to do is foreclose to repay the loan."

He added that while banks use the 20 percent down payment level as a benchmark, they want borrowers to have more of their own money at risk now.

Yuede said banks are making more referrals to state and federal loan guarantee programs. The Small Business Administration 504 loan program has increased in popularity in the last year and one-half.

The 504 is geared for business expansion, covering costs of land, building and equipment acquisition. Existing businesses use it normally. The government's intent with 504 is to help create more jobs.

Bob Andrews, spokesman for the Small Business Administration regional office in St. Louis, said banks are seeking good commercial loans, sometimes offering interest rates 1 percent over prime rate. But they have tightened the screws on the approval process.

Both men agree on the basics needed for someone to succeed in opening a new business. Three essential components are:

Adequate financing.

Good management.

A quality business plan.

"To minimize risk, a person should formulate a business plan which includes a pro forma forecasting financial performance," said Yuede. "The person needs to keep the plan reviewed and updated."

"Most any business will succeed with good management and fail with bad management," Andrews added. "You could run a McDonald's franchise into the ground with bad management."

He lists five areas of business as having the most potential for success:

- High technology.

- Health care.

- International trade.

- Senior citizens service.

- Certain franchises.

Yuede said that, in his opinion, businesses more likely to fail are restaurants, video stores, groceries, gasoline stations and anything fad related.

Yuede said more failures are producing more defaults on business loans lately. Poor management, due to lack of experience or training, is the culprit responsible for the fiascoes, in his opinion.

What competition was a few years ago has transitioned to open warfare for consumers' dollars in the retail market, forcing mom and pop operations against the wall. "The major discounters have created a serious competitive situation," Sutherland noted. "Competing with their buying power and prime locations is more difficult than ever." He recommends that small business owners compete by carrying middle and upper end merchandise, stressing customer service and personal attention, and realizing they are unable to compete directly on price.

A seminar providing information on small businesses competing against large retailers is tentatively scheduled for June 18 in Cape Girardeau and June 19 in Sikeston. The conference is a joint effort of the Small Business Development Center, Southeast Missouri State University Office of Economic Development, and the University of Arkansas Institute of Retailing.

The Small Business Development Center, 222 N. Pacific St., has a variety of resources available for people considering the potential of starting a business and for existing small businesses. The office can be reached at 339-5965.