How do small retailers compete and succeed while doing business with big-box stores today? Most experts suggest the following “simple” formula- Sell quality products, continuously offer out of this world customer service, find suppliers where you can obtain higher markups and avoid discounting at the expense of sales down the road, right? Those of you in the trenches every day know that this is not always easy to accomplish. I say we try something a bit simpler and back to basics- Start to improve your business today by watching your cash—and then letting it help you grow.

For just about every small retailer, cash is king. Whether the focus is on daily and weekly sales to assure that there's money in the bank to meet payroll and other expenses, or on building a cash balance during the busy season to get you through the slower times, most small retailers keep a very close eye on cash flow.

Since the big box chains don’t have this “daily” worry, they spend their time negotiating with vendors and driving down costs to offer their customers the lowest price for commodity or near-commodity goods. They understand that for these items the vast majority of shoppers are highly price sensitive.

But for any item, and especially for those that are not commodities, there is a critical segment of customers who are not price shoppers, who focus instead on product quality, service, and a relaxed, friendly experience. Small retailers, enter here.

In other words, small retailers should avoid competing on the basis of price, because there will always be a competitor with larger, deeper pockets, instead, you should focus on finding unique, high quality, and compelling products that the big box stores don’t even look for in the marketplace. Competing on the basis of product quality and uniqueness enables a small retailer to present to their customers a compelling value proposition and maintain critical price integrity.

Thus it follows that strategic positioning for small independent retailers leads directly and most importantly to the product selection and pricing policy of a store. By selling higher quality, specialty products on the basis of their intrinsic value, and the product knowledge and customer service that accompany them, you can insulate your store from price competition, and your store can obtain a higher initial markup, avoid price promotions, and other incentives that eat into margins.

How is this done? Here are a few specific ideas to help position your store as a premium destination for the finest products, knowledge and service, and generate the margins you’ll need to assure continuing positive cash flows:

• Adopt a better/best pricing structure, rather than a good/better/best structure. The classic retail pricing structure for any product category is three-tiered, with an opening priced "good" quality item, a mid-priced "better" quality item, and a higher-priced "best" quality item. The nature of contemporary retailing is that for most any product category, there is a big box who is seeking to lock up the opening price point. Let them. They are more than happy to trade margin for volume, and have the deep pockets to do it. Instead, protect your margins by focusing your efforts on better quality goods, using a "better" quality item as your opening price point, and focusing your energies around the quality and features of the "best" item.

• Avoid carrying the same items as the competing big-box store. This may not always be possible, but if you must, think of those items as accommodations to your customers, rather than key items that you are trying to maximize the sale of. Rather, build your business around unique items and unique product categories in niche markets to a carefully targeted clientele.

• Keep your inventories lean to minimize markdowns and their impact on margins. The instinct of many small retailers is to have enough stock to never miss a sale, but all that inventory carries tremendous markdown risk, which can decimate margins and cash flow. Bring fresh inventory into your store as close to the time of anticipated sales as possible- so you always have something new and exciting to offer your customers.

• Don't get locked into standardized pricing formulas, like keystoning. Your pricing should not be merely a function of what you paid your vendor for the item, but rather the intrinsic value of the item, and the accompanying service you provide your customers. The product knowledge and customer service that comes with your product offerings has a value to your customers. Don't be afraid to include that value in your pricing.

• Build your brand, not your promotional calendar. Focus your advertising on building the brand cache of your store, not specific sales or promotions. When customers think about you, make sure your advertising has left them with the thought that you are a destination for premium quality and selection, state-of-the-art product knowledge, and outstanding customer service, and not price.

• And lastly, Define your mission around offering your customers premium specialty products, state-of- the-art product knowledge, and the finest customer service, and you will insulate yourself from corrosive price competition, while protecting your margins and cash flow.

Once you tie these elements together, my guess is your CA$H picture will look a whole lot better!

Lynn Switanowski is the founder of Creative Business Consulting Group, a Boston, MA based Strategic Planning and Retail Consulting firm. CBCG works with businesses to develop creative programs across a variety of business processes that will improve sales and profit margins.