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On the day Roi Parker heard the unexpected news that the Iatria Day Spa chain was closing, he saw an opportunity to do good and possibly benefit his business as well.
Parker started spreading the word that his Raleigh salon would honor Iatria's outstanding gift certificates at full face value. He had no idea he was committing to giving away as much as $300,000 in services.
"I wanted to make things right," he said. "People are asking, 'What are you thinking?'"
Parker was thinking like a survivor.
Only 70 percent of new businesses make it to their two-year anniversary, according to the Small Business Administration. Only half last five years. The past year has been particularly brutal for small businesses. In the third quarter, more than 25 million small businesses nationally filed for bankruptcy, according to an analysis by Equifax. More are expected if the holiday shopping season is slow.
Whether large or small, businesses should have a plan for situations in which a competitor goes out of business. The right plan can be an opportunity to gain market share.
But it's a maneuver that must be handled delicately.
"When someone else goes out of business, it certainly is an opportunity, but it doesn't mean it's a slam dunk," said Houston retail analyst Jack Plunkett. "You have to work for their business."
Parker said it will take his R.O.I. Salon into 2010 to see all of the Iatria customers with gift certificates. He says he's committed to do it even though he has no guarantee that any of them will become repeat customers.
"We won't know the outcome - if they come back to us - until the gift cards are worked off," he said. "We have people with $1,300 gift cards....A few people have said, 'I saw what you did' or 'My friend came, and I want to try you guys out,' but beyond that we just don't know yet if we will benefit at all."
For businesses in a similar situation, here's some advice: Don't dance on your competitor's grave.
Customers may have emotional connections to the shuttered business or the people who worked there, and taking a celebratory tone will turn people away, said Thomas Hollmann, assistant professor of marketing at N.C. State University. Instead, Hollmann suggests one alternative is asking whether the closing business will sell its mailing list or customer database. Or business owners could increase their own marketing, without mentioning the closed firm.
"When a business closes, people go into a search phase," Hollmann said. "Now they are thinking, 'I've got to go somewhere else,' and so they start looking."
