The Competitor Knows All

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The Competitor Knows All

You’re a small business, you run a series of stores located at malls.  You have simple merchandise and there are really few if any barriers to entry.  So what do you care if your competitors know all?

A small chain of mall stores selling hats is not an exciting business, least not for me.  Margins are small and competition while not fierce is real.  The business is trying to craft a premium product from generic stock.  The idea of the store is to offer custom embroidery on any cap for any number of caps for any reason.  They have in each store a computer operated embroidery machine that can embroider anything in many different colors and styles.  You bring in a design and in just a bit you have custom embroidered hat.  They also stock some designs of their own as well as have ten of thousands of designs they have accumulated for just about every conceivable sports team or event all stored in their computer.

The owner of one of these hat chain stores was interested in selling one of the stores.  He spoke to several different buyers and shared with the buyers the gross sales for each month for the last year.

About a month later one of his competitors called him and asked if he would sell the store to him?  The competitor then rattled off the sales volume for the store for the last 12 months – down to the penny. The owner was not upset that the competitors wanted to buy, but that someone had fed him the information

The owner was furious, not that the competitors wanted to buy, but that either someone had breached their non-disclosure agreement or the competitors had sent in a secret shopper into his store to get the information by subterfuge.

The owner began calling all of the potential buyers demanding to know if they had disclosed the information of if they were a secret shopper for the competitor.  This got him nowhere.  All potential buyers were very put off by the accusation and figured he was barking mad.  He killed all buyers’ interest.

If was only after racking his brains and coming up empty-handed – did he call us.  We reviewed the sales, to find who had access to the information and reviewed his external agreements.  All relationships looked tight and all agreements seemed well drafted.

I went to the mall and walked about.  There were a few shops empty with contact information to mall management for anyone who might want to rent the space.  This is what I called the “duh”, moment.  I called the agent for the property, expressed and interest and asked to know the sales volume for each of the stores in that section of the mall near the available space that was only two locations down from the hat shop.  I got everyone’s past sales for the past year – not just the hat shop.  The “duh” was remembering that many retail landlords rent on a fix monthly, plus a percent of gross.  Also property managers will say just about anything to get a sale.

The engagement was over, the owner knew how the information was passed on to the competitor.  The owner then requested similar information from the malls where the competitors had his stores and got all of the competitor’s sales for the last 12 months. He called up the competitor and ticked off the competitor’s sales in each of his stores.  The competitors had a great laugh and said, “Ah you called the leasing agents, didn’t you?”

In the end, my clients demanded the sales information disclosure by the landlords at his different locations be restricted.  This was granted, after a bit of fuss from each of his landlords.

In the end, I think the two competitors would have been better merged, but they keep battling, and they are still at it even today.

There are many ways one’s information can leak that are not nefarious.  Think about who has possession of your IPCI and who can or would disclosure that information that is inconsistent with the needs and requirements of your business relationship.

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