Holidays challenge independent stores further

updated 4:33 p.m. ET Dec. 12, 2007

NEW YORK - At Jeff Cassels' jewelry store, falling real estate values and rising gold prices are more than news headlines — they are contributors to an uncertain holiday season. At Joanie McDonald's clothing store, however, a weakening dollar is turning into a boon.

This season finds independent retailers across the country dealing with a new set of economic challenges even as they still contend with growing competition from big-box retailers like Wal-Mart Stores Inc. and Borders Inc. That means merchants are being pressed more than ever to capitalize on what sets them apart from the rest of the retail universe — merchandise that's unique and well-suited to a store's clientele, and customer service that's beyond the ordinary.

Customers of Kid Country Toys, two specialty toy stores in Charleston, W.Va., can dispense with the screwdrivers and bandages usually needed to put tricycles and other toys together. Owner Jerry Strick said his staff will assemble purchases free of charge. Toys can be gift wrapped as well.

Strick, who's been in business 35 years, uses services that Wal-Mart and Toys "R" Us Inc. don't provide to draw customers to his store. And he stocks brands that the big chains don't buy but that his customers want.

He's upbeat about this season, partly because business is up slightly from 2006, but also because he's learned over the years not to sweat it. So he doesn't believe layoffs in the area and recalls of some toys made in China will have a big impact on his business.

"I used to worry about the sales, and it's not worth it," Strick said. "The population in Charleston has gone down, the competition has gone up, and we still hold our own, so I really don't worry."

But Cassels, who owns GB Heron in Salisbury, Md., is worried about the season, having watched real estate problems grow and his sales decline.

"I don't expect good things," Cassels said. "We were down about 14 percent headed into the Christmas season."

Cassels said that with customers paying more for necessities like gas and food and worried about home values, "I'm pretty much last on the line" of spending priorities — especially since the price of gold has shot higher in recent months, crossing $800 an ounce for the first time since 1980.

"The only thing I am doing well is selling engagement rings — people are still in love," he said.

But selling custom-designed jewelry helps business, because that GB Heron apart from other retailers. To lower his costs, Cassels recently bought equipment that helps create the jewelry faster.

Cassels, who's in his 19th year in business, says he never knows until Christmas Eve how the season has fared. It's a hard wait: He does 25 percent of his annual business between Thanksgiving and Dec. 25.

The depressed real estate market in Nevada has hurt Jody Branson's gift shop, Fresh Ideas, in Gardnerville, located near the state capital, Carson City. Sales are down about 10 percent from last year.

"There's a lot of real estate agents and homebuyers who would come in, but they don't have the money to spend with (housing) slowing down," Branson said.

But she said, "I'm not letting it get me down — I can't complain at 10 percent, where there's another store that's closing" nearby. Moreover, Branson said she's built a reputation with customers: "People know what we have and people always come back."

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