Q: What are retailers' biggest challenges for 2007 and how will you adjust your business to overcome them?

Michael Schaul, USA Baby/Child Space, Dallas/Fort Worth

A: Customer traffic counts. Our customers are continually changing the way they shop. We need to find and use the right avenues (Internet, print, TV and radio) to bring the customers into our stores.

Another challenge is the supply of timely merchandise. The juvenile furniture industry has changed dramatically over the last couple of years, with some manufacturers leaving our industry. This has put more pressure on the remaining manufacturers. Thus a constant supply of merchandise will be essential to our continued growth in 2007.

Jami Myers, Breuners Arizona

A: We are definitely a destination store with more than 10,000 square feet of showroom but we are in a secondary location and on a limited advertising budget in a major market. Our number one challenge for 2007 is educating the consumer that we are here and well worth the drive.

As our word of mouth business took a wonderful increase this last year, we plan on building on that image and working on as much free press as humanly possible.

Joni McConnell, JCPenney Direct Buyer—Infants

A: I believe the Internet will continue to play a bigger and bigger role in our sales. Everyone seems to be short on time and consumers are feeling more comfortable looking to the Internet for stress-free shopping. The challenges to overcome will involve marketing to cover all channels of shopping.

Dave Laub, Room to Grow, Cincinnati, Ohio

A: The decreasing cost of product (furniture) and its effects on maintaining volume. As furniture continues to be sourced overseas we are seeing prices drop. To most retailers this means they can lower the retail prices of their products, thus, the average prices of cribs have dropped by 20%. In order to have the same total sales as last year, they must sell 20% more units to make up for the 20% lower prices. How many stores can do that? Also since furniture is being sourced overseas it means we are having more damage and service issues than ever before. This increases the cost of doing business and manufacturers/distributors do not reimburse retailers for the costs associated with servicing the end consumer. A store must significantly increase volume in units just to break even in total sales and relative profitability. Prospects for this industry at retail are not very good.

To combat this we need to find suppliers who want to work exclusively with specialty stores, preferably one retail store in a market. We need suppliers who are good people, who want to work with you as partners — quality products made by quality people sold by quality retail stores. They have to give you products at a cost you can make money on; they cannot be greedy. They have to understand that you have to make good margin if you are going to be here next year. I guess that would make them good business people. Create solid relationships and treat each and every potential customer like they are fine china.

The second challenge is too many adult furniture stores displaying lots of juvenile furniture. This publication, like others, has touted the juvenile industry as having tremendous growth over the past several years. Some of it has been relatively true, much has been sensationalized. For example, a few months ago there was a Kids Today article with the headline "20% growth expected." As I read the headlines I thought 'Wow, I should be in that industry!' Then I read the fine print of the article which told me that the 20% was expected over five years, which really meant an annual rate of growth of less than 4% per year. To those who only read headlines there is great growth; to those who read the fine print growth might keep up with cost of living. Because of the sensationalized reporting over the past five years, adult furniture stores have jumped into the juvenile furniture market in a big way. Stores that did not show any juvenile five years ago now show 10 to 15 rooms of juvenile furniture. Multiply that times the number of adult furniture stores in every market to understand its impact. Now there is Bombay Kids, Ethan Allen Kids, Pottery Barn Kids, Pottery Barn Teen, etc. etc. etc. The pie has been carved into so many tiny pieces that our share of the pie has shrunk dramatically, by as much as 75%.

The answer to the second challenge is not very pretty. Hang on for dear life until enough of the adult furniture stores realize they are not getting the sales per square foot they were expecting out of juvenile because every adult furniture store did the same thing they did, cutting the same size pie into tiny slices. Eventually those who are really dedicated to the category will see the size of their pie piece grow, but it won't happen in 2007.

Michael Schaul USA Baby/Child Space, Dallas/Fort Worth

Jami Myers Breuners Arizona, Scottsdale, Ariz.

Joni McConnell JCPenney, Plano, Texas

Dave Laub Room to Grow, Cincinnati, Ohio