FRED (Fast Resources for Enterprise Development)
COMPETING WITH THE MASS MERCHANDISERS Document # 564
Description: How small business can compete with mass merchandisers
Mass merchandisers, particularly the discount general merchandisers such as
K-Mart and Wal-Mart, are growing at a rapid rate and have captured market
share from smaller competing firms. It is possible for smaller firms to survive
in such an environment, but substantial changes in operations are usually
required. This article
How the Large Chains Operate information on mass
K-Mart and Wal-Mart are fighting it out to become the number one retailer in
the United States, relegating Sears Roebuck to third place. Although both
reports the results of
firms have been in existence roughly 30 years, their strategies and operating
an Iowa study on the
methods have varied considerably.
impacts of one chain,
and offers suggestions
1. Market Size
K-Mart expanded rapidly in its early years, locating in large- to mid-sized to smaller firms on
towns and cities all across the United States. The company located some stores ways to compete in
in smaller towns, but like most national merchandisers, its major market thrust this environment.
was in the larger towns and cities. However, in recent years (apparently in
response to competition from Wal-Mart) the company has been opening stores
in more small towns.
Wal-Mart, on the other hand, initially focused its stores in the smaller towns of
the South and Midwest. The company typically would enter a town
with a comparatively large store and usually would become the domi-
nant retailer in town.
Wal-Mart's expansion was relatively slow at first. However, starting
about 1980, the company began working its way toward the East and
West coasts in a very aggressive expansion program. Its sales grew
from $1.2 billion in 1980 to $25.7 billion in fiscal year 1990. In the
late 1980s, Wal-Mart also expanded its location strategy to include
stores in larger metropolitan areas.
This was usually accomplished by establishing stores in the suburban areas
surrounding the central city. The Wal-Mart Company seems to be using a tan-
dem duo of its largest size store (nominally 110,000 square feet) along with
one of its Sam's Clubs (its membership wholesale-type store) in this effort.
2. Distribution System
Both K-Mart and Wal-Mart now have the most sophisticated distribution
systems among all of the retailers in the world. Wal-Mart led the way in
adopting the latest scanner checkout technology (a key part of the system),
but K-Mart has recently made major expenditures in this area and now
has a system similar to Wal-Mart's. Since more has been written about
Wal-Mart's distribution system, it will be described below.
The heart of Wal-Mart's distribution system is its distribution center. A
typical distribution center is about one million square feet in size. It has
the latest in state of the art inventory control and materials handling
equipment. A distribution center can accommodate about 150 retail stores
and they are located in a circular pattern around it.
Most buying is done centrally from the company's headquarters in
Bentonville, Arkansas. Merchandise is delivered to the distribution centers
and then trucked directly to the retail stores daily. As customers make
purchases, sales amounts and the change in inventory are automatically
sent to the computer by the electronic scanner checkout system. This
information is then sent daily via Wal-Mart's own satellite system to
headquarters and to the appropriate distribution center. This daily updating
Discount Store News
of inventory allows distribution centers to send the precise amount of
can be accessed on the merchandise to the stores to maintain the optimum level of stock.
Internet at the
following address: Similarly, the inventory information allows buyers to order ahead and
keep the proper amounts of goods flowing into the distribution centers.
According to Discount Store News, about 78 percent of the merchandise
sold in Wal-Mart stores comes through the distribution centers. The
The What’s News and
remaining merchandise is delivered directly from the factory or through
In This Issue is available to
vendors and distributors.
review without buying a
The efficiencies generated by this type of distribution system are enormous
and play a large role in the success of these large companies. Discount
Store News reported that Wal-Mart's distribution costs amounted to only
1.3 percent of its sales, compared to 3.5 percent for a major competing
discount chain and 5.0 percent for a major general merchandise chain.
In other words, for every $100 worth of merchandise sold, the cost of
getting it from the factory to the retail store was $1.30. It is not hard to
see why smaller retailers have such a hard time competing price-wise
when their merchandise must sometimes go through multiple layers of
wholesalers and distributors.
K-Mart and Wal-Mart have two fundamentally different methods of pric-
ing. K-Mart has always employed the weekly sale system, where one or
two print ads per week are distributed through local newspapers and adver-
tisers. These sales flyers feature seasonal items and other popular items at
very attractive prices.
This is the system used by most other mass merchandisers. The strategy is
to get customers into the store on the basis of attractive prices on advertised
merchandise. It is then believed that most customers will assume that
all other merchandise has a low price, and will make purchases without
The weekly sale system has encountered problems over the years. For
example, many customers have had the experience of buying non-sale
merchandise only to find it at a lower price at a competing store. One of the
biggest problems with the weekly sale system is that often there are quick
outages of popular items.
The usual solution to this problem is to offer a "rain check," which in the
unhappy experience of many shoppers, sometimes seems to disappear down
a big black hole. Another problem is difficulty in identifying the real sale
People who carefully
item. Many have been frustrated when discovering at the checkout counter
comparison shop have
that they had picked up the non-sale item.
found that everything is
Wal-Mart's system of pricing is the "everyday low price" system. Stores do not at the lowest price
not depend on the weekly sale incentive, but instead have cultivated the idea at Wal-Mart every day.
that everything is low priced at Wal-Mart every day. The company did not However, perception is
invent the concept, but they have implemented it masterfully. more important than
reality, and most people
Although Wal-Mart does have occasional sales, usually seasonally, the sales perceive that nearly
do not play a large role in their pricing strategy. Consequently, the company everything has a lower
apparently spends less on print advertising than its competitors. Television price at Wal-Mart.
advertising plays a large role in Wal-Mart's marketing strategy and virtually
every ad features everyday low prices. Through advertising and word of
mouth, the company has developed a strong reputation for low prices. Many
people strongly believe that everything is, in fact, lower priced every day.
4. Merchandise mix
K-Mart, Wal-Mart and other discount general merchandise stores try to
promote the concept that the average shopper can find most of his or her
everyday needs under one roof at the lowest price possible. Much of the
merchandise in these types of stores is, in fact, aimed at lower income
In many states, approximately one-half of the households have disposable
incomes of less than $20,000 per year, according to Sales and Marketing
Management's 1990 Survey of Buying Power. People in this income
category seldom have much discretionary income and most gravitate to
stores where they perceive they are receiving the best value for the dollar.
Although this segment of the population appears to be the primary target
market of the major discounters, surveys have shown that many middle
income shoppers also make purchases in these stores (see December 14,
1989, Discount Store News).
Most of the discount general merchandise stores offer minimal service as
a means of reducing expenses and maintaining lower prices. The most
noticeable lack of service is in the area of expert technical advice. Most
of the people working in the departments of these stores are primarily
Wal-Mart claims to have
concerned with stocking shelves and few have enough product knowledge
36 departments in
to offer expert advice. There may be some exceptions in such areas as
most of its stores. This is
sporting goods, jewelry, pharmacy, etc., where employees are routinely
a wide variety of
behind a counter selling, rather than stocking.
merchandise and by
necessity would include Other services normally lacking in these types of stores are gift-wrapping,
primarily fast-moving, in-store credit, delivery, special order, special classes, etc. However, many
popular items. It appears customers seem willing to forego these types of services in return for lower
that many shoppers have prices.
been acclimated to shopping
first at the discount mass The Iowa study
merchandisers, purchasing It is important that smaller retailers know the probable impact of a discount
what they can there, and mass merchandiser on businesses in their community. Armed with this
then concluding their knowledge, they are in a much better position to make strategic decisions
shopping trips at specialty concerning their business. The Iowa study was conducted in order to
stores where they purchase document what happened after a Wal-Mart opened in towns of 5,000 to
the remaining items 30,000. The study shows results through fiscal year 1989.
on their shopping lists.
Some people ask, "Why Wal-Mart? Why not K-Mart or Target?" The
answer is that Wal-Mart was the only chain aggressively expanding in the
state during a time period when sales tax records were available for
analysis. The results of the study do not prove causation, but strong
correlation should be taken seriously.
Data sources: Iowa Retail Sales and Use Tax Reports were used to
document the sales levels of host towns and other towns before and after
Wal-Mart store openings. The reports list the sales levels for all towns with
at least 10 business firms. For towns over 2,500 population, the reports also
list sales by a two digit Standard Industrial Classification (SIC) code,
providing there are at least five such businesses in a category.
For example, sales are listed for categories such as building materials,
general merchandise, food, apparel, etc. Town population figures are central
to this study and were taken from estimates of the U.S. Census Bureau.
Pull factor analysis: The raw data in these retail sales time series are based
on current dollar sales. Current dollar figures are not a very satisfactory way
of analyzing the trends for towns in a state. They do not account for price
inflation, population changes or changes in a state's economy. The current
dollar sales were converted to pull factors in this study to provide a more
equitable basis for comparison.
The pull factor is defined below.
PF = PST / PSS, where:
PF = Pull Factor
PST = Per capita Sales for Town
PSS = Per capita Sales for the State
For example, if a town had per capita sales of $9,000 per year and the
statewide per capita sales were $6,000 per year, the pull factor would be
$9,000 divided by $6,000 = 1.5. The interpretation would indicate that the
town was selling to the equivalent of 150 percent of the town population, in
full-time customer equivalents. The Economic Census
profiles the US economy
In other words, the pull factor is a proxy measure for the size of the retail every 5 years, from the
trade area of the town. When data are available, pull factors can be
national to the local level.
computed for the different merchandise categories within a town and for the
total sales of the town.
2002 Economic Census
forms will be sent to
5 million businesses
In this study, pull factors were computed for total sales for all towns in the
state since the establishment of the first Wal-Mart stores in 1983. Pull in December 2002,
factors were also computed for eight merchandise categories for towns over asking for information
5,000 population. It would have been desirable to compute pull factors by about business activity
merchandise categories for towns between 2,500 and 5,000 population, but during calendar 2002.
many of them have less than five stores in a category and consequently no The forms will be due back
sales are reported because of statutory confidentiality rules. February 12, 2003.
Results will be published
For each Wal-Mart town, pull factors were established for the year preced- during 2004 and 2005.
ing the opening of the Wal-Mart store and for each year since. These were
compared to the average pull factors for non-Wal-Mart towns of a similar
size (between 5,000 and 30,000 population) and to pull factors for larger
towns (over 30,000 population) for the same time periods. Comparisons
were also made to the total sales pull factors for towns below 5,000 popula-
tion in the same time period.
The net result is a broad look at the change in trade area sizes for stores in
different merchandise categories in the host towns and in other competing
towns. It cannot be stated conclusively that Wal-Mart stores caused all
the changes in trade area size, since other variables are always interacting to
cause changes. However, when significant changes are seen to be consis-
tently correlated with the opening of Wal-Mart stores, one can draw solid
conclusions in spite of the lack of more sophisticated statistical techniques.
Sales Change in Wal-Mart Towns versus Same Size Towns (% cumulative)
Business Type Wal-Mart Towns Same Size Towns
After Years After Years*
1 3 5 1 3 5
Building Materials -6.3 -6.5 -5.1 -4.7 -7.1 -10.4
General Merchandise 29.1 39.5 58.8 -0.6 -4.2 -1.9
Food -4.7 -4.1 -12.1 1.6 5.5 7.8
Apparel -2.7 -6.2 -5.1 -3.5 -5.8 -11.5
Home Furnishing 2.9 5.2 4.2 -5.1 -12.2 -18.9
Eating & Drinking 0.8 -0.8 2.4 -0.7 -1.5 -0.8
outlets, which have about Specialty -5.7 -12.1 -19.7 0.1 -5.4 -9.9
200,000 square feet of
Services -5.6 -7.9 -6.8 -3.5 -9.5 -14.2
space, combine 36 general
merchandise departments TOTAL SALES 2.3 3.1 8.1 -0.7 -3.5 -4.9
and a grocery with bakery,
deli, frozen foods, meat, * Did not have a Wal-Mart store.
product and dairy.
Wal-Mart opened its first
The study found both pluses and minuses for the merchants in the host
supercenter in 1988 in
town. The major plus for most businesses was that in virtually all cases,
Washington, MO, and now
total sales in the town increased at a rate greater than average for the state.
has 780 in the U.S.
Apparently, Wal-Mart stores attracted customers into town from a greater
radius than had occurred before their entry into town. Two simple rules of
thumb explain the winners and losers among host town merchants.
Rule 1: Merchants selling goods or services that Wal-Mart does not sell
become natural beneficiaries. In other words, since they are not competing
directly, many of them benefit from the spill over of the extra customers
being pulled into town by Wal-Mart.
Rule 2: Merchants selling the same goods as Wal-Mart are in jeopardy. In
other words, they are subject to losing some trade to Wal-Mart unless they
change their way of doing business.
A basic premise lies at the heart of this study. The premise is that in areas of
relatively static population (such as in states like Iowa) the size of the retail
"pie" is relatively fixed in size for a given geographical area. Consequently,
when a well-known national chain like Wal-Mart opens a large store in a
relatively small town, it invariably will capture a substantial slice of the
The end result is that other merchants in the area will have to make do with
smaller slices of the retail pie, or get out of business. In areas of the country
where the population is growing rapidly, there is room for more retail
establishments and the effect will be diluted considerably.
Table 1 compares the cumulative real percentage change in retail sales for
businesses in Iowa Wal-Mart towns to those of businesses in the same size
non-Wal-Mart towns. It should be noted that this data is reported by type of
store and not by exact lines of merchandise.
Host towns: (Wal-Mart towns): As shown in Table 1, there are winners and
losers among merchants in a host town after a Wal-Mart store locates there.
Data were available for 17 towns that had a Wal-Mart store for at least one
year, 14 towns that had one for at least three years, and five towns that had
one for at least five years. Caution should be used in interpreting the five-
year figures since the sample is so small.
Winners: The general merchandise category shows the greatest gains in
sales after a Wal-Mart store opens in a town. However, it will be shown
later that most of this gain is by the Wal-Mart store and, in fact, the compet-
ing general merchandise stores usually sustain a loss of sales.
The home furnishings category shows a real net gain of 5.2 percent after
three years. This category consists of furniture stores, major appliance
stores, floor covering stores, drapery stores, etc. Neither Wal-Mart nor most
of the other discount general merchandise stores handle much of this
merchandise, therefore these merchants are the natural beneficiaries referred Neighborhood Markets.
to in Rule of Thumb #1. Wal-Mart's newest type of
store is typically about
Eating and drinking establishments fluctuate between slight gains and slight 40,000 square feet
losses after a Wal-Mart store opens. This study showed larger gains in these groceries and drugs.
types of firms last year. These failures have occurred mainly in towns that The plan is to position
had fewer than 1,000 people. When a small town loses its grocery store, them geographically
residents then have to travel to a nearby larger town to shop. The towns in between supercenters and
the 5,000 to 30,000 population class have been the primary beneficiaries of traditional Wal-Marts.
this additional grocery trade.
Losers: Home furnishings stores suffered the largest losses of trade. There
has been an ongoing trend of more and more home furnishings trade going
to bigger cities.
Specialty stores in the non-Wal-Mart towns suffered some loss of sales
(5.4 percent after three years), but not nearly as much as the Wal-Mart
towns. Other types of stores in the non Wal-Mart towns suffered roughly
the same percentage losses of sales as did the Wal-Mart towns. Total sales,
however, were nearly a mirror image and were down 3.5 percent after three
years of Wal-Mart competition.
Netting out sales: To get a better idea of the internal impact of a Wal-Mart
store on a host town, it is useful to "net out" the sales. Basically, this means
making an estimate of the Wal-Mart store's sales. It was estimated that for the
average town in Iowa, Wal-Mart sales were $13 million last year.
If a Wal-Mart store had sales of $13 million and the total sales of the town
only increased by $4 million, then there had been a total reduction of sales in
the town of $9 million for existing merchants. If the Wal-Mart store had sales
of $13 million and the general merchandise category (of which it is a part)
increased by only $7 million, then existing general merchandise dealers suf-
fered sales reductions of $6 million. If general merchandise stores accounted
for $6 million of the total $9 million reduction, then the net reduction in sales
for other existing merchants must have been $3 million.
Small towns: Four smaller towns within a 20-mile radius of each Wal-Mart
town were compared to all other similar size towns further away from
Wal-Mart towns. Nearby small towns lose trade more rapidly than other
towns. After four years, the towns within a 20-mile radius of a Wal-Mart
store had cumulative net sales reductions of 23.5 percent while the same size
towns much further away had sales reductions of only 10.8 percent.
In general, it is best Larger cities: At the time of this study, there were no Wal-Mart stores in
to take a positive attitude cities above 50,000 population in Iowa, although they are currently entering.
toward the opening of There were only two areas where the cities appeared to be affected by Wal-
a new mass merchandise Mart stores in the surrounding areas. General merchandise sales were down
store in your area. nearly 7 percent and grocery store sales were down nearly 3 percent after
The following thoughts three years of Wal-Mart stores. The apparent major reason for these
are offered in this regard: reductions is that local residents have to make fewer trips to the cities to shop.
In a free enterprise Strategies for Co-existing in a Discount Mass Merchandiser
economy, all firms are Environment
free to compete. However, Many small retailers will need to develop new business strategies after a
local officials should be Wal-Mart store or other discount mass merchandiser opens in their area. The
careful not to offer unduly following suggestions are based on extensive observations in Iowa and study
generous incentives to of situations in other states.
large firms that could
place smaller firms It is possible to co-exist in this type of environment. You may need to change
at a disadvantage.
your methods of operation as described below:
Merchandise Tips: The following suggestions are offered with regard
to merchandise mix:
1. Try not to handle the exact same merchandise. For example, at least three
of the largest mass merchandisers sell a particular brand of men's jeans for
around $10. I have seen cases where smaller merchants sell the same
brand jeans for $14. Customers automatically detect that the smaller
merchant is 40 percent higher priced and often assume that everything
else in the store is 40 percent higher. A better strategy would be to sell
another brand that is not directly comparable.
2. Sell singles instead of pre-packaged groups. Mass merchandisers often
sell pre-packaged merchandise that contain multiple items. Customers of-
ten need only one item. Independent merchants can often meet these Recognize that a
needs by unbundling packages and selling items as singles. For example, discount mass
a crafts store may gain new customers and make more profit by selling merchandise store
singles of various supplies such as templates, paint brushes, etc.
will probably enlarge
3. Try to handle complementary merchandise. In many departments (such as your town’s retail
hardware, electrical, plumbing, lawn and garden) the mass merchandisers trade area size.
handle only fast-moving merchandise. Astute competing merchants Try to figure out ways
should expand their lines to be more complete than their giant competi- to capitalize on the
tors. Customers will soon learn to go directly to the more complete store increased volume of
if their needs are out of the ordinary. traffic to town.
For example, a customer building a back yard storage shed requiring 15
pounds of nails and 100 bolts will be sadly disappointed if he or she shops
at a discount general merchandiser and finds only small pre-packaged
assortments. Their needs will be much better met by a hardware store that
has a wide assortment of these items in bulk quantities.
4. Look for voids in the mass merchandiser's inventory. For example, most
discount general merchandisers do not handle the higher-priced name
brand athletic shoes desired by so many people today. A smart competing
sporting goods dealer would handle a full line of better athletic shoes.
5. Consider upscale merchandise. Not all customers desire or demand lower-
priced merchandise. For example, there are cases of smaller children's
wear stores which prosper in the shadow of a discount general merchan-
diser by catering to the tastes and preferences of middle-to-upper income
clientele and to the "grandparent trade" where money is often not as much
of a factor.
6. Find a niche that you can fill. Smaller merchants can often succeed by
merely finding the various voids in the mass merchandisers' inventory and
filling them as described above.
Marketing Tips: There is always room for improving marketing practices.
The following tips are offered to merchants regardless of their competition:
1. Extended opening hours are a necessity! Lifestyles have changed dramati-
cally in the last generation. Now it is quite common for a household to
have multiple wage earners working outside the household. Most of these
people simply cannot get to local stores that stay open only from 8:00 a.
m. to 5:00 p.m. Downtown merchants and other independent merchants
cannot seriously compete in this environment unless they cooperate and
offer similar convenient opening hours.
2. Look for ways to improve your returns policies. Most mass merchandisers
have very liberal returns policies. Unfortunately, many smaller independ-
ent merchants cannot offer comparable policies because of their lack of
leverage with major suppliers. In the long run, they need to work through
trade associations and buying groups to achieve comparable leverage with
suppliers. In the short run, they need to use common sense.
3. Sharpen your pricing skills. (E.g.; lower prices on items that people
For example, if a purchase frequently.) It is my contention that many consumers do not
customer purchases a know the "going price" of much of what they buy. They tend to know the
piece of lawn equipment price of the things they purchase frequently, or the things they have seen
in May and brings it back advertised recently. Discount mass merchandisers recognize this and tend
shortly because of a to focus their lowest prices on these items. The average consumer then
malfunction that required assumes that prices on all other items must also be less. Conversely, many
factory repair, the dealer local merchants have gotten a "bad rap" on price image when they have
would be well advised to not been careful in pricing some of the "hot items." Independent mer-
give the customer a new chants need to determine which items customers tend to know the price of
replacement immediately and make special efforts to keep these prices competitive.
(or at least offer a loaner)
4. Focus your advertising. Stress your competitive advantage. Every busi-
until the repaired item is
ness must have one or more competitive advantages in the eyes of the cus-
returned. I know of a case tomer in order to succeed. For example, Sears established a huge competi-
where the customer was tive advantage when it adopted "Satisfaction Guaranteed" many years
left empty-handed until ago. With Wal-Mart, "Everyday Low Prices" is a strong competitive ad-
the repaired item finally vantage. Large firms incorporate these competitive advantages into nearly
came back in August. every advertisement.
Needless to say, he was
Unfortunately, many smaller merchants do not get their full money's
worth from their ads because they often fail to promote their competitive
advantages. For example, a drug store with 24-hour prescription service
and free delivery ought to incorporate those facts into every ad. Likewise,
an apparel store that features special orders and in-store credit should
stress those features in its ads.
Service Tips: Superior service can become an important competitive advan-
tage for many smaller businesses. Large chain stores usually don't have the
flexibility to offer many of these services.
1. Emphasize expert technical advice. It is difficult to find workers in dis-
count mass merchandise stores who know the merchandise. There are
many examples of smaller merchants who build a loyal clientele because
they are able to help customers analyze their problems and help them find
the right tools, supplies and equipment.
2. Offer deliveries where appropriate. A certain segment of our population
has a need for the delivery of prescription drugs or heavy equipment.
Typically, mass merchandisers cannot respond to these needs. Some
smaller merchants can carve out a certain market share by offering deliv-
3. Offer on-site repair of certain items. Nearly everyone has a need to have
some item repaired or serviced occasionally. Larger discount stores usu-
ally cannot readily provide this service. Independent merchants can draw
a substantial volume of trade to their stores by providing repairs and
service of merchandise.
4. Develop special order capability. It is not possible for merchants to carry
every conceivable item in inventory. However, they can make arrange-
ments with certain suppliers or cooperating partner stores to priority ship
needed items. Fax machines, electronic data interchange, and express
delivery services are making this feasible today. So instead of letting a
customer walk out the door when an item is not inventory, it is better to
say, "I'm sorry I do not have it in stock, but I can get it for you in two
“Every battle with
Wal-Mart will be local
and depend on your 5. Offer other services as appropriate. Independent merchants can develop
strengths and many loyal customers by offering "how to do it" classes, gift wrapping,
weaknesses,” said Dr. rentals of items that will boost sales of collateral merchandise, etc.
David Rogers, president,
DSR Marketing Systems, Customer Relations Tips: In past years, small businesses had the reputation
a retail research
of excellent customer relations. However, nowadays many consumers
consulting firm in
perceive that they are treated no better in small firms than in larger ones.
Research has shown that poor customer relations is the primary reason that
Deerfield, IL at the
customers quit doing business with a store. The following suggestions are
offered for all businesses:
Convention in Dallas.
1. Make sure customers are "greeted. " According to surveys in Iowa, cus-
“You have to think local,
tomers are very offended by the failure to be greeted or acknowledged
but at the same time learn when entering a store. This is particularly true when the customer is in a
what you can about buying mood. All store personnel should be trained to greet customers.
2. Offer customers a smile instead of a frown. All customers prefer to do
business where they are treated in a friendly manner.
3. Make employees "associates." Firms like Wal-Mart and J. C. Penney call
their employees associates and treat them as part of the team. Independent
merchants can emulate this. Regular store meetings could be held where
everyone can participate in planning and problem solving.
4. Solicit complaints. Many times customers have a bad experience in a
store, but they are reluctant to complain to store personnel. Instead, they
complain to other people. Good merchants would rather hear of the com-
plaint first so they can find a remedy. They can provide an environment
where customers feel comfortable in complaining by soliciting complaints
through ads, through signs at the checkout counters, and by signs on shop-
5. Train employees often. In the eyes of the customer, the employee is the
business. Training employees can have one of the highest payoffs of any
investment in the business. Training is available through Small Business
Development Centers, university extension services, community colleges,
parent companies, franchisers, and others. Also, there is a wide array of
video tapes available today where training can be conducted in the store.
Summary and Conclusions
When a discount mass merchandise store opens in a small-to medium-size town
with little population growth, there will be both positive and negative effects.
The total retail trade area size will expand. There will be some beneficial "spill
over" sales that accrue to some firms (primarily restaurants, home furnishings
stores, building materials firms, and other non-competing firms).
However, other existing merchants may suffer losses of sales unless they make
adjustment to compete in the new environment. In Iowa, competing general
merchandise firms have suffered the greatest losses, while specialty stores,
service firms, and apparel stores also suffered substantial decreases in sales.
Towns of a similar size without a large mass merchandiser have suffered sales
losses in home furnishings, service firms, building materials, and apparel, that
are partially attributable to the discount stores nearby towns.
The largest towns and cities continue to gain sales in all categories except
general merchandise and groceries. Since these are trend reversals, it appears
that discount mass merchandise stores are holding customers in the local area to
shop for general merchandise to a greater extent than before, thereby causing
fewer shopping trips to the city.
The smallest towns suffer at the hands of all the larger towns and cities. The
best strategy for merchants in these towns is to get back to the basics of running
a good business and focus on making service a strong competitive advantage.
The major conclusion reached from this study and analysis is that it is possible
to coexist in the face of competition from discount mass merchandisers. There
are many documented cases of merchants surviving and in some cases thriving
when operating against such formidable competition. However, most of these
merchants did not continue business as usual. They made many of the changes
suggested above, including major changes in merchandise mix.
Author: Kenneth E. Stone, Ph.D
Source: Small Business Forum
This information is provided by:
Wyoming Small Business Development Center
P.O. Box 3922
Laramie, WY 82071
Phone Toll-Free: 1- 800-348-5194
FRED toll-free number: 1-877-700-2220
SBDC website: www.uwyo.edu/sbdc