This category includes establishments primarily engaged in the retail sale of a variety of merchandise in the low and popular price ranges. Sales usually are made on a cash-and-carry basis, with the open-selling method of display and customer selection of merchandise. These stores generally do not carry a complete line of merchandise, do not carry their own charge service, and do not deliver merchandise.
All Other General Merchandise Stores
Discount department stores are also known as discount variety stores, general merchandise discount stores, mass merchandisers, full-line discounters, or discount houses. This industry is dominated by the Wal-Mart, Target, and the newly created Kmart/Sears (the two companies merged in 2005) chains.
The Big Three discount retailers began operations as individual variety stores, and by the late-1990s had evolved into chains averaging 80,000 square feet of discount-selling space per store, providing clothing; hardware, housewares, auto supplies, and small appliances; stationery and candy; sporting goods and toys; health and beauty aids; pharmaceuticals; gifts and electronics; and shoes and jewelry. By 2003, the stores showing the most success were the so-called supercenters, which grew nearly 18 percent over the previous year, and grew by about the same amount the following year. Although overshadowed by the Big Three, groups of regional stores, Dollar General, Family Dollar Stores, and the Dollar Tree Stores, are also listed under the variety stores category. Warehouse stores such as Costco and Sam's Club, are also part of this designation. There were an expected 8,000 more dollar stores to appear by 2008. The common element among all stores in the industry is the focus on low prices.
The emergence of discounters, which relied heavily on technological advances to improve productivity and cut costs, had a tremendous impact on the financial well-being of full-price retailers. Although luxury retailers were on the rebound, this upward trend for discounters was also continued in the years between 2002 and 2005, as consumers were increasingly concerned with value shopping and saving money. Other factors affecting the future of discount retailing include a consumer base of greater ethnic diversity, a heightened concern for the environment, interactive technology, and international retailing.
Variety stores can be categorized by price and level of service, and generally fall into one of the following categories: discount department stores, wholesale clubs, supercenters, hypermarts, and so-called category killers.
Wholesale clubs are no-frills stores that sell in bulk to people who pay dues to maintain membership. Originally targeted toward small businesses, which appreciated the opportunity to purchase supplies in large quantities, membership requirements have been made broader to include many segments of the general populace. Supercenters, or superstores, are large retail outlets offering general merchandise in addition to a complete grocery area. The supercenter concept evolved from the hypermart, which offers discounted merchandise and groceries, as well as ancillary businesses, such as branch banking and photo processing. Finally, category killers are specialty chain stores offering a single line of merchandise, such as T. J. Maxx, Dress Barn, and Burlington Coat Factory. Although industry information related to discount retailers often includes statistics on category killers, many of these stores are formally listed under the SIC related to the merchandise in which they specialize.
Although discounted sales have existed since the early 1900s, the discount variety store industry picked up shortly after World War II. During this time, according to Discount Store News, entrepreneurs were prompted to open large variety stores due to the increasing demand for consumer goods, including such new products as record players and television sets. In the northeastern part of the country, in particular, large facilities became available to potential variety store owners when manufacturers moving operations to the South vacated several mills. Taking over such facilities for retail operations, variety store owners found that their proximity to those mills that had remained in operation facilitated the timely restocking of stores with apparel and domestic items.
By 1962, industry leaders and a standard store format were well established. Discount department stores were formed by the Dayton Company, which pioneered the Target chain, as well as Kmart stores, an offshoot of S. S. Kresge, the F. W. Woolworth Company's Woolco stores, and Sam Walton's Wal-Mart. These new stores transformed the variety store business into large, low-price, self-service stores, featuring both hard goods and apparel.
Several mergers occurred in the late 1960s and early 1970s, as chains sought to expand quickly through acquisitions. During this time, Kmart became the decided leader with more than 300 stores, which was more than double the number of the next largest chain. Although over a dozen discount stores filed for Chapter 11, attributable to economic recession, Kmart and Woolco grew into national companies, whereas Wal-Mart and Target expanded in the Southeast and Midwest, respectively.
During the 1970s, discount stores began exploring advances in technology, using computers, electronic registers, UPC bar coding systems, point-of-sale (POS) scanning, and satellite communication systems. Wal-Mart's explosive growth, in particular, was attributed to its successful implementation of computer technology. The company established highly automated distribution centers, which cut shipping costs and delivery time, and installed an advanced computer system to track inventory and speed up checkout and reordering. As a result, Wal-Mart increased the number of its retail establishments from 18 in 1970 to 270 in 1980.
By the end of the 1980s, Kmart, Target, and Wal-Mart dominated the industry. At the same time, other chains had filed Chapter 11, including Woolco, Fed Mart, Memco, Twin Fair, Zayre, Zodys, Kings, Ames, and Hills. Regional operators experiencing moderate success included Jamesway, Caldor, and Bradlees in the East; Rose's in the South; Clover in Philadelphia; Fred Meyer in the Pacific Northwest; Fedco in Southern California; and Venture, Meijer, and Value City in the Midwest.
The introduction of a full line of grocery items to the discount store format represented an important aspect of the successful supercenter in the early 1990s. Although the majority of store profits were attributable to merchandise sales, food divisions began to draw customers into the store and accounted for 40 percent of a supercenter's sales in the early 1990s. This trend was expected to have a negative impact on the traditional supermarket owner. Nevertheless, some analysts have viewed the discounters' venture into the food business with skepticism. Critics noted that since grocers earned an...