New Normal for Big-Box Retailers

There is a new business model for big box retailers who want to survive.

Over the past 50 years, the landscape of Main Street USA has been drastically altered as mom and pop stores have slowly been replaced by Wal-Mart, Target, Kmart, and Best Buy. However in just the past five years, these same big-box retailers have been overtaken by e-commerce sites, such as Amazon.  When you examine the marketplace and look at the big-box retailers that have gone bankrupt, such as Circuit City and Kmart; the retailers struggling to survive, including Office Depot and Home Depot; and the ones about to be liquidated, such as Sports Authority and Best Buy; it begs the question of survival.   War-Mart and Target are re-engineering their business models, while Costco, Dollar General  and T.J. Maxx are growing.   What is the difference in these big-box retailer’s business models and what exactly is the formula for survival?

The new normal is the value consumers place on time and convenience versus cost and selection.  People do not go to stores to buy things which need to be used immediately. Instead, your purchases are often those things you plan to use in the future.  The effect this has on the marketplace is that the traditional brick and mortar stores have become giant showrooms for people to touch and feel the goods before you go home and buy them online.

The opportunity exists for big-box retailers to turn their comparative weaknesses into comparative advantages to combat e-commerce.  The brick and mortar retailers usually have widely distributed large storefronts, situated in prime locations, at close to zero real estate costs (due to historical enticement of the local municipalities).   The new normal for this success is that stores, such as Wal-Mart and Target, take advantage of their prime physical infrastructures to showcase their merchandise more efficiently, and thus, reduce inventory thereby lowering costs.  Employees now freed from shelving and inventory may finally face the consumer and provide fast and quality customer service, an essential component to consumerism.  On this front, Wal-Mart can serve as the epitome of success.

The new normal of big-box retailing focuses on consumer staples rather than specialty products.  Families no longer load up in the minivan to go purchase a big screen TV or audio system but instead can be seen carting around large quantities of paper goods and fresh groceries.  For this reason, Costco, Wal-Mart (with Supercenters and Sam’s Club), and the Dollar General are growing while Sports Authority and Best Buy struggle.  It is anticipated that online grocery purchases will be a great opportunity for Wal-Mart and likely to be the only bright spot on their e-commerce sales growth against Amazon.

The new normal of retailing is also seen in the desire for fast delivery of goods.  Company websites will primarily be used for the selection of merchandise, at the customers’ convenience, and fast delivery at lower costs (of online sales).   Recognizing this demand, Wal-Mart recently announced a new program through Lyft and Uber that delivers groceries in Phoenix and Denver.  Sam’s Club has also begun testing a similar program in Miami.  Along the same thinking, retailers have begun testing online grocery pickup services and Wal-Mart doubled the number of stores offering this  service in four markets, including Charleston and Nashville.

The buzz words for big-box retailing are “online, fast, low cost, staples, and pleasant store experiences.”

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