Taking the road not yet traveled - Special Report: Reinventing the Discount Store

Discount Store News, May 15, 1995 by Don Longo

More than 50 major discount retailers liquidated, filed Chapter 11 petitions or were acquired by other firms in the past two years--and further casualties are likely. Despite the industry's overall record of double-digit sales growth, discount retailing is at a dangerous crossroad: the pace of change is so great that missed opportunities and mistakes that could be sloughed off in the past are now fatal.

To survive, discount retailers must embrace change and be willing to transform every aspect of their business.

The litany of disappearing nameplates in just the last couple of years is sobering: Pace Membership Warehouse, Consumers Distributing (U.S. , Job Lot Pushcarts, SoureClub, Carrefour USA, Sprouse, Cargo Express, Freddy's, Lionel Leisure (Kiddie City), Highland Superstores, Office America, Fishers Big Wheel, Leedmark (U.S.), The Fair, TwinValu, and, just last month, Trader Horn.

Stuarts, NBO, Warehouse Club and a handful of others face uncertain futures. Even Kmart Corp., the second largest discount retailer in the world, needs to remake its image, product assortments and operations to ensure future survival.

Charles Lazarus, founder and chairman of Toys "R" Us, the world's leading toy retailer, always cautioned his team against becoming smug about their success. "The biggest danger of a retailer is becoming complacent and saying `I've got it knocked; I know how this business works,'" he told them.

Winning retailers are willing to reinvent the entire nature of their business. They start with a driving vision, then align their people, their processes and their technology to support and enhance that vision. Andersen Consulting, which operates a retail laboratory of the future in Chicago called The Retail Place, advises its retail clients to "rediscover the customer, reinvent the work force, rejuvenate the store and redirect effort toward value."

It all starts with the willingness to change. The late Sam Walton made change part of Wal-Mart's vision as he described the challenges ahead for the largest retailer in the world: "Overcoming one of the most powerful forces in human nature: the resistance to change. To succeed in this world, you have to change all the time."

Fortunately, for the discount industry, examples abound of retailers that have successfully reinvented themselves. Some, like JCPenney, took great risk at abandoning a comfortable model. JCPenney actually sacrificed $1.8 billion in hard lines sales to reposition itself as a soft lines specialist. Discounters like Kmart can learn a lesson from this $20 billion retailer, which stuck it out for nearly 16 years before it enjoyed the fruits of its transformation. By reinventing its merchandising strategy, JCPenney's operating earnings topped $1.6 billion last year, second only to Wal-Mart in the retail industry.

Experts say that time-pressed shoppers in the 21st century will look to retailers that enable them to accomplish their shopping in the most entertaining and expeditious ways possible. Look for wider use of electronic kiosks, "try-me" areas and more cross-merchandising throughout discount stores.

While some discount retailers will reinvent what merchandise they put into the "box," others will succeed by thinking outside of the "box"--experimenting and diversifying into entirely new store and nonstore concepts. Service Merchandise, for example, is remaking itself from an outdated catalog showroom to a lifestyle hard lines specialty retailer--that just happens to also have a large annual fall catalog as a marketing tool.

Service Merchandise and others, like Kmart and OfficeMax, are also testing the airwaves of cyberspace. Still others may follow the lead of specialty retailers like Talbots, which are adept at using the database of information they possess to pamper their customers. Indeed, many discounters seem poised to practice "relationship marketing" or individualized mass marketing. At one time, discounters didn't even accept credit cards, now many offer their own charge cards.

In the process of rediscovering their customer, many retailers will find they must reinvent their customer service strategy.

Andersen Consulting's Gene Wright suggests that retailers appoint a "Vice president for customer service" to the corporate suite. Jack Bush, president and ceo of Michaels, the crafts superstore chain, is convinced that without strong customer service "it doesn't matter how effectively you operate, how attractive your products or how good your real estate."

And Nashville Tenn.-based Dollar General believes in an expanded definition of customer service. "We use the term customer satisfaction because we view pleasing our customers as a whole package that involves merchandising, sharp prices, consistent in-stock and a clean, comfortable store environment," said Tom Harshorn, vice president, merchandising operations.

Even if a retailer today is doing all those things, it can still fall behind constantly rising customer expectations. Every day a competitor is raising the bar a little higher; one may be upgrading its merchandising, another sharpening its prices, another improving its inventory position or cleaning up its stores.