Double the ambition, and pass on the 'rationalization.' - rationalization in the discount retail industry - Column

Discount Store News, June 3, 1996 by Jennifer Negley

Paine Webber's Retail Group recently made a presentation to the International Council of Shopping Centers Convention in Las Vegas that plugged various retail concepts into one of four categories: prosperity, reality, pain and rationalization.

Guess which category discounters fall into?

If you're reaching for the BenGay, you've chosen correctly.

What Paine Webber sketched out was, essentially, a lifeline for retail concepts. The "prosperity" retailers are the hot tickets--in this case highly niched concepts and a few category killers that haven't yet moved on to the next phase in development, the "reality" band of the curve.

"Reality" is currently the home of most category killers, in particular specialty apparel retailers. These are the concepts that have entered the zone "where growth has slowed and investor perception has become more critical," according to the report.

The next step in the maturation process is "pain." Paine Webber graciously spares us a detailed definition here.

And where is the discount industry headed? To "rationalization," where discounters will join warehouse clubs and department stores. This, according to the report, is a good thing because it is here that "marginal competition has been eliminated and more competitive cost structures have been put in place to improve profitability." In other words, anybody who's still standing gives up the ambitions of their starry-eyed heyday and settles down to tend to their knitting.

As one who's always had a soft spot for starry-eyed ambition, I find the prospect of a sober dotage a little disturbing.

What worries me even more is a companion categorization the report sets forth. It rightly points out that consumers are increasingly driven by convenience and a need for "stock-up" commodity items, then deposits the future of discounting squarely in the stock-up niche along with warehouse clubs and hypermarts. This is an arena where volumes are high and margins are predominantly low.

I think discounters are more creative than that, and I think their customers expect them to be more than general merchandise supermarkets. Yes, commodities lay the foundation. But discounters are becoming increasingly adept at providing convenience, whether by opening up food/general merchandise supercenters, offering delivery, testing prepared meals, issuing private label credit cards or establishing special shopping hours for seniors.

In fact, I'd be willing to bet that the discount channel does more innovative testing of new services than any other. Not all of those tests succeed, of course, but each brings the industry another step closer to a truer understanding of what consumers really want.

Maturity is one of life's inevitabilities. If we're smart, it brings us wisdom and insight--not "rationalization."