2nd half rebound gives full-liners '92 sales gain - discount department stores - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis - Industry Overview

Discount Store News, July 5, 1993

The year began dismally for discount retailers. By mid-'92, caught between the twin ravages of plummeting consumer confidence and persistent recession, the nation's full-line discount department stores braced for a very difficult year. Given those circumstances, even the most dour pessimist would leap for joy at the final sales results generated by this huge, and supposedly mature, retail segment.

A second half rebound and the best holiday selling season in years helped the top 45 full-line discount stores to record a 10.9% sales gain in 1992. That increase even outpaced the 8.5% sales gain logged by the top full-line discount department store chains in 1991.

The top 45 full-liners generated $96.8 billion in sales from 10,306 stores in 1992. Based on DSN and company projections, the top 45 chains plan to open 614 net new stores this year, on top of the 417 units opened last year.

As expected, Wal-Mart led the pack with a 22.4% sales gain at its Wal-Mart discount stores (excluding sales from its supercenters, Sam's Clubs and other subsidiaries).

Again, Wal-Mart alone added $7.1 billion in new sales to the industry's coffers last year--the equivalent of starting a new chain larger than any other discounter except Kmart and Target.

And, as usual, Wal-Mart attracted the lion's share of attention from the news media, stock analysts, vendors and competing discounters. The Bentonville, Ark.-based chain weathered a storm of unfavorable--and mostly undeserved--bad publicity at the end of the year over its Buy American program. This year, it got involved in an advertising duel with Target over low-price claims. And, it raised concern in the manufacturing community after news leaked out that some vendors were asked to fill out a multi-page business planning questionnaire that required unprecedented disclosure on how those vendors would service Wal-Mart.

Yet, as the results show, Wal-Mart continued to transform the way retailers and manufacturers do business in the mass market. Its winning strategy includes:

* A broad product mix;

* Tailored assortments to individual markets and even stores;

* The highest in-stock levels;

* The latest technology to monitor sales, check stock and order goods;

* Extensively communicating with employees and suppliers; and

* Providing a variety of services to customers, making it the envy of most businesses. [TABULAR DATA OMITTED]

Right behind Wal-Mart in percentage sales growth in 1992 was Dollar General. The southern-based discounter recorded a 22.1% sales gain and opened 95 net new stores. Operating in towns and neighborhoods too small for Wal-Mart, Dollar General has carved out a strong niche, selling everyday basic merchandise to its generally low-income customers. In addition to its business accomplishments, Dollar General won a DISC (Discounters In Service to the Community) award last year for medium-sized retailers.

Kmart held its position as the second largest discount chain in the nation in volume. Despite remodeling about half its stores to its new store prototype, Kmart's U.S. discount stores (excluding Super Kmart and specialty divisions) only achieved a 3.2% sales gain in 1992. On the other hand, continued efficiencies in distribution and technology enabled the Troy, Mich.-based discounter to earn a solid 12% increase in operating income at the discount store arm.

Kmart completed 1,200 remodels and relocations by the end of 1992. However, the chain closed the year with the announcement that the five-year, $2.3 billion remodeling program would be slowed in order to give the chain time to consider the conversion of some traditional discount stores into Super Kmart Centers (see supercenter story, page 74).

Meanwhile, the discounter capped the year in November with the latest version of its store of the future: a modern, upscale looking unit in Auburn Hills, Mich. Because of advances in merchandise replenishment and lowering its cost of business, the retailer was able to include new service enhancements, more expensive fixturing and more service-intensive displays in the new prototype.

Target, the third leg in discounting's dominant triad, broke the $10 billion sales mark in 1992. That 15% sales gain was helped by a 5% increase in same store sales. Operating profits rose 25% for the Target division of Dayton Hudson, to $574 million from $458 million in 1991. The company apparently enjoyed the fruits of a value-pricing strategy begun a year earlier, which increased sales and reduced promotional markdowns. In addition, Target's expense rate was lowered through tighter expense control and more efficient inventory management.

Target cast the die on its future earlier this year with the March openings of 11 of its Greatland store prototypes in the Chicago market. Success in Chicago would pave the way more quickly to Target's eventual goal of becoming a national chain.

The choice of opening Greatland stores in Chicago also underscores Target's strategy of placing most of its growth emphasis on the new concept. All of the eventual 40 stores planned for Chicago will be Greatlands, and from 1994 on, about half of the 40 to 50 stores per year that Target plans to open will be Greatlands of at least 120,000-sq.-ft.