Old standby categories and hot newcomers propel discounters to $111B in sales - Discount Store News Annual Discount Industry Report; Part 2: Merchandising and Productivity Analysis

Discount Store News, August 2, 1993

Full-line discount store sales surged 12.2% to $111.4 billion in 1992, driven by healthy increases in tried and true discount store categories such as casual apparel, housewares, toys and sporting goods, and further stimulated by relatively new or newly emphasized categories like computer products, food, crafts and office supplies.

DSN projects that 1993 sales will climb 10% to $122 billion in 1993.

Twenty-nine product categories accounted for roughly 97% of 1992 sales at full-line discount stores.

Real growth appears to be spurred by so-called "lifestyle" products: consumer electronics, including computers; home fashions and decorative products; craft and hobby goods; and casual apparel. These products, which people use to enrich their everyday life, showed uniformly rapid growth in 1992, and many are expected to grow faster in the future.

Discounters were quick to take advantage of the staggering department store industry, and much of the lifestyle orientation of the majors is aimed at attracting the relatively affluent former department store shopper. For instance, most discounters are emphasizing watches and jewelry, adding new price points and brand names. Similarly, most are offering coordinated home fashions departments, with highly styled, yet affordable, patterns and on-trend colors. The grunge look has crept into apparel departments, and consumer electronics corrals now feature computer software for the whole family.

The continued growth of the wholesale club industry, despite its recent consolidation, has "trained" consumers to purchase upscale merchandise in bare-bones environments; the clubs offer tennis bracelets for $2,000, Burberry raincoats at more than $100, $4,000 computer systems, and many other costly products that formerly were available only in department and upscale specialty stores. The overriding concern in the '90s has switched from price to value; the consumer is quite willing to forgo traditional amenities in shopping, but expects to get high-quality merchandise at considerable savings in return. Discounters, following the club lead, have upgraded the quality of their merchandise offerings in response.

Among the highlights of this year's DSN State of the Industry Report, Part 2 are:

* An explosion in jewelry and watch sales, with full-line discounters now in a dead heat with the traditional catalog outlets for market share, each accounting for roughly $2.5 billion in sales. Manufacturers are now targeting the mass market with upscale products, and the consumer seems to be willing to purchase those prestige products at discount stores. The same holds true for prestige fragrances and cosmetics brands to a lesser extent.

* Consumer electronics departments recorded sharp increases, as more computer products moved through the channel. As the price for computers continues to fall and household penetration rises, expect to see full-line discounters grab a lion's share of peripheral, software and accessory sales in this emerging megamarket. Wal-Mart has a very definite lead, and merchandises a relatively complete product mix. Competitors Target and Kmart approach the category more as a convenience business.

* Food sales continue to build at discount stores, particularly as Kmart and Wal-Mart roll out their supercenter concepts. Both have developed effective private label strategies to complement their branded lines, building margins and offering more value.

* The photo market rebounded from a three-year lull, possibly due to improved film and easy-to-use cameras that make it easier for the amateur photographer, which in turn leads to added sales in such areas as photofinishing, photo frames and custom finishing. Kmart is testing an Image Center that caters to just that customer by offering added services, like t-shirts printed with a favorite photo.

* Children's apparel continues to grow, and discounters were the major beneficiaries. In fact, virtually anything child-related (for example, toys, books, juvenile furniture, car seats) is doing well at the discount level, with discounters' shares of market in some categories often near 50%.

* Furniture sales appear to be picking up, as new and improved products at attractive price points come on the market. Discounters are increasing their mix, adding new styles, and are just beginning to address the booming office products market, where relatively new vendors like Rubbermaid's MicroComputer Accessories and start-up Forminco are targeting the mass market shopper with sturdy, attractive workstations. Newer products are also much easier to assemble at home.

* Sales of prerecorded video and music continue to build, as the entertainment industry, following Disney's lead, targets the mass market as its primary channel of distribution. The corresponding flood of licensed merchandise has added a spark to areas like children's apparel, toys and home fashions.

* After years of neglect (and announced plans by Kmart to get out of the business), discounters have rediscovered the auto service business. This possibly results from Sears' well-publicized car service troubles, but is more likely due to the failure of smaller specialty chains.