Category killers close on outlying suburbs

Discount Store News, August 20, 1990

Category Killers Close On Outlying Suburbs

LOS ANGELES - Wal-Mart's entry into Southern California this month marks yet another addition tot the growing list of new retailers hitting the market this year.

Joining Wal-Mart are chains covering various specialty categories like Staples, The Good Guys, Silo and IKEA. All of them are looking to take advantage of Southern California's prosperity and acceptance of new concepts and retailers.

Yet analysts and many retailers agree that the market is already overstored, and since the area's economic growth has slowed down somewhat, both the new and existing chains have a tough battle ahead.

Like it so often does, Wal-Mart has chosen to first hit outlying suburbs before delving into major markets. The chain's first store opened some distance north of Los Angeles in Lancaster, and the next location will be in Modesto, which sits east of the Bay Area and north of Sacramento.

Other new sites for the year include more mid-size towns like Stockton, Madera and Elk Grove. Additional California sites are planned, with some Wal-Mart sources predicting there will be at least 40 in operation by the end of next year.

Despite targeting smaller California markets, the company's initial store in Lancaster immediately placed the Bentonville, Ark., chain against Target and K mart stores.

While Wal-Mart competes against the two discounters in other states, here in California the stakes are considerably higher. For Target, in particular, the state is especially important.

Its largest market, California, holds just under a fourth of Target's stores. Currently some 99 Target sites are spread throughout the state, with 55 of these in Southern California alone.

The Minneapolis-based discounter picked up many of these locations during the last few years by taking over former Fed-Mart and Gemco sites. With the exception of K mart and some small local chains like Santa Fe Springs, Calif.-based Fedco, Target has had very little competition here.

With 170 stores in the state, Troy, Mich.-based K mart has about 8 percent of its chain located in California. In Southern California alone, some 68 K mart stores are in operation.

Wal-Mart president and chief executive officer David Glass admits that there is very little product differentiation between the three discounters. So Wal-Mart intends to make its mark by concentrating on those areas where it can make a difference.

"The emphasis at Wal-Mart is on customers, the people [employees] and low prices," Lancaster store manager Bob Shew told DSN. "There is a commitment there. It's not just the slogan of the week."

Specialty chains entering Southern California have also devised ways to help provide them with a niche in the market.

For office supply chain Staples, differentiation means that "our stores are significantly better in both stock and selection than the competition," said Todd Krasnow, Staples' vp of marketing and systems in California.

Krasnow said central distribution is a key to the difference, since competitors HQ Office Supplies Warehouse and Office Club rely on store-direct vendor delivery. By using central distribution, Krasnow said Staples can cut its real estate costs because it needs smaller stores, and it can also decrease its product, labor and processing costs since all merchandise is received from the vendors one location.

The Newton, Mass-based chain entered Southern California this past July with the opening of three stores. The locations represent the first of 34 stores planned to be opened in California during the next two and a half years, Krasnow said.

HQ is currently operating 14 stores chainwide, with 12 of the locations in Southern California. The chain expects to open six more new stores in the area this year.

At the close of its second quarter in June, Office Club had 43 locations in operation. During the period, the chain looked to increase its Southern California presence by opening new stores in La Mesa, Fountain Valley and Oxnard.

Just as Staples' entry heats up the market's office supply megastore industry, expansion by The Good Guys and Silo is bringing more players into Southern California's consumer elections industry, which has seen many players come and go.

Currently, Richmond, Va.-based Circuit City is the most dominant chain with some 25 stores open between San Diego and Santa Barbara. Philadelphia-based Silo, however, is looking to increase its stake in the market by opening 16 stores in Los Angeles, two locations in San Diego as well as nine stores in Barkersfield this fall.

Silo, which already operates 10 stores in San Diego, picked up many of its new locations from the defunct CE chain The Federated Group. It was in part because of Circuit City's move into Southern California a few years ago that Federated lost much of its market share.

Varied Merchandise Mix

The Good Guys, based in San Francisco, joined the competitive Southern California retail arena this summer. The chain expects to make its niche with a merchandise mix that significantly varies from Circuit City and by operating 24 stores a day. This September, Good Guys expects to open stores in Huntington Beach and Tustin.