The big three chains race for dominance

Discount Store News, Dec 14, 1987

The Big Three Chains Race for Dominance

With combined corporate sales surpassing $46.5 billion by year-end, the nation's three leading discount chains will rack up an impressive 14 percent of aggregate U.S. general merchandise, apparel and furniture sales in 1987.

And, the $41.1 billion that K mart, Wal-Mart and Target will generate through their more than 3,000 discount department stores represents nearly half of this year's projected volume for the entire discount department store industry.

After 25 years of record-setting growth, these front-running discount chains are poised to leave the rest of the industry in the dust as they implement programs aimed at attaining dominance in new markets, in new product categories and among a new set of consumers.

"We are becoming, in my opinion, one of the most dominant sellers of categories in mass merchandising and discounting. I can see it happening," said Joseph Antonini, who succeeded Bernard Fauber and K mart chairman in September.

Closing In on Sears

K mart clearly has its sights set not only on Sears' crown as the world's largest retailer; but also on Sears' customer franchise. In an interview with DSN at K mart's corporate headquarters, vice president, marketing Michael Wellman cited marketing programs such as sponsorship of the K mart Greater Greensboro Open golf tournament and the new Martha Stewart home furnishings program as examples of K mart's efforts to instill in its customers the feeling that K mart is "a little bit nicer, different, more positive, more influencing . . . going to offer a little more.

"If you put all these things together, pretty soon you develop and reinforce a very strong image of the complete store."

In the race for dominance, the Troy, Mich.-based chain is:

Accelerating an ambitious store refurbishing program;

Marking rapid strides in technology with new point-of-sale and telecommunications capabilities;

Hastening to develop its own hypermarket (general merchandise/ food combo store) concept;

Quickening its expansion pace.

But, despite renewed vigor under new chairman Antonini, K mart will be hard-pressed to hold its lead over fleet-footed Wal-Mart.

By 1991, the Bentonville, Ark.-based chain should be running neck-and-neck with K mart and could slip ahead in sales within five years. By dominating smaller markets and usurping K mart's role as the low cost operator in retailing, Wal-Mart has earned a reputation as "America's Opening Price Point."

In its 25-year history, Wal-Mart has seldom rested on its laurels. "The views and shopping habits of our customers are changing, and although it may not be readily apparent, so are we," said Jack Shewmaker, vice chairman and chief financial officer, describing the almost imperceptible alterations underway at Wal-Mart.

But, while changes in merchandising and operations have been subtle, its accomplishments have been conspicuous. In the past year, Wal-Mart's discount stores have posted the industry's highest comparable store sales gains; its Sam's Wholesale Clubs have sprinted ahead of Price Club to be the sales leader in that growing segment; its dot Discount Drug stores provide a foothold for growth in a not-unrelated retail segment; and its highly publicized hypermarket launch is nearly a year ahead of K mart's planned entry in that mostly untapped market.

At about one-third the size of Wal-Mart and one-fifth the size of K mart, Target is running a distant third in sales to the pack leaders. But, for many reasons, the Minneapolis-based upscale discounter has a smoother road ahead in its efforts to achieve the kind of retail dominance sought by the Big Three. It is different enough front K mart and Wal-Mart to compete effectively, both within and outside much of its traditional big metropolitan areas.

And, Target's goals are also ambitious: "With 25 years of solid experience behind us, we face an exciting future--one filled with expansion, new products, new programs and countless other challenges," said Robert Ulrich, who succeeded Bruce Allbright as chairman and chief executive officer, in a message to employees recently.

K mart is the only discounter with almost universal store penetration. It operates stores in all 48 contiguous U.S. states, plus Puerto Rico. A new consumer study of over 1,800 men and women, conducted for DSN by Leo J. Shapiro & Associates, Chicago, revealed that 84.3 percent of U.S. households have a K mart store in their area, compared to 27.8 percent and 27.0 percent for Wal-Mart and Target, respectively. Geographically at least, K mart is overwhelmingly dominant, with a penetration rate slightly higher than Sears'.

The study also showed that nearly everyone who has one of the Big Three discounters in their area shops that store. Within the past year, about eight out of 10 households that have a K mart or Wal-Mart in their area have shopped one of those stores. This is true for 75 percent of households with a Target nearby.

A trip to any of the three discounters represents a substantial commitment of time. Shoppers travel about 13 minutes to get to these stores. The time shoppers spend inside the store is more than half an hour--nearly the same in each chain. The decision to shop K mart, Wal-Mart or Target is usually about a one hour commitment by the customer (13 minutes each way in travel time and 31 minutes shopping equals 57 minutes).