Store closings an opportunity, not a death knell - Editorial

Discount Store News, Feb 5, 1996 by Tony Lisanti

The latest wave of store closings announced by several regional discount retailers has stirred a new round of criticism toward this beleaguered segment of retailing.

Almost 70 stores among three chains - Pamida, Venture and Ames - will be closed, bringing the unofficial total for the discount department store segment to about 325 closed stores over the past year. And it may get worse before it gets better. Many observers believe more closings are imminent during a year predicted to be as tough for retaining as 1995 was.

In its latest report entitled "Retailing 2000: A Mid-decade Perspective, Five Down and Five to Go," Management Horizons describes this segment as "discount dinosaurs."

The report states, "The last of the conventional discounters will pass from the retail scene in the next five years. Regional discounters will experience several financial problems as the industry consolidates. They will become the dinosaurs of the industry. The dominant players in the industry will exit the conventional discount department store business as they aggressively expand their supercenter offerings that combine food with general merchandise."

Well, much like its report of five years ago, Management Horizons demonstrates a flair for drama and pizzazz in its report, but many observers share its latest perspective on discount department stores, which it refers to as a "relic of the past."

But as I commented five years ago when Management Horizons predicted the death of the mass market, I suggest that you analyze this segment a little closer before you jump to any quick and costly conclusions. In particular, suppliers should be extremely cautious before subscribing totally to the dinosaur theory and abandoning the discounting segment.

Believe it or not, since Management Horizon's report five years ago, the discount department store segment has grown significantly from $92 billion in 1990 to $134 billion in 1994, with projected sales to top $143 billion in 1995. It's true that several smaller chains have gone out of business, but remember that this segment still generates an enormous volume of business that simply can't be ignored and it won't disappear anytime soon. Frankly, the number of chains or the number of stores in this segment is not as important as the total volume this segment generates and the value it represents to millions of customers.

Perhaps, then, the latest closings should be seen as good news

First, consider these store closings a market adjustment that will ultimately help create stronger, more focused companies. After all, doesn't it make sense to close older, underperforming stores in overstored competitive markets and build new stores in more viable locations that could generate double or triple the volume? Furthermore, consumer research over the years has reinforced the preference among consumers for newer, cleaner and more convenient stores that are also easier to shop. In addition, according to research conducted by America's Research Group for DSN (November 1995), consumers still prefer to shop discount stores.

Wal-Mart has subscribed to this store replacement philosophy for years, and it has been a huge competitive advantage. In 1996, Wal-mart will close or expand about 100 traditional stores into the supercenter concept and open about 75 new traditional stores and 15 supercenters.

Conversely, Kmart, while it has closed about 200 stores, is still saddled with 'hundreds" of old, small stores in less-than-desirable locations. Many observers believe that if the discounter unloaded more underperforming stores it would be a stronger company in the long run.

So I guess the message is simple: In order to be a smarter operator in today's competitive market, fewer stores generating higher volume is the strategy of choice and to some - ultimately the strategy of survivial.