Discounting Becomes Retailing.(Brief Article)(Statistical Data Included) - Mass Market Retailers

MMR ANNUAL REPORT

WAL-MART

Discounters appear well positioned to cope with the changing retail scene, as consumers are focused on value in good economic times and bad ones alike.

NEW YORK -- The discount store industry is growing at such a pace, in terms of both total sales and the variety of merchandise sold, that it soon may be more accurate to simply call it retailing.

According to the International Mass Retail Association (IMRA), discounters continue to account for an ever-larger share of apparel and general merchandise sales. The association estimates that discount stores claimed 67.7% of all department store sales in the United States in 1999, up from 65.8% in 1998.

Part of the gain is doubtless due to the increased credibility such chains are getting in such fashion-oriented categories as apparel and soft home. But while they have proven adept at taking business away from middle-tier department stores in those categories, they have made inroads in other mass retail arenas as well.

'Discounters are also gaining market share from other players in the industry, notably food stores and drug stores,' notes an IMRA spokeswoman.

Indeed, industry giant Wal-Mart Stores Inc. has identified the food industry as a major growth opportunity and is treating the Supercenter, which is essentially a discount store and a supermarket under one roof, as its primary expansion vehicle. Wal-Mart is even experimenting with a smaller format, the Neighborhood Market, that most closely resembles a food/drug combination store.

Even its traditional discount stores are getting more of a food focus, with extensive assortments of nonperishable food. And Wal-Mart is not alone in recognizing the potential of food departments as traffic builders and sources of incremental sales.

Kmart Corp. and Target Corp., while slower to roll out supercenter formats of their own, have each reaffirmed their interest in the concept. Kmart also made the Pantry department, featuring an extensive assortment of convenience food, a key component of its turnaround strategy in recent years, and Target too has added convenience food departments to many of its stores.

As a result of such developments discounters have been gaining market share in a number of nonperishable food categories. Much the same thing is happening in a number of health and beauty aids categories, where discounters have used low prices and widened assortments to gain market share at the expense of supermarkets and drug stores.

For all its successes, the discount store industry does face some challenges. Internet retailers, which typically do not have to worry about local sales taxes or the overhead associated with running stores, are emerging as competitors for price-conscious shoppers in certain product categories.

Consumer populations are becoming more diverse, leading to fragmenting tastes and product preferences that can be challenging to address in mass market formats. And the low unemployment levels that are helping boost consumer confidence and spending are also making it more difficult for discounters to find and retain the employees they need to run their stores.

Generally, though, discounters seem well positioned to cope with the changing retail scene. With consumers proving to be value-minded even in economic good times, and likely to be more so if the economy turns sour, discount stores are among the retailers best positioned to offer consumers the merchandise they want at the prices they want to pay.

Discounters are also proving adept at using technology not only to boost the productivity of their employees, helping to at least partially offset the labor crunch, but to fine tune the merchandise mix in different stores to better reflect the needs of local consumers.

TOP 10 DISCOUNT CHAINS

 DOLLAR VOLUME  1. WAL-MART    Bentonville, Ark.            $165.0 bil  2. KMART    Troy, Mich.                   $35.9 bil  3. COSTCO    Issaquar, Wash.               $27.0 bil  4. TARGET    Minneapolis                   $26.1 bil  5. MEIJER    Grand Rapids, Mi.             $ 9.0 bil  6. ZELLERS    Brampton, Ont.               $ 4.60 bil  7. BJ.'s    Natick, Mass.                $ 4.12 bil  8. SHOPKO    Green Bay, Wis.              $ 3.90 bil  9. AMES    Rocky Hill, Conn.            $ 3.84 bil  10. BRADLEES     Braintree, Mass.            $ 1.54 bil  STORE COUNT  1. WAL-MART    Bentonville, Ark.                 3,995  2. KMART    Troy, Mich.                       2,172  3. TARGET    Minneapolis                         907  4. AMES    Rocky Hills, Conn.                  454  5. ZELLERS    Brampton, Ont.                      328  6. SHOPKO    Green Bay, Wis.                     317  7. COSTCO    Issaquar, Wash.                     250  8. MEIJER    Grand Rapids, Mich.                 127  9. B.J.'s    Natick, Mass.                       108  10. BRADLEES    Braintree, Mass.                    104 

DISCOUNT STORE PERFORMANCE

 SALES                                                          % Change                                        Results           vs. '98  Discount Store Sales                 $294.93 bil          +9.5% Average Sales per Store              $ 24.48 mil          +1.9% Discount Industry Net Profits         $ 4.42 bil          21.9% Net-to-Sales Ratio:                     1.5%               --  STORES                            No. of      % Change                            Units         vs.  No. of Discount Stores    12,044        +7.4%