New York (CNN) In the 1980s, a new type of specialty retail chain began to emerge: “category killers.”
The stores’ powerhouse business model aims to give consumers access to every different size, style and color of a product imaginable — all in one place and at reduced prices.
Category killers, who began to dominate entire merchandise categories, opened stores typically less than 50,000 square feet — larger than independent stores but smaller than Walmart superstores — on strips mall centers throughout the suburbs. Consumers embraced these overstuffed emporiums.
Staples is “a classic ‘category killer,’ like Toys R Us,” Mitt Romney, then the general managing partner of Bain & Co., said. said in 1989.
These companies, along with RadioShack, Blockbuster, Barnes & Noble and others, proliferated in the 2010s, remaking how Americans shopped and steamrolled through mom-and-pop stores.
Toys “R” Us filed for bankruptcy in 2018. The company was an early category killer.
But the era of the category killer has passed.
Toys “R” Us, Blockbuster and RadioShack are gone. Staples and Barnes & Noble are still around, but they’ve struggled and closed hundreds of stores.
Another killer category fell this week, when Bed Bath & Beyond filed for bankruptcy.
Once the go-to stop for everything in customers’ homes, Bed Bath & Beyond has been brought down by changes in shopping, competition and its own missteps. But it’s also a retail concept designed for a bygone era.
“That model is exciting and novel. If you like that category, it’s like a kid walking into a candy store,” said Z. John Zhang, a marketing professor at the University of Pennsylvania’s Wharton School. . “The concept has become passé.”
How category killers are formed
During the heyday of the category killer, a time when the game show “Shop ’til You Drop” was a long-running television series, people wanted to accumulate as many products as they could, especially not knowing how these products are made or their toll on the environment.
By buying in large quantities, retailers can demand lower prices from suppliers and undercut their competitors.
By focusing on one product area and being a leader in the area, companies bet customers will turn to them whenever they need, for example, new toys for their children, a DVD player, or bedsheets.
The combination of global supply chains, cheap container shipping overseas, falling telecommunications costs and computers enabled the category killer concept.
Companies can suddenly order manufacturers around the world to create products and track supply in real time.
“The key to the development of many category killers has been the adoption of modern supply chain methods,” says Marc Levison, an economist and historian, and author of “The Great A&P and the Struggle for Small Business in America.” “It became possible to communicate from an office in New York with a supplier in China.”
Large companies that are able to invest in sophisticated technology and software systems gain an advantage over local and regional stores.
Other factors made it possible to increase the categories of killers, as well, such as the expansion of the suburbs, which led to larger stores with larger parking lots than cities. Customers can stock up on items and throw them in the back of their trunks.
The 1980s also saw a wave of department stores bankruptcy, debt-financed takeovers and leveraged buyouts. This means that rivals who owe a lot to the category killers haven’t been able to invest in technology and supply chain management to keep up.
“Local and regional merchants were still around in the 1970s and 1980s, and they were easy to kill,” Levison said. “Traditional retailers are swimming in debt.”
Bed Bath & Beyond is a category model archetype for home furnishings.
Founded in 1971 as Bed ‘n Bath as a small linen and bath store, the company changed its name to Bed Bath & Beyond in 1987 to reflect its expanded merchandise selection and built larger superstores. It stacks linens, towels, pots and pans to the ceiling, using coupons to get shoppers into stores.
“We witnessed the department-store shakeout and knew that specialty stores would be the next wave of retailing,” co-founder Len Feinstein said in 1993, a year after the company went public with 38 stores and approximately $200 million in sales.
By 2000, those numbers had jumped to 241 stores and $1.1 billion in annual sales.
As Bed Bath & Beyond grew, it drove out smaller linen and home decor stores.
Killing the killers
In 2011, two professors at Harvard Business School predicted that online shopping would lead to a collapse of the killer categories.
“Like the category killers that led to the demise of mom-and-pop shops, [online retailers] is leading to the demise of the big-box category killer,” they wrote. “The focus that fueled them in the 1980s and 90s is creating the conditions for their current struggles.”
And online shopping has cut category killers.
Amazon can compile endless product choices in its online marketplace, taking away the advantage of category killers that once had rivals in product assortment.
The lower cost advantages that category killers once enjoyed because of their scale, which allowed them to lower prices, are gone.
Unlike Bed Bath & Beyond and other chains, Amazon doesn’t have to buy products and hold inventory in warehouses — which is expensive. It connects buyers and sellers and takes payment on sales.
And big-box chains like Walmart and Target can focus on cherrypicking high-demand products in each category, limiting their spending.
There’s nostalgia for category killers like Barnes & Noble these days.
“If you’re a category killer, you have to assemble everything. You have to bring slow-moving products, which increases costs,” said Zhang from Wharton.
Lately, category killers have also been hit hard by customers pulling away from discretionary spending due to inflation.
And they have also undergone a change in the priorities of many consumers. People are prioritizing spending money on experiences rather than having endless things, in a move toward what’s called the “experiential economy.”
“People pay more attention to experiences, rather than having material goods,” Zhang said. “Why do you need so many things in one category?”
There are still a few brick-and-mortar category killers left such as Home Depot and Lowe’s for home improvement; Dick’s Sporting Goods for sports gear; and Best Buy for electronics.
These companies sell products that many customers want to see and try, such as a new baseball glove or a home theater system. The chains have been boosted by major trends such as a strong housing market, more people playing sports, and innovative new gadgets.
It’s somewhat ironic that there is now nostalgia for Bed Bath & Beyond and other once-dominant chains that drove mom-and-pops out of business. But as more kill the category, customers may have fewer options and lose convenience and product knowledge.
“We will miss these places when they are gone. There are fewer and fewer stores where you can go and find any real variety or options for a product,” the urbanist writer Addison Del Mastro said on Twitter this week. “We should have more than a single Walmart option or 100 pages of spammy Amazon results.”