The industry I chose to research is the superstore industry. An industry, which at one time was dominated by KMart, has gone through enormous change over the past five to ten years. KMart had very little competition when superstores were not really in existence. WalMart became their biggest competitor. New technology along with multiple competitors, have changed the way consumers make purchase. Once considered a monopoly by many, KMart fought the many pressures affecting stand-alone stores today. The company had few stores, which resulted in high costs. Once the industry started evolving with new technologies, these stores became sunk costs for the retailer. Online-only retailers who enjoyed much lower costs than the stand-alone stores were able to profitably charge customers a lower rate; however, at the same time, KMart was saddled with the high costs of labor as well as the physical stores. It was not long before KMart’s costs became too much for the retailer causing them to close many stores (Kmart, n.d.).
Today’s market landscape looks much differently than it did when KMart was at its peak. Many more competitors fight for the consumer’s dollar; however, there are still a few dominant companies that stand out among them. These include WalMart, and Target. KMart became an almost instant hit with its stand-alone stores back in the days. Customers could, for the first time, go to one store and get almost everything they needed without having to go from one store to the other. KMart was able to be a “one-stop shop” for shoppers especially during the Christmas holiday with its lay-away plan. KMart enjoyed a monopoly position in the market; however, a newcomer called WalMart started to change the landscape of the market. In the long run, KMart did not have a sustainable model due to the fact that WalMart was able to drive down the costs by offering customers price matching as well as 24 hour shopping at their supercenters. WalMart continued to eat away at KMart’s share as KMart was saddled with high costs from its stand-alone operations such as labor and real estate, while lagging behind in the changing technology of streaming content.
WalMart was able to run a much leaner operation due to having a centralized distribution warehouse and many more employees! About the same time as WalMart started really grabbing market share, Target started chipping away at KMart’s market share as well. Also, technology was changing the way consumers viewed shopping. WalMart has done a good job gaining and keeping customers, however Kmart hasn’t had it so good. Facing an enormous amount of costs associated with its stand-alone stores and a huge labor budget, KMart could no longer compete with Target or WalMart. “KMart has been losing money and market share for years as WalMart, Target and other services gained popularity. WalMart customers continue to grow as well as for Target. In the short run, WalMart is holding its own, mostly due to their supercenters staying open 24 hours, price matching and all that they have to offer in comparison to Kmart. The other biggest change was when WalMart offered to ship items ordered online to consumers for free. WalMart still has a huge customer base in the neighborhood of billions of customers. In the short run, they have the ability to continue to transition into a streaming business. As we have seen by their stock performance and their mistakes over the past year, this is becoming a very difficult transition for KMart.
One positive thing about WalMart is their strong customer base, and that alone may help them weather any storm ahead. In the long run, there are simply too many “what-if’s” to make a determination on where this market will go. With the super-store industry churning out new products and innovative content what seems like every week, the landscape of this market could simply be described as a moving target. A source of rising costs will come in the form of overhead cost. As more and more people continue shopping at WalMart they will be forced to have to hire more and more and they are faced with a high turnover rate as well. Having to train employees can become costly. Another source of rising costs within the industry will become the fight against shoplifting. More than $4.7 billion was lost to shoplifting and employee theft in just 25 U.S. retail companies in 2002, with only 2.43 percent of those losses resulting in a recovery, according to the Fifteenth (15th) Annual Retail Theft Survey conducted by Jack L. Hayes Intl., a loss prevention and inventory shrinkage control consulting firm (Jonesboro Forum, n.d.). As manager, I would look at my company’s share of streaming data and compare it to my competitors. In this business, I believe that volume speaks louder than anything else.
My share of the marketplace would decide how I went about opening or closing new stores. If I were a company who had the majority share, my negotiation tactics would be on point, as I know the customers would want big savings. On the other hand, if I were a smaller company, I would still negotiate hard, but may want to look a little harder at the content side than the company that has the majority share. While it would be important with any of the companies in this industry, I believe that the type of content you buy can be especially important for companies with a smaller share. For instance, KMart has limited cash in hand and must decide how to provide the best content at the best price for its customers. They will need to look a little harder at content, and determine where the best deals are to spend their money. A hard look into their customer base and their viewing habits would be a good place to start. At that point, they can cater their content to their customers and put their dollars to the best use possible.
Michaels, R. J. (2011). Transactions and Strategies: Economics for Management (1st Edition ed.). Mason, OH, USA: Cengage Learning. Company Overview of Kmart Corporation. Retrieved July 30, 2012 from: http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=82021227
Jonesboro Forum (n.d.). Shoplifting cost the USA Billions every year. Retrieved July 29, 2012 from: http://www.topix.com/forum/city/jonesboro-ar/T3N5L70S5B0RHAUMQ.html