Magazine Article | May 18, 2006

Specialty Retail's Wake-Up Call

Source: Innovative Retail Technologies

Grocers and mass merchandisers are out-muscling specialty retailers at their own game.

Integrated Solutions For Retailers, June 2006

Executives from progressive and leading grocery and mass retailers – including Brookshire Grocers, Wild Oats, and Foodland (among many others) – converged in San Diego this spring for SofTechnics’ 20th annual user conference. I attended the conference, which marked the first time in quite a while that I’ve had a chance to engage a large group of grocers in conversation about Wal-Mart’s effect on retail store formats. The previous several events I had attended or spoken at were specialty retail-focused. I’ve been generating some opinions on the mistakes I’m seeing specialty retailers make in the age of Wal-Mart, and my time with these grocers only confirmed – and added to – my concern for the specialty retailer.

At the conference, I gave a presentation on the information technology challenges associated with an evolving, expanding store format. Love it or leave it, Super Wal-Mart is a store format expansion leader. It was among the first retailers to introduce the concept of offering services in a mass merchandise environment, evidenced by its almost standard optometry, travel, food, and automotive service departments, among others. The retailers I spoke with at the SofTechnics conference got it. They were, in fact, a step ahead. Their stores are evolving in step with a changing, service-oriented, price- and convenience-conscious demographic. And they’re aware that, while their reputations were built on quality perishables and grocery selection, their growth will depend on expanding their store formats to meet the needs and requests of their customers.

By and large, specialty retailers don’t get it. They haven’t come to terms with the reality that by evolving their formats and constantly adding to their merchandise mixes, Wal-Mart and the leading mass merchandisers are stealing specialty market share. This, despite Census Bureau data that indicates that the top three retailers dominate market share in several categories, including consumer electronics (44%), appliances (59%), drug sales (49%), grocery (35% and growing rapidly), and sporting goods (36%).

Is Your Best Customer At Wal-Mart Right Now?
One recent Wednesday evening on my drive home from work, I was thinking about my conversations with specialty retailers and their denial that their target demographic would dare set foot into Wal-Mart. I swung by my local Super Wal-Mart and found parked in the lot a 2006 Cadillac Sedan Deville, MSRP $70,000. Not far from it were parked an ’06 Acura MDX and an ’06 Lexus 330, both of which slide in just south of the Caddy’s sticker. I’m the first to admit that this evidence is purely anecdotal, but I think it’s evidence nonetheless that specialty retailers have got it wrong. There’s statistical evidence, too. According to Advertising Age’s American Demographics, more than 80% of households with incomes of $70,000 or more shop at Kmart, Wal-Mart, or Target at least quarterly, and the percentage of Americans who shopped at a mall (where specialty retail lives) in the last year has fallen to 57%, from nearly 80% in 1998.

Let this column serve as a warning and wake-up call to specialty retailers who don’t think Wal-Mart is a threat. In a convenience and price-driven economy (how much will gas cost this summer?), Wal-Mart is a threat to your business. And now, so are the thousands of grocers who are making format changes and adding gas, services, and never-before-seen-in-a-grocery-store merchandise to their repertoires.