The development of the retail industry is a history of changing human needs. From roadside shops to hypermarkets, to large supermarkets, and now online malls, shopping has changed from diversity to convenience. Not falling.
Previously we talked about the American retail giant Wal-Mart and the online overlord Amazon. We also shared the case of Costco supermarket and analyzed the factors behind the success of these giant companies.
Next, the author would like to share with you three other American companies to see their history of changes from rise to decline. These three companies are: toy retailer Toys R Us, office supplies company Staples and Organic food supermarket Whole Foods.
In 1948, a man named Lazarus opened the first baby furniture store. This year was the end of World War II and the U.S. economy began to enter a 20-year golden development period. At this time, not only the economy developed, but the population also exploded.
In the 18 years from 1946 to 1964, 78 million babies were born in the United States, accounting for more than one-third of the U.S. population at that time. Later people called this stage the "baby boom".
As a result, the toy industry ushered in a stage of rapid development. Lazarus devoted himself to the baby furniture business. In 1957, he established the first toy hypermarket, Toys "R" Us. When Toys R Us was founded, the main business formats in the toy industry were basically street stores and toy areas in shopping malls.
These places have a relatively small purchase volume, so the selection is small and the prices are high. Toys "R" Us saw the demand for toys explode and found that if it established a large-scale toy store alone, it could have more advantages in product selection and price, embodying the logic of "more speed, more savings".
So when the first Toys "R" Us was established, there were 18,000 types of toys available to customers to choose from, far more types than any shopping malls and supermarkets at the time. Due to large quantities of stock, the prices are relatively low, and the shopping experience is very good. Different themed areas are set up to allow children to have more fun.
For boys, there are hero models, remote control cars and airplanes; for girls, there are dolls, plush toys, etc. It is very fun for everyone to come in and visit. There are also various activities, such as remote control car competitions and puzzle summer camps. The children will drag their parents to buy various toys.
Relying on its wide selection, cheap prices and good service experience, Toys R Us became very popular after its opening, and it grew rapidly in the next 20 to 30 years. By the mid-1990s, Toys "R" Us' market share in North America reached the first place, close to 25%, with a maximum of 1,500 stores.
Later, people gave this form of retail store a name, called "category killer", which refers to large-scale specialty stores opened for a certain product category. Because these stores are very focused on a certain category, they not only gain purchasing advantages, but also create a better shopping experience.
Staples is the largest office supplies and stationery retail store in the United States, with more than 1,500 stores and annual sales of approximately US$18 billion. The main products sold are: paper, pens, paper clips, folders and other office supplies.
Staples was founded in 1986. Before that, the main players in the U.S. office supplies market were basically local stationery retailers, large and small, with poor purchasing capabilities and incomplete product systems. Many times customers wanted to buy a complete set of office supplies. For supplies, I need to go to several stores, which is very laborious.
The founder of Staples is Steinberg, a graduate of Harvard Business School. At that time, I was inspired by Toys R Us and found that retail liquids targeting a single category had a future. So he consulted his mentor at Harvard Business School, who told him that if he wanted to do something, he could find a market with a single product category that was large enough and growing rapidly, but where the current sales channels were unable to meet user needs.
As a result, Steinberg discovered that office supplies was such a market, with an annual growth rate of 30%, so he founded Staples. After its establishment, Staples bypassed the many dealers and purchased goods directly from manufacturers and large wholesalers. Therefore, in the early days, the price was only half of other stationery stores, and there were many types of choices. It was successfully listed three years after its establishment and developed into the largest store in the world. of office supplies retailers.
Whole Foods was founded in 1978, focusing on green, organic, and natural foods. However, unlike the other two companies, the market of Whole Foods Market was more vertically segmented. At that time, many Americans were not yet familiar with the market. Understanding the concept of "organic", Whole Foods began to promote this concept in this environment.
Therefore, the category of organic food is completely cultivated by my own efforts. Because I have a deep understanding of this field, I also have my own experience in management. For example, Whole Foods attaches great importance to localization. The food concept advocated is to encourage everyone to eat more local food. Local team members can choose their own management methods and characteristics.
For example, lobsters are sold in coastal areas, and in New York you can drink craft beer, as well as bread, eggs and other organic foods. By 2016, Whole Foods had more than 450 stores in the United States and Canada, with annual sales exceeding $15 billion.
After introducing these three companies, in addition to being representative, their endings are also very similar. After experiencing glory, they all declined and were acquired.
Toys "R" Us was acquired by American private equity funds in 2005 for US$6.6 billion. At the time of the acquisition, Toys "R" Us' profits dropped by 30% from the previous year, and the entire business was in a slump. Staples was acquired in 2017 for 6.9 billion and had been closing stores before. Also in 2017, Whole Foods Market was acquired by Amazon for US$13.7 billion.
Americans and the whole world are paying more and more attention to healthy and organic food, but Whole Foods Market is losing ground. With the development of the times, the disadvantages of "category killers" have been magnified and replaced by more advanced liquids. What are the reasons for this?
The first reason is that although "category killers" have a price advantage over small boutiques, when encountering larger players, the advantage quickly collapses.
For example, for Toys "R" Us, when it declined, it was when large affordable supermarkets like Wal-Mart and Target began to enter the toy industry. These large supermarkets have three trump cards:
First, they can also compete with specialty stores like Toys R Us on price by purchasing large quantities of goods. Because Wal-Mart is so large, even in the category of toys, their supply chain capabilities are not inferior to those of stores, which reduces the advantages of specialty stores.
Second, Wal-Mart has taken advantage of its scale advantage and the 80/20 rule to build itself into an omnipotent shopping destination. Many people will buy toys when they go to Wal-Mart to buy daily necessities. Moreover, 80% of sales in the toy field are generated from 20% of toys. Wal-Mart only needs to focus on the most popular toys, and its price advantage will be further consolidated.
Finally, the ultimate weapon of large supermarkets is price war. In early 2000, Wal-Mart decided to enter the toy industry and launched a price war, selling various toys at cost prices or even lower than cost prices. As a result, other toy retailers had to follow suit.
But Wal-Mart’s advantage is that toys are only a small category of its own. Even if it loses money, it doesn’t matter. It can make up for it from other places. Other toy manufacturers do not have this confidence.
We often say that advantages are also disadvantages. The success of "category killers" was that their models were more advanced and the experience was better than that of small stores and toy departments in department stores. However, the absolute price advantage of more advanced liquids In front of you, the original advantages no longer exist, and concentration in turn becomes a disadvantage.
If we look at the story of Staples, the logic is very similar. When the retail giant expanded into the stationery department, Staples was quickly dragged into a price war and a marketing war. We often call it a "dimensionality reduction strike." It is to force the other party into a lower dimension so that the other party cannot survive.
Wal-Mart forced Staples into a price war by losing money. It did not care about the price, because even if it lost money selling stationery, there were still many categories that could make money. Staples grew slower and slower, and eventually had to be pulled down.
The second reason is that when big players enter the market, they will directly change the rules of the game. Whole Foods Market has created a great value to the retail industry and the entire society, promoting green, natural and organic life. But once a small company cultivates the market and turns a small business into a profitable business, larger players will enter the market.
When Whole Foods slowly educated the American people, large companies like Wal-Mart also opened organic food departments, claiming that their organic food was cheaper than Whole Foods.
Then big players began to change the rules of the game, industrializing and scaling up natural organic food, purchasing from large farms, and promoting assembly line production, thus compressing the space for small farms and organic food companies. Moreover, large companies will lobby institutions to formulate new standards. In the field of organic processed food, American products can add certification.
It can be said that large companies have not only lowered the price threshold, but also changed the definition of goods. For most consumers, the organic food they buy is actually a label. Once the products are industrialized, Whole Foods will not be able to compete with giants like Wal-Mart.
The last point is that no matter Toys R Us, Whole Foods or Walmart, they will eventually be defeated by the more advanced liquid Amazon.
Wal-Mart’s dismantling of “category killers” is carried out one by one, including toys, office supplies, home appliances, etc. The same is true for Amazon. Books are the first, followed by toys, clothing, and fresh food. ...Due to the upgraded business methods, Amazon’s prices are 20% lower than Wal-Mart’s.
Staples’ e-commerce business is actually quite good. In 2014, its e-commerce business accounted for 50% of its total revenue. Not only does it have many categories, it also has its own logistics team. But these are insignificant in the face of the powerful Amazon.
Regarding the future retail industry, we can think about it from three perspectives:
1. What is the current social trend and economic situation? What kind of consumer demand will arise?
The increasingly popular strict selection model is a good example. The overall consumption level has improved, there are more product choices, and there are more requirements for brands and quality. This is the birth of new social trends and economic situations. New retail liquid.
2. With the constant “more speed, better savings”, what new technologies can lead to a better consumer experience?
Today’s unmanned convenience stores, such as Hema Fresh, use new technologies to meet local needs. They have a good shopping environment, fine product selection, convenient payment, and connect online and offline experiences.
3. What kind of liquid can’t the big players do?
Light catering, such as milk tea shops, coffee shops, and dessert shops are all in this category; experiential scenes, such as movie theaters, bars, and gyms; brand retail stores, such as Apple, Microsoft, Nike, and other brands have huge influence .
This is the inspiration that “category killers” bring to us. The history of the retail industry can be seen as long as the history is, and the future can be seen as long as it is. The retail industry is constantly advancing and innovating in the process of replacement, and it is also constantly repeating history.