() — A new type of specialty retail chain began to emerge in the 1980s: “category killers.”
The stores’ powerful business model was intended to give shoppers access to every size, style and color of product imaginable, all in one place at discounted prices.
Category killers, which began to dominate entire merchandise categories, commonly opened stores smaller than 5,000 square feet (larger than independent stores but smaller than Walmart superstores) in suburban malls. Shoppers embraced these jam-packed emporia.
Staples is “a classic ‘category killer’, like Toys R Us,” said Mitt Romney, then the managing general partner of Bain & Co., in 1989.
These companies, along with RadioShack, Blockbuster, Barnes & Noble and others, stretched into the 2010s, remaking the way Americans shop and taking mom-and-pop stores by storm.
But the time for category killers has passed.
Toys “R” Us filed for bankruptcy in 2018. The company was an early category killer. Credit: Greg Smith/Corbis/Getty Images
Gone are Toys “R” Us, Blockbuster and RadioShack. Staples and Barnes & Noble still exist, but have struggled and have closed hundreds of stores.
Another category killer fell this week, when Bed Bath & Beyond filed for bankruptcy.
Bed Bath & Beyond, once the go-to for everything in customers’ homes, has been toppled by changing shopping patterns, competition and its own mistakes. But it was also a retail concept designed for a bygone era.
“That model was exciting and novel. If you liked that category, it was like a kid walking into the candy store,” said Z. John Zhang, a professor of marketing at the Wharton School of the University of Pennsylvania. “The concept became passé.”
How “Category Killers” Developed
During the heyday of this type of entrepreneurship, a period when the game show “Shop ’til You Drop” was a long-running television series, people wanted to accumulate as much possessions as they could, largely without knowing how they were stored. manufactured these products or their footprint on the environment.
By buying in enormous volume, retailers could demand lower prices from suppliers and undercut their competitors.
By focusing on one area of merchandise and becoming a leader in that area, companies gambled that customers would come to them whenever they needed, say, new toys for their children, a DVD player, or sheets.
The combination of global supply chains, cheap container shipments abroad, falling telecommunications and computer costs enabled the category killer concept.
Suddenly, companies could task manufacturers around the world with creating products and tracking supply in real time.
“What was key in the development of many category killers was the adoption of modern supply chain methods,” said Marc Levison, 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 with the ability to invest in sophisticated technology and software systems have gained an advantage over local and regional stores.
Other factors also made the rise of category killers possible, such as the sprawl of the suburbs, leading to bigger stores with larger parking lots than in cities. Customers could stock up on things and throw them in the back of their trunks.
Radio Shack. Credit: Tim Boyle/Getty Images
The 1980s also saw a wave of department store bankruptcies, Debt Financed Acquisitions and Leveraged Buyouts. This meant that heavily indebted rivals to the category killers were unable to invest in technology and supply chain management to keep up.
“Local and regional merchants were still around in the 1970s and 1980s, and it was easy to kill them off,” Levison said. “Traditional retailers were swimming in debt.”
Bed Bath & Beyond was an epitome of the category model for home furnishings.
Founded in 1971 as Bed ‘n Bath as a small bed and bath retailer, the company changed its name to Bed Bath & Beyond in 1987 to reflect its wide selection of merchandise and built large retail stores. He piled bedding, towels, pots and pans up to the ceiling, using coupons to lure shoppers into the stores.
“We witnessed the shakeup of department stores and we knew that specialty stores were going to be the next wave of retail,” said the co-founder. Len Feinstein in 1993a year after the company went public with 38 stores and around $200 million in sales.
By the year 2000, those numbers increased to 241 stores and $1.1 billion in annual sales.
As Bed Bath & Beyond grew, it pushed out smaller linen and home decor stores.
The fall of these stores
In 2011, two Harvard Business School professors predicted that online shopping would lead to a collapse of online shopping.
“Just as category killers led to the demise of mom-and-pop stores, [los minoristas en línea] lead to the death of the big-cash category killer.” they wrote. “The approach that made them so powerful in the 1980s and 1990s creates the conditions for their current difficulties.”
So online shopping decimated the category killers.
Amazon can compile endless product options into its online marketplace, eliminating the advantage category killers once had over rivals in product variety.
The lower-cost advantages once enjoyed by category killers due to their scale, which allowed them to cut prices, are gone.
Unlike Bed Bath & Beyond and other chains, Amazon doesn’t have to purchase products or maintain inventory in warehouses, which are costly expenses. Connect buyers and sellers and charge a fee for sales.
And big chains like Walmart and Target can focus on curating high-demand products in each category, limiting their cost burden.
There’s nostalgia for category killers like Barnes & Noble these days. Credit: Justin Sullivan/Getty Images
“If you are a category killer, you have to put everything together. You have to transport slow-flow products, which increases costs,” said Wharton’s Zhang.
More recently, category killers have also been hit hard by shrinking customer discretionary spending due to inflation.
And they have also suffered a change in the priorities of many consumers. People have prioritized spending money on experiences over owning endless things, in a shift toward what has been called “the experiential economy.”
“People pay more attention to experiences than to possession of 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, like Home Depot and Lowe’s for home improvements; Dick’s Sporting Goods for sporting goods; and Best Buy for electronics.
These companies sell products that many customers prefer to see and try in person, like a new baseball glove or a home theater system. Chains have been buoyed by major trends like a strong housing market, more people playing sports and innovative new gadgets.
It’s somewhat ironic that there’s now nostalgia for Bed Bath & Beyond and other once-dominant chains that put moms and dads out of business. But as more category killers drop, customers may be left with fewer options and lose out on convenience and product awareness.
“We will miss these places when they are gone. There are fewer and fewer stores where you can go and find some variety or real options for a product,” she said this week in Twitter urban writer Addison Del Mastro. “We should have more than the one Walmart option or 100 spammy Amazon results pages.”
