The category killer is dead, says Wharton marketing professor John Zhang.
Toys “R” Us, Circuit City, Barnes & Noble, and other themed superstores rose up in the 1980s and 1990s to dominate the retail landscape with low prices and large assortments. They squeezed the life out of mom-and-pop shops that couldn’t compete with a dazzling display of products stacked high inside a spacious shopper’s paradise.
Now the category killer is facing extinction, choked out of the marketplace by online shopping and rapidly changing consumer behavior. Bed Bath & Beyond, which filed for bankruptcy last month, is the latest victim.
“I think the concept of the category killer is passé for a number of reasons. The most important is the fact that e-commerce is growing very, very fast,” Zhang said in an interview with Wharton Business Daily on SiriusXM.
The professor said the biggest advantage that superstores once had over other retailers was the large number of choices in a category, allowing customers to shop “like kids in a candy store.” But the growth of online shopping has erased that advantage. Amazon, for instance, can have an almost infinite number of SKU’s (stock keeping units) for any product category and it does not have to hold any inventory for them. In addition, full-category stores like Walmart, Target, and other major retailers can use their massive size to cherry-pick the best, fast-moving products at cheaper prices from a global supply chain.
Zhang said the COVID-19 pandemic also trained people to buy online, a habit that isn’t going to die anytime soon.
“Structurally, the category killer concept is not going to work in the modern day with e-commerce, unless a lot of customer service and quick deliveries are necessary,” he said. “Not only are your costs high and you don’t have as many choices as what Amazon can provide, but the new generation is very content with virtual consumption. They don’t have as strong a sense of possession as the older generation used to have. Given that, how many choices do you need to have for your bed, your bath, and the beyond?”
“Pay attention to customers and the shift in consumer behavior.” — John Zhang
Bed Bath & Beyond experienced years of declining sales and debt that accumulated into the billions as the company borrowed money to buy back its stock. Zhang said he’s surprised the store was able to hang on for as long as it did because “it had been swimming upstream for a while.”
With Bed Bath & Beyond Stores Closing, Can Other Category Killers Be Saved?
While Bed Bath & Beyond, Toys “R” Us, Circuit City, Borders, and RadioShack have all gone the way of the dodo, some category killers are still viable for now. Zhang identified Home Depot, Lowe’s, and Best Buy as superstores that may be able to save themselves because they serve a particular need. Home improvement stores have a large customer base of contractors and offer knowledgeable sales help for do-it-yourselfers. Electronics consumers likewise rely on salespeople for help.
“I’m not sure they should feel pretty good, but they probably aren’t sweating as much,” Zhang said of those stores. “If new gadgets do not keep coming and electronic goods become very standardized so that you don’t require a lot of service from the salespeople, then I think they are going to really sweat.”
Zhang said retailers will always struggle to survive because of constant disruption. A new concept catches on and becomes popular until the market is flooded with copycats and shoppers move on to the next big thing. Category killers replaced mom-and-pop stores, department stores replaced small clothiers, and digital is continuously replacing itself.
Nevertheless, Zhang believes small retailers with a smart marketing strategy can succeed against behemoths like Amazon because the industry is large enough to accommodate them. “Amazon is not going to be able to take everything away from everybody,” he said.
When asked what advice he would offer retailers who don’t want to meet the same fate as Bed Bath & Beyond, Zhang said it’s imperative for them to see change coming and get ahead of it.
“Pay attention to customers and the shift in consumer behavior,” he said. “That’s what a marketing professor can tell firms.”