Variety and Value Rule At Retail

Stores magazine has released its annual list of the top 100 U.S. retailers. With the difficult economy of the last two years, it is interesting to see who the winners and losers have been. The summary: discounters, particularly those carrying a broad assortment of merchandise, have fared the best.

Retailers have three big levers that they can use: location, assortment, and price. I have listed these roughly in descending order by agility: location for a national chain can take years to adjust and is highly capital-intensive, while pricing is a weekly or daily activity that all retailers are engaged in. In the middle lies assortment, which can be adjusted fairly quickly for certain categories, but which may take longer in others.

Low-price offerings have been central to the success of the winners on the list. Wal-mart is nearly a top-five list all by itself, with 2008 revenues topping $405 billion; Kroger at $76 billion is a distant second. After a dalliance a few years ago trying to appeal to more upscale consumers, Wal-mart regained its footing in part because the poor economy made its historical emphasis on value more relevant to an even larger segment of consumers.

But Wal-mart and others have also benefitted from their broad assortment of merchandise. This reflects another aspect of value: many consumers prefer to consolidate trips by visiting fewer stores, something that had emerged as a trend even before the current recession. And for those retailers that offer house brands, changes in merchandise assortment have also favored private-label brands. For Kroger, for instance, house brands made up 26% of grocery sales.

One retailer that performed exceptionally well is Amazon.com, with 2008 revenues up 29% and profits up 35%. As an online retailer, Amazon does not need to worry about location. And as one of the original Long Tail companies, it boasts an assortment that no store-based retailer could ever match, as well as highly competitive pricing.

It is too early to tell what will happen as the economy improves. But I suspect that the current crop of winners will continue to do well, while large-format specialty retailers will struggle to regain their pre-recession momentum. The trends of consumers seeking value and consolidating their purchasing among fewer retailers (thus favoring those with broader selection) are likely to remain powerful forces that shape retail marketing over the next several years.

Do you agree or disagree? What does your crystal ball tell you?

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