Book excerpt: In the beginning, pioneer category killers such as Toys R Us and Home Depot located in undeveloped or underdeveloped areas with plenty of open space for parking. The store interiors...

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Book excerpt: The retail landscape has changed faster than at any other time in American history. The big-box stores that offered overwhelming product choice and low prices to sweep aside smaller stores are themselves having to adapt to a new trend toward lifestyle centers and super-regional centers.


Reprinted by permission of Harvard Business School Press. Excerpted from “Category Killers: The Retail Revolution and Its Impact on Consumer Culture” by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.

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In the beginning, pioneer category killers such as Toys R Us and Home Depot located in undeveloped or underdeveloped areas with plenty of open space for parking. The store interiors were no-frill zones in cookie-cutter, single-floor buildings. In exchange for Spartan surroundings, these retailers offered time-starved shoppers low prices and convenience. The strategy was simple: Pile it high and sell it cheap.

As they fight to ensure their own survival in a world of retail Darwinism, category killers have gone through their own evolution.

What is the future of category killers? Where will they turn up next? And how will they influence — and be influenced by — the changes in America’s consumer culture?



What is a category killer?



Also known as “big-box” stores because of their mammoth footprint, they are retailers that specialize in a distinct classification of merchandise, such as toys, office supplies, home improvement, at low prices. They earned the sobriquet “category killer” because their goal is to dominate the category, killing the competition that cannot compete on price and/or selection.

In recent years, the best category killers have become more consumer-centric, adjusting their look and feel to sell. Even the most bare-bones big-box store has had to upgrade signage, product presentation and even (gasp!) customer service. Most have added related product lines, such as Home Depot’s move into home appliances.

As David Brooks points out in his book “On Paradise Drive: How We Live Now (and Always Have) in the Future Tense” — “we’re living in the age of the great dispersal” as Americans migrate “from the inner suburbs to the outer suburbs, to the suburbs or suburbia,” building veritably instant communities in places like Mesa, Ariz., and Pahrump, Nev. We are seeing farmland and wilderness becoming exurbs and suburbs becoming urbanized. In 2002, about 14.2 percent of Americans moved. A significant portion of our peripatetic population is not tied to a job, a factory town or other traditional reasons for staying put.

This longing for something new has had a major influence on retail. Category killers are a bit like the 18th-century itinerant peddlers who traveled America to seek customers for their wares. When faced with population shifts, category killers abandon one location to quickly build another one a mile or two down the road.



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At no time in American history have we seen such an ever-changing retail landscape, where old sites are abandoned and new opportunities arise at breathtaking speed. Brooks describes it like this: “It’s as if Zeus came down and started plopping vast development in the middle of farmland and the desert overnight. … A big-box mall. Boom!”

Old malls closing

Robert Spector

And that’s just in recently developed parts of the country. What about all that land occupied by malls?

Since the mid-1990s, at least 300 older shopping malls have been leveled, shut down or converted to an alternative use, according to the Urban Land Institute; an additional 300 to 500 regional malls are destined for a similar fate over the next few years. These regional centers cover 30 or so acres and 300,000 to 400,000 square feet of retail space, and traditionally have been anchored by at least one large full-line department store. The most viable of these regional centers are being expanded to super-regional centers, covering 50 or more acres with 750,000 to 2,450,000 square feet of retail space, anchored by several large full-line department stores. To respond to increased competition in the marketplace, more than 60 percent of these centers have undergone renovation and/or expansion in the past five years, according to the International Council of Shopping Centers.


Robert Spector





Author and customer-service guru


Books:
“The Nordstrom Way”; “Lessons from Nordstrom Way”; “Amazon.com: Get Big Fast”; “Anytime, Anywhere”


Personal:
Lives in Seattle; graduate of Franklin & Marshall College, Lancaster, Pa.

No wonder the Los Angeles Forum for Architecture and Urban Design once held a “Dead Malls Competition” to generate new thinking on how to alter the traditional shopping mall. This contemporary direction is a part of a “New Urbanism” movement, which is dedicated to creating mixed-use neighborhoods where people can live, work, shop and recreate within walking distance of their homes. Developers and retailers are figuring out how to define the mall and how to keep viable the existing retail real estate.

Westfield Holdings, the Australian-based shopping center developer (which owns Westfield Shoppingtown Southcenter in Tukwila), believes that — with the consolidation of department stores — mall developers must assemble in one center every kind of retailer: category killers, department stores, general merchandise discounters, warehouse clubs and supermarkets, as well as movie theaters and restaurants. Although common in Europe and Australia, this hybrid center is only just beginning to be seen in the United States.

MIKE SIEGEL / THE SEATTLE TIMES

A dress shoe is displayed at Nine West, one of many stores at University Village in Seattle, a good example of a lifestyle-center mall with a mix of shops, restaurants and people-watching spots.

“Historically, the department stores didn’t want the discounters in their malls, so the discounters went across the street,” said Richard Green, vice-chairman of Westfield Holdings. “Today, companies like May, Nordstrom, Sears and Macy’s see that it’s good to have a Target or a Wal-Mart in the same mall because those stores create more traffic. The center of the 21st century is orienting itself to having many types of retailers under one roof — from Costco to Neiman Marcus and everything in between. That’s why we believe that a lot of the retail real estate that some people thought was going to be dead is going to be vibrant.”

Many malls that were once enclosed are being converted to open-air formats. These properties are being split up for easier access, adding many more entry points as they combine the outdoor open strip mall with the supercenter concept to produce the feel of a community center. In this type of arrangement, retailers will be able to attract customer traffic from the streets, not just from within the mall.

Faced with the problems of vehicle traffic, air quality and urban sprawl, developers are taking unused or underused parts of their malls and creating mixed-use, pedestrian-friendly spaces that combine residential, office and retail space, as well as a variety of urban services, such as medical care, and libraries, post offices and other government buildings. These properties are attracting people who prefer to live close to where they work and to have all the amenities close by. Some malls are adding hospitals, churches and day-care centers.

Sounds very much like the old Main Street, but with a slightly modern twist.

Return to the inner city

MIKE SIEGEL / THE SEATTLE TIMES

The open-air University Village in Seattle is a good example of the kind of lifestyle center that combines a quick in-and-out shopping experience with a little bit of Main Street, with restaurants and tree-filled outdoor sitting areas.

In many parts of the country, the old downtown center is coming back as aging empty-nest baby boomers return to the inner city so that they can shop and work within easy walking or driving distance. The 1990 census showed a slight increase in inner-city population for the first time since 1940; the 2000 census also showed a similar uptick. Because more and more consumers are interested in shopping within their own neighborhoods, retailers are helping to revitalize those neighborhoods.

Over the past few years, a new retail concept — lifestyle center — has burst upon the scene. This free-standing upscale shopping environment combines desirable specialty retailers with the convenience of a strip mall. These open-air centers are ideally between 250,000 to 300,000 square feet with nearby parking.

Lifestyle centers are a reaction to the need of time-pressed consumers to drive up to the store, get what they need and get out. They combine that quick in-and-out shopping experience with a little bit of Main Street, with cozy village squares and tree-filled parks, with a little bit of the upscale shopping experience of Rodeo Drive in Beverly Hills. They typically include tenants such as Talbots, Williams-Sonoma and Barnes & Noble, as well as movie theaters and restaurants. [In the Seattle area, University Village is the best example of a lifestyle center.]

Southcenter plans

In Tukwila, Westfield Holdings has big plans for Shoppingtown Southcenter, which it acquired in 2002. It opened in 1968 as Southcenter Mall. Westfield, which owns a controlling interest in more than 60 U.S. shopping centers, will be adding to the mall’s south side some 450,000 square feet of retail space, including large and small specialty stores, discounters, restaurants and a 16-screen movie complex, thereby increasing the size of the Puget Sound area’s largest regional shopping center to 2 million square feet.

Most of the expansion is to be built on a former parking lot and 6 acres on a corner of Southcenter Parkway, where a hotel once sat. Farther on down the road, a plot of land that once held a JC Penney distribution center and a single-story office building are also earmarked for retail expansion.

All told, the city of Tukwila, where all of this retail is located, collects about $1.6 billion annually in retail taxes, according to Alan Doerschel, city finance director; $15.6 million of that goes into the city coffers. But, as Doerschel points out, that money comes with responsibilities and obligations.



Book signing:



Where:
Quidnunc computer store, 4522 California Ave. S.W. (206-932-8795; www.quidnunc.net)


When:
4 to 5 p.m., Thursday, Jan. 27

“People think of Tukwila as a wealthy city because we have so few citizens [17,000] and all this revenue. We have to provide a huge amount of infrastructure and support to this commercial area. We need to keep the arterial streets open to keep traffic moving. We have 70 police officers. A town our size should have 10 or 15. We have four fire stations; again, a town our size should have one fire station.”

Clearly, municipalities such as Tukwila and Renton (home of Wal-Mart, Ikea and Fry’s Electronics) have learned that there is no free lunch when it comes to the taxes generated by retail sales. All municipalities and local government entities must take these added responsibilities into consideration when they avidly recruit big-box retailers.

Category killers offer more products in their classification than could ever have been found in a general merchandise store or a department store. They have driven out the inefficient or uncompetitive retailers, and they have enabled virtually every consumer product to be affordable to middle-class shoppers.

Leveling the playing field

While critics contend that these retailers destroyed our mom-and-pop culture, there is more to the story. Granted, many mom-and-pops have gone by the wayside for a wide variety of reasons. But, after all is said and done, big-box stores have also been a boon to small-business owners because they offer every product and service required to run their companies.

They have leveled the playing field to enable even the smallest enterprises to extend their reach from around the corner to around the world.

As long as the American population remains restless and migratory, category killers will continue to grow and be a part of the landscape, be it Mesa or Manhattan. They will continue to thrive in their categories because of their enormous buying power, product assortment and sharp pricing.

Ten years from now, will category killers be as dominant as they are today?

The answer to that question will depend on how they meet the challenges of the marketplace.

Like department stores in the early 1980s and traditional discount stores in the early 1990s, category killers will have to protect their market share from other channels of distribution, including the Internet, general merchandise discounters, warehouse clubs, existing retailers who have adjusted to the times and upstart retailers within their existing category that have come up with fresh new ideas and approaches.

To the extent that they adapt, they will continue to be important.

Otherwise, like the retail dinosaurs that once ruled the American retail landscape — Montgomery Ward, Kmart and others — they will slowly fade from the scene, replaced by newcomers who better understand the current needs of our consumer culture.