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Discount Stores

Kmart was formed by Kresge, one of the nation’s Late Twentieth and Early Twenty-first Centuries. Two
leading chain stores, in response to competition from distinct trends were underway as the discount industry
drugstores, supermarkets, and the new discount stores. entered the 1990s. One was the bankruptcy of several
Kresge’s new venture was unique in two respects. First, the remaining discounters. The other was the spectacular
marketing plan was based on the idea of offering quality growth of the (now) three major players: Target, Kmart,
merchandise—predominantly national brands—at dis- and Wal-Mart. Target sales more than doubled between
counted prices. Second, the location strategy was to “sur- 1987 and 1993. Kmart sales grew by more than $8.3 bil-
round” cities with their stores. lion during the period 1988–1993. Meanwhile, in 1991
Wal-Mart passed Sears to become the nation’s largest
Woolco was organized by Woolworth, another long-
time leader among variety stores. Faced with the same retailer. Their combined sales had increased by more than
$46.7 billion during the period 1988–1993. As a result of
problem as Kresge, they also responded by shifting their
efforts to discounting. Their strategy was built around car- these trends, the industry fragmented into four segments:
the three major chains and a group of regional operators.
rying department store merchandise, auto parts and acces-
The beginning of the twenty-first century finds con-
sories, and soft goods, all at discount prices.
tinued growth and consolidation as well as new applica-
Target was a spin-off of the Dayton Corporation, a
tions in the discount retail business. Electronic commerce
Minneapolis-based regional department-store chain. It discount retailing has grown significantly, rapidly chang-
was conceived as a chain of regional upscale discount
ing the shape of discounting and affecting the current
stores designed to attract affluent suburbanites. The prod- industry members. Along with the departure of a number
uct lines were higher quality and higher priced, with an
of discounters and the acquisition of others by stronger
emphasis on furniture and household appliances.
chains, new kinds of discounters have emerged.
Wal-Mart was started from scratch by Sam Walton,
the owner of a group of Ben Franklin variety stores in the
TYPES OF DISCOUNT STORES
south-central states. Walton’s strategy was to establish
Although the full-line department-discount retailers such
stores only in small- and medium-size towns so that he
as Wal-Mart and Target are what first come to mind when
could capture a substantial part of the total local market. discussing discount stores, there are as number of other
His key policy was to sell at “everyday low prices,” rather
types of discount stores. The following are the common
than hold periodic sales.
types of discount retailers.
In addition to their marketing innovations, these four
industry leaders played a major role in setting the pattern
Food-Oriented. Box (limited line) stores: Limited number
for other aspects of the industry. In particular, they estab-
of product lines; very limited assortment of brands and
lished large facilities with standardized layouts in or near sizes; few national brands; few perishables; products dis-
shopping centers. Their merchandise lines included both
played in boxes with sides and tops cut off; very low
hard and soft goods and once they were established, they prices; little atmosphere and few services; very little pro-
reduced the number of leased departments to a minimum. motion (e.g., Aldi and Save-a-Lot).
Many discount businesses failed in the early 1960s Warehouse stores: Moderate number of product lines
because of the fierce competition brought on by the pro- but a low depth of assortments; carry manufacturer’s
liferation of new discounters and the experimentation of brands bought discount wholesale at very low prices; lim-
other retailers in discounting. In spite of the failures, the ited atmosphere; few services; minimal promotion (e.g.,
industry continued to expand in the mid-1960s, both in Cub Foods).
terms of number of stores and amount of sales.
The 1970s were a decade of expansion for the suc- General Merchandise. Full-line discount stores: Extensive
cessful chains. Woolco and Kmart focused on national width and depth of assortments; average-to-good-quality
expansion and by 1974 Kmart had become the first truly products, often less fashionable; very competitive prices;
national chain, with stores in each of the forty-eight con- average atmosphere and minimal services; significant
tiguous states. Wal-Mart expanded into the Southeast and advertising (e.g., Wal-Mart, Target, and Kmart).
Midwest and Target established a strong presence in the Off-price chains: Moderate width and very low depth
Midwest. Some chains were forced into bankruptcy by the of assortments; average to good quality; lower continuity;
recessions of the 1970s, but their stores were bought up by low prices; little atmosphere and few services; some lim-
the major chains and others. The decade also witnessed ited promotion (e.g., T.J. Maxx and Burlington Coat Fac-
the end of federal fair-trade laws. tory).

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 203