ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, January 28, 1996 TAG: 9601260039
SECTION: BUSINESS PAGE: G1 EDITION: METRO
SOURCE: MEGAN SCHNABEL STAFF WRITER
CONVENTIONAL wisdom says supercenters shouldn't succeed.
What shopper would want to buy fresh produce and back-to-school clothes at the same store? Would they watch frozen foods thaw while browsing an aisle of garden tools?
But the success of the 200,000-square-foot megastores - like the one Wal-Mart Stores Inc. opened last week in Roanoke - with their beauty parlors and auto service garages and travel agencies all under one roof, seems to warrant an update of old assumptions.
"The trend in consumers had been, 10 years ago, to want to go to specialty shops," said Eleanor May, a retired professor of marketing at the University of Virginia's Darden Graduate School of Business Administration. But in today's time-pressed society, she said, shoppers are returning to one-stop shopping.
To analysts who still say that shoppers won't go to their grocery store to buy back-to-school clothes, Jim Brown, an associate professor of marketing at Virginia Tech's Pamplin College of Business, offers a different perspective.
"I don't view it as going into a grocery store and doing discount shopping, but as going into a discount house and maybe doing some grocery shopping, too," he said. If a shopper already has come to Wal-Mart to buy a pair of shoes and a laundry basket, might she not stay and pick up a few groceries as well.
Super Kmart Centers and Wal-Mart Supercenters - which typically are one-third groceries and two-thirds general merchandise - seldom are used as primary sources for groceries, according to a survey reported in Supermarket Business, a trade journal.
That has to do with location, which often is cited in consumer studies as one of the most important factors in consumers' selection of a grocery store, Brown said. Superstores typically are on the outskirts of cities, in less convenient locations than conventional supermarkets.
But superstores may not be aiming for the top of the grocery market. These superstores, many analysts say, use their grocery departments to build shopper traffic for their more profitable inventory among nonfood items. Food, except for a few speciality areas such as meat and produce, yields among the lowest profit margins for consumer goods, explaining why many supermarket chains have added general merchandise lines.
"In order to keep the company growing, which is what stockholders want, firms have to find ways to keep growth alive," Brown said. Often, that means adding new product lines, such as groceries.
Selection often is the test of a supercenter's grocery department, May said. If people know they won't be able to buy their favorite brand of cereal or sliced cheese at the Wal-Mart Supercenter, they may not shop the store's grocery section at all, May said.
When a superstore moves into an area, the first retailers to notice typically are the community's small, locally owned stores.
Large retailers with established niches - Sears, Hills, Kroger - shouldn't be in too much danger, said Kenneth Gassman, a retail analyst with Davenport & Co. of Virginia in Richmond. But small stores that lack buying power won't be able to compete with the low prices promised by superstores.
"That giant sucking sound is Wal-Mart taking away market share," he said. He cited as an example women's apparel sales, which increased industrywide by $10 billion from 1993 to 1994. Of that increase, Wal-Mart claimed a remarkable $3 billion.
Brown was more optimistic.
"Even if Wal-Mart weren't opening these superstores, it's constantly applying pressure to Hills and Kmart," he said.
"And if the local neighborhood stores are smart and they emphasize what they do well, they'll be OK," he said. "But if they try to compete head-to-head with Wal-Mart on prices, they'll lose."
Even superstores have Achilles' heels. And one of the best ways for smaller stores to attack superstores, Brown said, is the big stores' very raison d'etre: shopping convenience.
In one way, superstores are convenient in that they bring together, under one roof, many goods and services that otherwise would be scattered throughout the community.
But they also bring together, under one roof, many, many shoppers.
And that means the potential for long checkout lines, exasperated customers and impatient clerks.
"If that's not managed well, all of these stores are going to have problems," Brown said.
Additionally, the many, many shoppers mean many, many cars. Questions about traffic have dogged the newly opened Wal-Mart in Roanoke ever since the company first expressed interest in the Valley View site two years ago. A new Interstate 581 interchange has been proposed, but the Federal Highway Administration has yet to grant approval for the project.
Ken Jones, assistant manager of the Hills Department Store on Hershberger Road, says the potential for traffic tie-ups at the new Wal-Mart could work to his store's advantage. Customers will check out the new store, get stuck in traffic one time too many and return to their old shopping habits, he said. So although Hills is just a short drive from the supercenter and carries many of the same product lines as Wal-Mart, he isn't too worried.
Local stores, Brown said, must take advantage of these concerns. They should stress old-fashioned customer service, convenient location and easy parking, he said, and not try to beat Wal-Mart's prices.
Small stores also may want to promote their smallness. The 200,000-square-foot superstores run the risk of turning away customers who can't walk long distances, or who simply don't like big stores.
But May said chains such as Wal-Mart have addressed the size issue. Directories and greeters are stationed at the entrances, and all employees go through extensive orientation to familiarize themselves with their store's layout and inventory.
"They realize this is formidable," May said. "It isn't always perfect, but they're trained to provide service."
And shoppers have different expectations for superstores than for traditional shops, Brown said. They won't shop at the Wal-Mart Supercenter when they need only one or two items, or when they are pressed for time. Superstores are destinations, not impulse stops, he said, so shoppers will be prepared to spend more than a few minutes in the store.
Superstores - or, in French, "hypermarchs" - got their start in Europe, where they provided an alternative to the array of specialty food shops and markets traditionally shopped by European consumers.
One-stop shopping hit the United States in the early 1980s with regional chains such as Grand Rapids, Mich.-based Meijer. But it wasn't until Wal-Mart and Kmart adopted the format that superstores started to expand nationally. The first Wal-Mart Supercenter opened in March 1988 in Washington, Mo., west of St. Louis. It was a response, Morris said, to customer demand for longer shopping hours and more selection.
"The supercenter was the natural progression from the Wal-Mart stores," he said.
Since that spring, the Bentonville, Ark.-based retailer has opened 236 Supercenters. Most are in the Midwest and in Florida, although at their rate of expansion - 100 were opened in 1995, another 100 are planned for 1996 - it won't take long for the stores to cover the nation.
In many markets, Wal-Mart Supercenters and Super Kmart Centers continue to battle for the discount store and grocery crowd. But many observers, including May, said they believe it's a fight that Kmart already has lost.
Troy, Mich.-based Kmart is in poor financial shape - it has closed some 300 stores over the last several years - and it can't afford to keep pace with Wal-Mart's building schedule, she said.
Kmart's problems stem from its insufficient response to Wal-Mart's quick growth, May said.
"They needed, on many things, to clone what Wal-Mart was doing," she said. Super Kmart Centers have done well in many locations, she said, but the giant stores have accomplished too little, too late for the retailer.
Even if Kmart did have the funds to build a superstore in Southwest Virginia, there's no guarantee that the local market could sustain two competing superstores.
"They should have built it first, ahead of Wal-Mart," May said. Had Kmart been the first superstore to open in a city such as Roanoke, it could have cornered the superstore market. Instead, Kmart often follows Wal-Mart into a city and then faces the formidable task of luring customers away from the retail giant.
In an area such as Southwest Virginia, where Wal-Mart has had a foothold since the late 1980s, new Supercenters are at a big advantage over those in places where Wal-Mart is an unknown entity.
"They've got a built-in reputation," May said. "When Wal-Mart first comes, there's a lot of talk - 'We're not going to shop Wal-Mart. We're going to stick with out local merchants.''' But eventually, she said, many people switch over to the superstore side.
As a retailing format, superstores haven't even reached maturity in the United States, Brown said, so don't be surprised if new retailers try to get in on the act while existing super-merchants keep building more stores.
Growth could continue for another five to 10 years, he said. What happens after that will be up to the industry itself. If supercenters follow the lead of supermarkets, which have adapted over the years to changing consumer demands, they could thrive for decades. But if they become stagnant and dated, their reign will be short-lived.
"It all depends on their ability to adapt," Brown said. "Just like any retailer."
SUPERCENTER PURCHASES
Purchases last visit
Wal-Mart K-Mart
Supermarket-type merchandise only 20% 10%
Combined 39% 40%
Nonfoods only 36% 45%
Can't recall/don't know 5% 5%
Source: Image Audit telephone surveys by DSR Marketing Systems Inc., Deerfield, Ill. Reported in Supermarket Business, January 1995
LENGTH: Long : 179 lines ILLUSTRATION: PHOTO: Wayne Deel. At the new Roanoke Wal-Mart Supercenter,by CNBwhich opened last week, shoppers can buy groceries as well as
traditional merchandise. color.