What Bed Bath & Beyond, Toys ‘R’ Us and RadioShack have in common

What Bed Bath & Beyond, Toys 'R' Us and RadioShack have in common

New York (CNN) In the 1980s, a new type of specialty retail chain began to emerge: “category killers.”

The powerful store business model aimed to give shoppers access to every size, style and color of product imaginable, all in one place and at reduced prices.

The category killers, who have begun to dominate entire product categories, have opened stores typically under 50,000 square feet—larger than independent stores but smaller than Walmart superstores—in malls throughout the suburbs. Shoppers have embraced these overstuffed emporiums.

Staples is “a classic ‘category killer,’ like Toys R Us,” said Mitt Romney, then chief executive officer of Bain & Co., in 1989.

These companies, along with RadioShack, Blockbuster, Barnes & Noble, and others, spread throughout the 2010s, remaking the way Americans shopped and steamrolled right into family-owned stores.

Toys “R” Us filed for bankruptcy in 2018. The company was an early category killer.

But the time of the category killer has passed.

Toys “R” Us, Blockbuster and RadioShack are gone. Staples and Barnes & Noble are still around, but they’ve struggled and closed hundreds of stores.

Another category killer dropped this week, when Bed Bath & Beyond filed for bankruptcy.

Once the go-to place for everything in clients’ homes, Bed Bath & Beyond has been brought down by changes in purchasing, competition and its own missteps. But it was also a retail concept designed for a bygone era.

“That model was exciting and new. If you liked that category, it was like a kid walking into the candy store,” said Z. John Zhang, a marketing professor at the Wharton School at the University of Pennsylvania. “The concept has become passable.”

How category killers developed

During the heyday of the killer category, a time when the game show “Shop ’til You Drop” was a long-running television series, people wanted to hoard as many goods as possible, largely unaware of how these products were made or their toll on the environment.

By buying in huge volumes, retailers could demand lower prices from suppliers and beat their competitors.

By focusing on one area of ​​merchandising and becoming a leader in that area, companies are betting that customers will turn to them whenever they need new toys for their kids, a DVD player, or bedding, for example.

The combination of global supply chains, low cost container shipping overseas, falling telecom and computer costs enabled the concept of the killer category.

Companies could suddenly commission manufacturers from all over the world to create products and track supply in real time.

“What has been key in the development of many category killers has been the adoption of modern supply chain methods,” said Marc Levison, economist and historian and author of “The Great A&P and the Struggle for Small Business in America “. “It has become possible to communicate from an office in New York with a supplier in China.”

Large companies with the ability to invest in sophisticated technology and software systems have gained an edge over local and regional shops.

Other factors have also made the rise of category killers possible, such as the expansion of suburbs, which has resulted in larger stores with larger parking lots than in cities. Customers could stock up on stuff and throw it in the back of their trunks.

The 1980s also saw a wave of department store bankruptcies, debt-financed buyouts, and leveraged buyouts. This meant that rivals heavily indebted to category killers were unable to invest in technology and supply chain management to keep pace.

“Local and regional merchants still existed in the ’70s and ’80s, and it was easy to kill them,” Levison said. “Traditional retailers were swimming in debt.”

Bed Bath & Beyond was an archetypal category model for home furnishings.

Founded in 1971 as Bed ‘n Bath as a small linen and bathroom shop, the business changed its name to Bed Bath & Beyond in 1987 to reflect its large selection of goods and built larger supermarkets. He stacked sheets, towels, pots and pans to the ceiling, using coupons to lure shoppers into stores.

“We had seen department stores break up and knew specialty stores were going to be the next wave of retail,” co-founder Len Feinstein said in 1993, a year after the company went public with 38 stores. and approximately $200 million in sales.

In 2000, those figures jumped to 241 stores and $1.1 billion in annual sales.

As Bed Bath & Beyond grew, it eliminated smaller linen and home decor stores.

Kill the assassins

In 2011, two Harvard Business School professors predicted that online shopping would lead to the collapse of category killers.

“Just as category killers led to the demise of family-owned stores, [online retailers] are leading to the death of the big-box category killer,” they wrote. “The goal that made them so powerful in the 80s and 90s is creating the conditions for their current struggles.”

And online shopping has decimated the category killers.

Amazon can compile endless product choices on its online marketplace, taking away the edge category killers once had over rivals in product assortment.

The low-cost advantages that category killers once enjoyed due to their size, which allowed them to lower prices, are gone.

Unlike Bed Bath & Beyond and other chains, Amazon doesn’t have to buy products and keep inventory in warehouses that are expensive expenses. Connect buyers and sellers and get a commission on sales.

And big-box chains like Walmart and Target can focus on selecting high-demand products in each category while limiting their cost burden.

There’s nostalgia for category killers like Barnes & Noble these days.

“If you’re a category killer, you have to assemble everything. You have to transport slow-moving products, which increases costs,” Wharton’s Zhang said.

More recently, even category killers have been hit hard by customers forgoing discretionary spending due to inflation.

And they have also been affected by the shift in priorities of many consumers. People have prioritized spending money on experiences over owning infinite things, in a move towards what has been called the “experiential economy.”

“People pay more attention to experiences, rather than having material possessions,” said Zhang. “Why do you need so many things in one category?”

There are still a few brick-and-mortar category killers left like Home Depot and Lowe’s for home improvement; Dick’s Sporting Goods for sportswear; and Best Buy for electronics.

These companies sell products that many customers prefer to see and experience for themselves, such as a new baseball glove or home theater system. The chains have been boosted by major trends such as a strong housing market, more people playing sports, and innovative new gadgets.

It’s somewhat ironic that there is now nostalgia for Bed Bath & Beyond and other once-dominant chains that have bankrupted mums and dads. But as more category killers fall, customers may be left with fewer options and lose convenience and product knowledge.

“We will miss these places when they’re gone. There are fewer and fewer stores where you can go and find real variety or options for a product,” urban writer Addison Del Mastro She said on Twitter this week. “We should have more than a single Walmart option or 100 pages of Amazon spam results.”

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