Is the Category Killer a Broken Model?
In the 1980s, the "category killer" arrived on the scene to waylay the retail landscape.
Their wide assortments, aggressive pricing, extensive store network, and perceived expertise in the categories they served sent many smaller independents out of business. But in many categories, their reign was short-lived, evidenced by the exit of CompUSA, Circuit City, Blockbuster, Borders as well as the struggles at Best Buy, Staples, Toys "R" Us and others.
The fault for the failure of many category killers was often placed on the even-larger mass merchandisers, particularly Walmart, Amazon.com, Target, and Costco, although the internet gets the full blame in certain categories. As each collapse has piled up over the last few years, calls for the death knell of the category killer concept are heard.
The recent move by Standard & Poor’s to cut Guitar Center’s debt rating to junk status prompted analyst Eric Garland to link the chain’s struggles to the category killer challenges.
"Guitar Center has the remnants of an inferior business model, one that prizes huge brand names, big volumes, low wages and non-existent character," Mr. Garland wrote in a blog. "I love walking through Guitar Center because I love playing anybody else’s guitars — but otherwise it is a catalog with walls."
Mr. Garland said Guitar Center’s associates can’t match the expert knowledge available at the local music shop, and compared it to the customer service issues that plagued Circuit City.
"Retail in the 21st century will be centered around specialized knowledge, unique offerings and personal relationships, both local and digital," he wrote.
In a recent study, "How Category Killers Can Still Win at Their Own Game," Kurt Salmon partners Kurt Kendall and Steve Pinder agreed that category killers are being undermined by the internet’s ability to offer even broader selections and often lower prices.
But the consultants believe big boxes can "turn the tables on online retailers" by recommitting to competitive pricing as well as broad selections (assisted by greater access to online inventory), using their physical stores to better engage customers, and tapping new technologies to upgrade the shopping experience.
A big step toward differentiation involves getting back to doing the "basics well," such as having accessible sales associates and making sure promoted items is in stock.
"Both Macy’s and Home Depot lost their way with customers and regained their footing by making in-store service excellence a key part of their turnaround strategies," the authors wrote. "It’s why every time you check out at Home Depot an associate will ask you to fill out a survey to tell them how well they’re doing — because the retailer knows that the customer’s in-store experience will determine whether they’ll shop there again."
- Guitar Center and the end of big box retail – Eric Garland
- How Category Killers Can Still Win at Their Own Game – Kurt Salmon
- Retailing Revolution: Category Killers on the Brink – Harvard Business School
Is there an inherent weakness in the category killer business model? Are category killers doomed to struggle against the selection and pricing of internet competitors as well as the expert knowledge and customer service acumen of local independents? What suggestions would you have for category killers to enhance their differentiation?