Retailers Find It’s a Scramble Chasing a Buck
Despite only moderate shopper turnout this week, retailers aren’t worried about this Christmas. They reckon business will be OK.
They’re worried about the problems that are always with them these days: competition fiercer than ever, and customers harder to attract and impossible to hold.
Competition? Some call it chaos. “There are too many stores in the United States today,” declared Chairman Joseph E. Antonini of K mart in a recent talk to financial analysts.
But Antonini’s company isn’t closing stores, it’s opening more. The number of K marts has grown from 1,688 to 2,267 in this decade and the company is also expanding specialty chains it has acquired--Builders Square hardware is up to 133 stores from only 9 four years ago, and the 266 Pay Less Drug Stores are adding a store every month.
Are there too many stores? Hard to say because nobody knows how many there are. The Bureau of the Census counted 1.9 million stores in 1982, up from 1.87 million five years before. But release of its 1987 census is delayed. “It’s one of the areas cut back by the Reagan Administration,” says an official of the National Retail Merchants Assn., “so nobody has a figure.”
Still every retailer knows what Antonini means: There are too many competitors vying for the consumer’s dollar.
Had to Change Policy
Edward A. Brennan knows the feeling. The 54-year-old Brennan is now chairman of Sears Roebuck, the nation’s largest retailer and the company where his father worked as a sales manager.
Brennan is being forced to change the pricing policy of Sears to one called everyday low prices, a retailing term that means Sears will have fewer special sales--as in Washington’s Birthday or back-to-school sales. Instead, it will offer merchandise at one, year-round price--probably lower than today’s.
It will also narrow the selection, carrying seven kinds of vacuum cleaners instead of 18, for example, 10 lawn mowers rather than 21. And it will feature brand names alongside its own Kenmore appliances and Craftsman tools.
That approach lowers inventory costs, says Will Danoff, who manages a Fidelity Investments mutual fund for retail stocks. “And most of all it makes sense these days when consumers shop around and often buy only when items are on sale.”
Sears, for example, was selling more than half its merchandise during sales--at markdown prices. And still it was being eaten alive by specialty stores and discount chains such as Wal-Mart, which has grown rapidly to approach Sears’ roughly $30 billion in annual retail sales. “It has grown from $12 billion to $16 billion last year and probably $21 billion this year,” marvels analyst Joseph Ronning of the Brown Bros., Harriman investment firm.
World Has Changed
How has Wal-Mart grown so fast? By cutting prices and profit to attract customers. Wal-Mart makes 2.9 cents on each dollar of sales. Sears made 5 cents on each dollar 10 years ago, and now makes 3.4 cents.
The world has changed. Once upon a time the consumer saw Sears’ own brands as quality goods selling at a lower price than name brands. Now the name brand, be it GE or RCA, Panasonic or Canon, or Goldstar from South Korea, is on sale everywhere for less than Sears house brands.
What has happened is that a sea of merchandise has washed upon the world, especially the U.S. market, making one-time wonders available and cheap.
The color television that cost more than $300 in the 1960s costs less than $200 today--and about $50 in inflation-adjusted terms. Microwave ovens, expensive rarities even 15 years ago, are now selling for less than $100.
And the abundance has extended to clothing and furniture and other goods. Thanks to modern manufacturing, less developed countries--and the United States, too--can turn out goods cheaply and in great profusion. The abundance has given rise to more and more stores to move the merchandise, and competition for every shopper.
Which is why shoppers are lost in variety these days and retailers are battling for survival. Sears’ change of policy is an attempt to hold its share of market against encroachments by Wal-Mart and others.
Some chains are yielding territory to others. Zayre Corp. sold its discount stores cheaply to Ames Department Stores, a New England chain; Dillard’s, of Arkansas, has bought the Missouri and Texas stores of Macy’s and the now-broken up Allied Stores chain. Meanwhile, Macy’s, having departed Missouri, will expand in Southern California.
But while competition won’t get any easier, retailers are breathing a sigh of relief this Christmas because they anticipated only a fair season, not a great one, and so didn’t build inventories. They already know they won’t be stuck with a lot of merchandise to mark down, or sell at a loss.
And, says retail expert Danoff, there are still those final days before Christmas when “as every retailer knows, Santa Claus always comes.” That at least hasn’t changed.
