Discount birthday: Walmart, Kmart, Target hit big 5-0

Discounting wasn't invented in 1962, but it might as well have been.

Thatwas when Walmart, Target and Kmart were born, each with theirdistinctive style of low-price retailing. As the three celebrate their50th anniversaries this year, they can take credit for much of the waybargain-obsessed America now shops. Retailers of every stripe havefollowed their lead, making shopping the equivalent of "Blue LightSpecials" all the time.

There were plenty ofstand-alone or regional "five-and-ten" or "dime stores" back then,including Woolworth's, Ben Franklin and W.T. Grant. Kmart, Walmart andTarget built on the concept and brought self-service, low-price shoppingto the masses.

"For the first time ... therewere long aisles of merchandise, merchandise was well assorted, and thecustomers helped themselves," says Walter Loeb, a retail consultant andformer analyst who spent 20 years as an executive for May Co. andMacy's. "People looked for bargains, and that feeling of bargains neverleft retail."

Itonly expanded, with bricks-and-mortar wholesale stores, includingCostco and Sam's Club, followed by online discounters such as Amazon.

In 1967, discount stores accounted for 42% of all retail sales. In 2010, that number rose to 87%, Loeb says, citing data from Consumer Reports.

"Discounting today is a way of life," Loeb says.

Oddlyenough, companies founded by Sam Walton, George Dayton and SebastianKresge all gave the concept of a high-volume store with lower-pricemerchandise a try in the same year. Odder still, it was S.S. Kresge'sKmart -- the now-beleaguered of the trio -- that set the standards fordiscount retailing that the others built upon.

Kmartexpanded the fastest of the three, growing to hundreds of stores by themid-'70s, vs. a few dozen Targets and Walmarts. Kmart's rapid growthand hugely popular Blue Light Specials made it an early leader.

"Kmartbrought the carnival aspect of shopping -- the idea of deal andexcitement around price," says Ken Nisch, chairman of retail brandingand design firm JGA.

Nisch recalls hisdelight as a child when the arrival of Kmart into the Toledo, Ohio,suburbs meant the end of long trips downtown with his mother and brotherto visit the rundown Tiedtke's department store.

WithKmart's big parking lot, wide aisles, shopping carts and brightfluorescent lights, "it was sort of like Oz had opened up," he says.Kmart, he says, had "all the things the middle class wanted," such asbrand names including Jockey and Levi's.

Lookingback, retail experts say it was no accident that each of the threechains started far away from the East and West Coasts.

The chains' leaders were responding to the post-World War II growth in Middle America.

"Themost important thing was that American suburban living was exploding,"Loeb says. "Because of that, the need for stores in the neighborhoodswas immediate."

Walmart founder Sam Waltonwent even further out to rural areas, opening his first store in Rogers,Ark., where the nearest city was Tulsa, two hours away, says AlanDranow, senior director for heritage and marketing at Walmart.

"Hesaw the opportunity to serve the underserved," Dranow says. "If youlook at how the company grew, it really grew in the heartland."

Waltonunderstood the reach and power of the agrarian economy, and feltfarmers needed an affordable place to shop, says Allen Questrom, who hasbeen CEO of Federated Department Stores, Neiman Marcus, Barney's andJ.C. Penney. While department store executives including himself "kindof looked down our noses at discount stores," Questrom says he admiredtheir foresight.

Each of the chains made a lasting contribution to retail that continues to be expanded upon today.

Target."Fifty, fun and friendly" are the buzzwords in Target's anniversaryliterature. But it's fashion that comes most to mind, even when peoplelook at its history.

The discounter, oftenaffectionately known as "Targét," was started as an offshoot ofDayton's department stores, which contributed to its fashion-forwardmindset, Loeb says.

"It was more fashion-oriented than the other stores," he says.

"BothKmart and Walmart came out of the five-and-dime-store mentality. Andwhile they both had visions that transcended it, they did not have thebackground of fashion merchandising."

Startingwith its housewares and home decor design partnership with MichaelGraves in 1999 (which ended this year), Target pioneered the concept ofexclusive, designer lines at affordable prices, more recently with aline of immediately sold-out successes from Jason Wu and Missoni.

"Bringinggreat design and affordable prices into the mass retailing space was ahuge innovation," says Shawn Gensch, senior vice president of marketingat Target.

Even fashionable discounters needto compete on the basics, though. Barbara Collette, who has worked forTarget for 40 years, says, "The biggest thing I remember is, we builtthis company on toilet paper and laundry soap."

When Target would have "dollar sales," Collette, who gives her age at "over 60," says, "we would just sell trailerloads of it."

Walmart.The fact that farmers needed to pay less prompted Walton to work to"deliver products to them cheaper," says Questrom. In doing so, Walmartbecame the leader in supply chain efficiency that retailers up the priceladder try to emulate.

"Everyone tries to copy Target from the front door in, and everyone tries to copy Walmart from the back door in," Nisch says.

Findingways to cut costs and pass the savings on is a value Walmart continuesto execute on, Dranow says, from truck drivers using more direct routesso they use less gas, to installing solar panels and skylights in storesto save on electricity.

Walton, Questrom says, is "more responsible than anyone for keeping inflation to sustainable levels, at least up until now."

Walmart'sstrategy of "everyday low prices" -- a slogan the chain adopted in the1980s -- was its biggest contribution to retail, Dranow says.

"If Walmart hadn't been driving down the prices, our competitors would not have been doing the same," he says.

"Samdid this from the beginning. He lowered his prices not just so he couldmake more money. He really saw that by saving people money, they'regoing to live better."

Kmart.When it seems as if everyone in Hollywood has their own clothing line,it's easy to forget one of the first major celebrity fashion launches.Former Charlie's Angel Jaclyn Smith started her clothes andhousewares line at Kmart 27 years ago, and it's still among the mostpopular brands, says Kmart's interim Chief Marketing Officer AndrewStein. Selena Gomez and Sofia Vergara also have Kmart lines now.

Nisch recalls shopping while eating popcorn you could smell throughoutthe store. Karen Davidson, who started with the S.S. Kresge company thatbecame Kmart in 1971, fondly remembers the excitement when the bluelight on a rolling cart would move near different products in the store.A loud-speaker announcement would declare that product's price cut,and, "Customers would run over there to take advantage," recallsDavidson, 58. Then they'd wait to see where it rolled next.

Aftercompanywide stops and starts through the years, Blue Light Specials arenow only done on a store-by-store basis, and there's no more actuallight, Stein says.

It's been hard to maintainthe excitement at Kmart, which was under bankruptcy protection and had adisappointing merger with Sears in the past decade. And it has beenshrinking as its two biggest competitors grow.

Steinsays Kmart's "biggest challenge is what every retailer faces. It's verycompetitive." He says Kmart has moved quickly to respond to shoppers'desires, including adding free layaway and membership rewards carddeals.

Even Walmart, the world's largestretailer, has had its challenges. It's had decades-long struggles withlabor unions that want to organize workers. It also got off to a messystart.

Sam Walton planned to give awaywatermelons to the first customers at the 1964 opening of his secondstore in Harrison, Ark., on an August day when temperatures hit 110degrees, Dranow says.

He was also offering donkey rides to the kids. The two promotions didn't mix well.

"Thewatermelons started to pop, so you had all this watermelon juice andguts running into the parking lot," Dranow says. "The donkeys werewalking around, and donkeys do what donkeys do, and it started to mixtogether. Customers were traipsing thorough it and then going intostore."

David Glass, the head of a discountdrug chain, was at the store opening to see Walton's vision in action.He wasn't too impressed that day.

"David Glass thought Sam was a nice enough fella, but he didn't really think much of this new store," Dranow says.

Glass apparently reconsidered his position. He joined the company in 1974 and became its CEO in 1988.

Walmart now has more than 10,000 stores around the world. But where does discount retail go from here?

Today,the discount stores that revolutionized how America shops have pavedthe way for aggressive and constant price competition between physicalstores and online retailers.

"You say to yourself, 'My God where is it going to go?'" Loeb says. "Pretty soon, they're going to give it away."


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