Discounting wasn't invented in 1962, but it might as well have been.
That
was when Walmart, Target and Kmart were born, each with their
distinctive style of low-price retailing. As the three celebrate their
50th anniversaries this year, they can take credit for much of the way
bargain-obsessed America now shops. Retailers of every stripe have
followed their lead, making shopping the equivalent of "Blue Light
Specials" all the time.
There were plenty of
stand-alone or regional "five-and-ten" or "dime stores" back then,
including Woolworth's, Ben Franklin and W.T. Grant. Kmart, Walmart and
Target built on the concept and brought self-service, low-price shopping
to the masses.
"For the first time ... there
were long aisles of merchandise, merchandise was well assorted, and the
customers helped themselves," says Walter Loeb, a retail consultant and
former analyst who spent 20 years as an executive for May Co. and
Macy's. "People looked for bargains, and that feeling of bargains never
left retail."
It
only expanded, with bricks-and-mortar wholesale stores, including
Costco 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.
Oddly
enough, companies founded by Sam Walton, George Dayton and Sebastian
Kresge all gave the concept of a high-volume store with lower-price
merchandise a try in the same year. Odder still, it was S.S. Kresge's
Kmart -- the now-beleaguered of the trio -- that set the standards for
discount retailing that the others built upon.
Kmartexpanded the fastest of the three, growing to hundreds of stores by the
mid-'70s, vs. a few dozen Targets and Walmarts. Kmart's rapid growth
and hugely popular Blue Light Specials made it an early leader.
"Kmart
brought the carnival aspect of shopping -- the idea of deal and
excitement around price," says Ken Nisch, chairman of retail branding
and design firm JGA.
Nisch recalls his
delight as a child when the arrival of Kmart into the Toledo, Ohio,
suburbs meant the end of long trips downtown with his mother and brother
to visit the rundown Tiedtke's department store.
With
Kmart's big parking lot, wide aisles, shopping carts and bright
fluorescent lights, "it was sort of like Oz had opened up," he says.
Kmart, he says, had "all the things the middle class wanted," such as
brand names including Jockey and Levi's.
Looking
back, retail experts say it was no accident that each of the three
chains started far away from the East and West Coasts.
The chains' leaders were responding to the post-World War II growth in Middle America.
"The
most important thing was that American suburban living was exploding,"
Loeb says. "Because of that, the need for stores in the neighborhoods
was immediate."
Walmart founder Sam Walton
went even further out to rural areas, opening his first store in Rogers,
Ark., where the nearest city was Tulsa, two hours away, says Alan
Dranow, senior director for heritage and marketing at Walmart.
"He
saw the opportunity to serve the underserved," Dranow says. "If you
look at how the company grew, it really grew in the heartland."
Walton
understood the reach and power of the agrarian economy, and felt
farmers needed an affordable place to shop, says Allen Questrom, who has
been CEO of Federated Department Stores, Neiman Marcus, Barney's and
J.C. Penney. While department store executives including himself "kind
of looked down our noses at discount stores," Questrom says he admired
their 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 anniversary
literature. But it's fashion that comes most to mind, even when people
look at its history.
The discounter, often
affectionately known as "Targét," was started as an offshoot of
Dayton's department stores, which contributed to its fashion-forward
mindset, Loeb says.
"It was more fashion-oriented than the other stores," he says.
"Both
Kmart and Walmart came out of the five-and-dime-store mentality. And
while they both had visions that transcended it, they did not have the
background of fashion merchandising."
Starting
with its housewares and home decor design partnership with Michael
Graves in 1999 (which ended this year), Target pioneered the concept of
exclusive, designer lines at affordable prices, more recently with a
line of immediately sold-out successes from Jason Wu and Missoni.
"Bringing
great design and affordable prices into the mass retailing space was a
huge innovation," says Shawn Gensch, senior vice president of marketing
at Target.
Even fashionable discounters need
to compete on the basics, though. Barbara Collette, who has worked for
Target for 40 years, says, "The biggest thing I remember is, we built
this 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, Walmart
became the leader in supply chain efficiency that retailers up the price
ladder 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.
Finding
ways to cut costs and pass the savings on is a value Walmart continues
to execute on, Dranow says, from truck drivers using more direct routes
so they use less gas, to installing solar panels and skylights in stores
to save on electricity.
Walton, Questrom says, is "more responsible than anyone for keeping inflation to sustainable levels, at least up until now."
Walmart's
strategy of "everyday low prices" -- a slogan the chain adopted in the
1980s -- 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.
"Sam
did this from the beginning. He lowered his prices not just so he could
make more money. He really saw that by saving people money, they're
going 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 and
housewares line at Kmart 27 years ago, and it's still among the most
popular brands, says Kmart's interim Chief Marketing Officer Andrew
Stein. Selena Gomez and Sofia Vergara also have Kmart lines now.
Nisch recalls shopping while eating popcorn you could smell throughout
the store. Karen Davidson, who started with the S.S. Kresge company that
became Kmart in 1971, fondly remembers the excitement when the blue
light 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," recalls
Davidson, 58. Then they'd wait to see where it rolled next.
After
companywide stops and starts through the years, Blue Light Specials are
now only done on a store-by-store basis, and there's no more actual
light, Stein says.
It's been hard to maintain
the excitement at Kmart, which was under bankruptcy protection and had a
disappointing merger with Sears in the past decade. And it has been
shrinking as its two biggest competitors grow.
Stein
says Kmart's "biggest challenge is what every retailer faces. It's very
competitive." He says Kmart has moved quickly to respond to shoppers'
desires, including adding free layaway and membership rewards card
deals.
Even Walmart, the world's largest
retailer, has had its challenges. It's had decades-long struggles with
labor unions that want to organize workers. It also got off to a messy
start.
Sam Walton planned to give away
watermelons to the first customers at the 1964 opening of his second
store in Harrison, Ark., on an August day when temperatures hit 110
degrees, Dranow says.
He was also offering donkey rides to the kids. The two promotions didn't mix well.
"The
watermelons started to pop, so you had all this watermelon juice and
guts running into the parking lot," Dranow says. "The donkeys were
walking around, and donkeys do what donkeys do, and it started to mix
together. Customers were traipsing thorough it and then going into
store."
David Glass, the head of a discount
drug 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 paved
the way for aggressive and constant price competition between physical
stores 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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