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

By:

Nathaniel Meyersohn

CNN

In the 1980s a new specialty retail chain called "category-killers" began to appear.

The powerhouse model of the stores was designed to give shoppers every size, color and style product they could imagine -- at reduced prices.

In strip malls in the suburbs, category killers opened stores that were typically less than 50,000 square foot -- larger than independent shops, but smaller than Walmart Superstores. These overstuffed stores were a hit with shoppers.

Mitt Romney said that Staples was "a classic category killer', like Toys R Us" in 1989.

RadioShack, Blockbuster and Barnes & Noble, among others, have spread throughout the decade of 2010, transforming how Americans shop and destroying mom-and pop stores.

The category killer has gone.

Toys "R" Us Blockbuster, and RadioShack have all disappeared. Barnes & Noble and Staples are still there, but have closed hundreds of their stores.

Bed Bath & Beyond declared bankruptcy this week.

Bed Bath & Beyond, once the one-stop shop for all things in customers' homes was brought down due to changes in shopping, competition, and Bed Bath & Beyond's own mistakes. It was also a concept of retail designed for an old era.

"That model was novel and exciting." Z. John Zhang is a marketing professor at the Wharton School of University of Pennsylvania. He said that if you liked this category, it felt like walking into a candy store. The concept is no longer relevant.

How Category Killers developed

During the heydays of category killers, a time when "Shop 'til You Drop", a popular television game show, was a regular series, people gathered as much as possible, largely unaware of their production methods or the environmental impact of these goods.

Retailers could undercut competitors by buying in large quantities and negotiating lower prices with suppliers.

Companies bet that customers will turn to them for new toys, DVD players, bedsheets, etc., when they need these items.

Combining global supply chains with cheap container shipping, falling telecommunications and computer costs, the concept of category killer was possible.

Companies can suddenly order manufacturers to produce products around the globe and monitor their supply in real-time.

Marc Levison is an economist, historian and author of the book "The Great A&P & the Struggle for Small Business in America". He said that the modern supply chain was crucial in the development and growth of many category killers. It was possible to communicate with a Chinese supplier from an office located in New York.

Local and regional retailers are at a disadvantage to large companies that can invest in sophisticated software and technology.

The expansion of suburbs led to larger stores and parking lots in comparison with cities. Customers would buy a lot of stuff and then throw it into their trunks.

In the 1980s, there was also a wave department store bankruptcy and debt-financed buyouts. The heavily indebted competitors of category killers were unable to invest in supply chain management and technology to keep up.

Levison stated that local and regional retailers were still in existence during the 1970s and 80s. It was relatively easy to eliminate them. "Traditional retail was drowning in debt."

Bed Bath & Beyond is an archetype for the home furnishings category model.

Bed Bath & Beyond was founded in 1971 by Bed 'n Bath, a small linen store. In 1987 the name changed to Bed Bath & Beyond to reflect their expanded product selection and larger superstores. The company stacked pots, pans, and towels high up to the ceiling. Coupons were used to attract shoppers.

Len Feinstein, co-founder of the company that went public in 1993 with 38 stores and sales of around $200 million, said: "We knew specialty stores would be the next wave in retailing."

In 2000, the number of stores had increased to 241 and sales were $1.1 billion.

Bed Bath & Beyond grew and displaced smaller home decor and linen stores.

Killing the killers

In 2011, two Harvard Business School Professors predicted that online shopping would cause a category-killing collapse.

They wrote: "Just as the category killers caused the demise for mom-and pop shops, [online retailers] will lead to the death of big-box category-killers." The focus that made them powerful in the 80s and 90s has created the conditions for their present struggles.

Online shopping has decimated many categories.

Amazon's online marketplace can offer an infinite number of products, eliminating the category-killing advantage that rivals used to have over Amazon.

It is no longer possible to enjoy the lower cost advantages category killers used to enjoy because of their size, which allowed them drive down prices.

Amazon does not have to purchase products or store inventory in warehouses, which is expensive. It is a marketplace that connects buyers with sellers, and it takes a commission on each sale.

Walmart and Target, for example, can limit their costs by focusing on the most popular products within each category.

"If you want to be a category killer you will have to assemble all of your products." Zhang, from Wharton, said that you have to carry slower moving products which increase costs.

Inflation has also caused customers to reduce discretionary spending, which in turn has affected the category killers.

They have also been affected by a shift in consumer priorities. In a shift toward the "experience economy," people are spending more money on experiences than endless possessions.

Zhang stated that people are more interested in experiences than material possessions. Why do you need to buy so many items in one category?

Home Depot, Lowe's and Dick's Sporting Goods are the last brick-and mortar category killers.

Many customers like to try and see the products in person. For example, a new home theater system or baseball glove. Chains have benefited from major trends, such as the strong housing market, an increase in sports participation, and new innovative gadgets.

Ironically, there's a nostalgia for Bed Bath & Beyond as well as other chains that once dominated the market and drove mom-and pops out of business. As more category killers go out of business, customers will have fewer choices and may lose convenience and product expertise.

We're going to miss these places once they're gone. Addison Del Mastro, an urbanist writer who writes on Twitter, said this week that there are fewer and fewer stores where one can find a real selection or options of a product. "We need more than just a Walmart option or a hundred pages of spammy Amazon search results."

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