British philosopher Alan Watts once said, “The only way to make sense out of change is to plunge into it, move with it and join the dance.” As the American retail landscape continues to change, it seems as though mass merchandiser chains are joining this “dance.”
“Like other channels, the mass merchandise channel is struggling in the face of shifting shopping behaviors,” says Susan Viamari, vice president of thought leadership for Chicago-based Information Resources Inc. (IRI). “The desire for quick and easy trips is driving the proliferation of smaller stores. This, in turn, is creating more fragmentation in the shopping pool, including more trips across more stores.
“Additionally, there has been a shift to more urban environments,” she continues. “Stores are looking to solidify coverage in these areas, and they are experimenting with new store formats, often smaller stores, and other models that will allow them to remain profitable despite the smaller footprint. This means rethinking everything from assortment to supply chain management.”
However, Viamari notes that these small-format stores require “a lot of recalibrating” because they deviate from mass merchandisers’ traditionally successful bulk, broad selection to a “limited, but highly targeted, selection.”
Last year, Minneapolis-based Target Corp. announced that it was rebranding its flexible format CityTarget and TargetExpress stores as Target. At the time, Target Corp. had 14 locations in urban areas and has since expanded to even more. Its first Manhattan flexible-format store opened in October in the Tribeca neighborhood.
The 45,000-square-foot flexible-format store features a Chobani Café as well as a CVS Pharmacy and a variety of consumer packaged goods (CPG) items.
Among the convenience offerings available at the location is an order pickup service, allowing consumers to buy items online and pick them up at a local store.
Wal-Mart Stores Inc., Bentonville, Ark., also has been adjusting its small-format stores. Earlier this year, the company announced that it was closing its 102 Walmart Express locations and instead focusing its efforts on strengthening its Supercenter, optimizing its Neighborhood Market stores, growing its eCommerce business and expanding pickup services.
In Walmart’s fiscal 2017 calendar, which began in February, the company stated that it would open between 85 and 95 Neighborhood Market locations. Those efforts seem to be paying off as Neighborhood Market comp sales increased approximately 6.5 percent, according to Walmart’s second quarter financial results.
Feeling the pressure
Beyond urbanization also lies the evolution of other retail channels that have expanded their assortment in an effort to entice consumers.
“Mass merchandisers are getting a lot of pressure from other formats as retailers expand their assortment of food and beverage solutions in an effort to drive more footfall,” IRI’s Viamari says. “… This leaves mass merchandisers looking for ways to differentiate themselves — through assortments, pricing, private label, etc.
“Also, shoppers are doing a lot more just-in-time shopping, rather than stocking up, which has long been a sweet spot for mass merchandisers,” she continues. “And, the channel is at a bit of a disadvantage for immediate consumption beverage occasions — single serve, chilled, etc. — since it is generally quite large; therefore, [it’s] not all that convenient for the quick in-and-out type trip.”
This trend has hurt beverage volume sales, but price increases, premiumization trends and fewer promotional activities have allowed for dollar sales to move upward, Viamari notes. When it comes to successful performers among beverages within the mass merchandise channel, she adds that those that offer sophisticated solutions tend to be embraced by shoppers.
“Twenty-four percent of consumers look for new beverage products that add excitement to their day, [while] 21 percent look for something truly new and different,” she explains, citing IRI’s 2016 New Product Survey. “Protein is a huge player in the market today as consumers look for quick and easy ways to fill up. This includes beverage aisles; 12 percent of consumers are looking for new beverage solutions that offer protein.”
Foodservice also has become a channel in which mass merchandisers are vying for consumer traffic, and it also is one that is being embraced by mass merchandisers through their store designs.
“In addition to competing with other retail channels, mass merchandisers are finding themselves competing with restaurants and foodservice outlets for share of stomach,” Viamari says. “There is more focus on foodservice in the store, for instance, so customers can get pizza, subs, soups, smoothies, etc. in CPG channels, rather than going to restaurants. Mass merchandisers need to be constantly thinking about how they can reinvent themselves to stay relevant and in lock-step with changing customer behaviors and attitudes.”
Although mass merchandisers are seeing increased competition from other channels, a majority of consumers still frequent the one-stop shops. In Chicago-based Mintel’s March 2015 report titled “Mass Merchandisers – US,” the market research firm details that 96 percent of consumers indicate shopping at a mass merchandiser in store or online in the previous six months. The results were based on a survey conducted in December 2014 of 2,000 consumers aged 18 and older, it says.
When it comes to the items that shoppers purchase at mass merchandisers, food and beverages tops the list of in-store sales, with 71 percent indicating this as an item purchased in those past six months. However, food and beverage was second to last — edging out household cleaners by one percentage point — among online sales, with only 15 percent listing this as a purchase item, the report states.
Embracing eCommerce
Just like many other channels, mass merchandisers have experienced the impact that eCommerce has had on store sales — whether from competing brands or their own online ventures.
Citing IRI’s new “Times & Trends” report titled “Omnichannel Journey,” Viamari states: “The disruptive emergence of eCommerce in grocery is overturning traditional sales models and leaving marketers to re-evaluate the way they do everything, from store location and format to assortment and delivery. Inventory management, in particular, is a critical consideration for retailers, since inventory costs are among the largest costs retailers absorb.
“To profitably serve the evolving needs of omnichannel shoppers, retailers must invest to understand the size of eCommerce across all categories, so they are prepared to balance inventory across the two realms: minimizing out-of-stock situations without carrying excess stock and allowing unnecessary costs to eat away at already razor-thin margins,” she continues.
In Mintel’s report, the market research firm highlights the growth of online and mobile sales as well as what it could mean for mass merchandisers.
“[A]s discussed in Mintel’s ‘Mobile Advertising and Shopping – US,’ July 2014 [report], mobile shopping sales doubled in two years, rising from $25 billion in 2012 to $53.4 billion in 2014, and are set to double again over the next few years to reach at least $100 billion in 2017,” the report states. “In this scenario, mobile sales will carry 25 percent of all online sales in 2017. Nearly half of surveyed adults shopped at mass merchandisers online in the last six months, representing a significant opportunity for mass merchandisers to continue growing their eCommerce business.”
For the beverage market, online sales from mass merchandisers remain niche, but are on an upward trajectory. “Though online sales hold just a small share of overall beverage sales today, there is a rapid escalation, and online sales are expected to reach
$3 billion by 2020,” Viamari says, citing IRI’s “Playing to Win in the Rapidly Evolving Omnichannel Ecosystem” report.
Beyond online order and pickup services, mass merchandisers see the value of eCommerce. For instance, Walmart announced in September that it had completed its acquisition of Jet.com Inc., an eCommerce company that reached $1 billion in run-rate gross merchandise value. It also offered
15 million SKUs in its first year. BI