)
Industry Opinion
Is the Large Store Concept a Threat to Small Retailers?
By Nironjan Roy, CPA, CMA & Certified Anti-Money Laundering Specialist and Banker, Toronto, Canada
There was a time when small retailers and community-based stores were very popular for selling domestic items to consumers. During that time large business enterprises were playing the role of supply source i.e. either wholesale centers or intermediary units in channeling merchandise from producers to the sales outlet.
Consumers were the final customers of small shops and retail stores, which in turn, were the customers of large business houses – particularly the warehouses and wholesale enterprises. The customer segment was the underlying principle of that marketing system.
All market participants used to strictly follow the sales principle, of which retail stores and local shops would procure goods only from warehouses/intermediaries – retailers would never go to the primary producers. Similarly, consumers would purchase only from retail shops and would never go to the intermediary/wholesale centers. There are several reasons behind the popularity of small shops and retail stores.
Firstly, establishment costs and operating expenses as well as profit margin are comparatively low, so these small shops can easily sell at cheaper prices. Secondly, most small shops and retailers are run by the owners, so they can easily take personal care of the customers. Since known customers come, the shops or stores can extend personal credit and accept limited exchange of defective items, which extends extra comforts to the customers, who are very happy with small shops and retailers. Additionally, small shops and retailers are considered self-employment which has been encouraged by the government, and as such enjoy preferential treatment.
The popularity of small shops and retail stores has started eroding with the emergence of a new marketing strategy in which, large corporate retailers and chain stores have been dominant participants. Now, retail sale is mostly captured by giant retailers and large stores. Now large retail store concept is not only popular but also massively dominant among the consumers of developed countries particularly the USA, Canada, and European countries. The retail market of this vast part of the globe is dominated by a few large corporate retail superstores, which are basically chain retail outlets selling domestic items across the country. Among these handful of corporate retailers, Walmart, Amazon, and Costco are the major market players.
Local media reported that only three companies in the USA, which include Costco, Walmart, and Amazon, have captured 11% of total retail sales in 2024. The market share of these three companies has been persistently growing over time and they sell everything from groceries to electronic appliances. Costco and Walmart have been able to make their market share almost double during the last two years. It is obvious that Amazon’s market share in grocery sales has not achieved remarkable growth, and they have limited options for grocery sales, because this is a completely online sales center. However, it has captured a significant market share in selling all other household items. I’m a paragraph. Drag me to add paragraph to your block, write your own text and edit me.
As reported in the mediaThese three retail giants have spent about $47 billion on capital expenditure during 2023. Amazon has invested billions of dollars in building warehouses and making full automation to ensure efficient and faster delivery. Walmart has spent several billion dollars for renovation in making specious stores in 2024. In addition, Amazon and Walmart have rapidly expanded their online sales making convenient purchases as well as delivery options and involving third-party sale options. Online sale through third-party options helps retailers increase profit margins because some operational costs can easily be minimized. Compared to Walmart and Amazon, Costco does not spend that much on capital expenditure, but they enjoy an edge over other competitors by availing of a large procurement and bulk sale strategy. They follow a special product combination model which minimizes their operation cost allowing them to offer comparatively lower prices to the customers.
There are specific reasons behind the rapid popularity of large-scale retail marketing concepts. Firstly, they have the capability of making a massive investment in sophisticated infrastructure and automation in operating retail stores which modernize sales service and minimize operational costs. Secondly, these corporate retail stores enjoy the advantage of large-scale procurement at lower prices and favorable terms and conditions, so they can offer not only the lowest price but also better post-sale service including a preferable return policy for customers. Thirdly, they have a strong financial footing with easy access to the financial industry which allows them to offer institutional credit facilities viz. credit cards to their customers who can easily purchase using that credit card. These stores can get government policy in their favor because they have enough resources to appoint lobbyists who work with the government in their favor.
Because of very undue competitionMany small retailers and community-based stores are heavily losing their market share to a handful of giant retailers. Many small retail stores and community shops have reportedly gone bankrupt. Even very popular small-scale retail stores, which include Big Lots, Container Store, and Party City have filed for bankruptcy. Another popular low-price store, Dollar Store, has been scrambling hard to survive competing with Walmart. Mentionable that Dolar Store was named, because everything used to be sold there at one dollar price. Over time prices have increased in Dollar Store, yet much lower than other giant retailers. This popular retail store is facing steep competition with Walmart and their existence is now under big threat.
The overall economic conditions are now in favor of the corporate retail marketing concept mostly dominated by large retail stores. Investors support them by investing in these companies because they are too big to fail. Producers and manufacturers prefer to supply these large retailers because of payment guarantees and bulk sales. Customers like to purchase from large retailers because of lower prices, assured quality, and favorable terms. The government also supports these large companies because of higher revenue and employment generation. With all these favorable factors, the large corporate retail marketing concept is gaining rapid popularity and thus becoming a threat to small retailers and community-based stores.