Unequal Competition Among Chains of Supercenters: Kmart, Target, and Wal-Mart
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Unequal Competition Among Chains of Supercenters:
Kmart, Target, and Wal-Mart
Thomas O. Graff
University of Arkansas
The three largest discount chains, Kmart, Target, and Wal-Mart, have adopted the supercenter format for
expansion. This article examines the locations of and the competition among these supercenters. Wal-Mart has
the greatest number of supercenters and is driving the expansion of the supercenter format. Both Kmart and
Target have clustered their supercenters in a small number of metropolitan markets. In contrast to Wal-Mart and
Kmart, Target has focused on a middle-class rather than a blue-collar clientele. Now Kmart is struggling
following a declaration of bankruptcy. Wal-Mart has largely defeated its supercenter competitors and now is
confronting the major grocery chains for grocery sales. Key Words: supercenter, Kmart, Target, Wal-Mart.
n the past two decades, a massive restructur- Wal-Mart and Target income segments (Turner
I ing of the American retailing environment
has occurred. Bankruptcies, downsizings, merg-
2003, 47). Each of these discount retailers sells
vast amounts of merchandise at low profit mar-
ers, and acquisitions, as well as growth and gins. By adoption of the supercenter format
expansions, have permanently altered the land- Wal-Mart has fundamentally altered the exist-
scape of American retailing. At the start of the ing competitive equation among the discount
twenty-first century, several chains of discount chains. The supercenter format permits Wal-
stores are focusing their expansion on the su- Mart to offer the convenience of one-stop shop-
percenter format, a combination full-service ping in combination with its carefully crafted
grocery and general merchandise store. The image as the low-price leader.
supercenter format has become a key expansion The successful expansion of the discount
format for American discount merchandisers. A chains and the expanding use of the supercenter
major trade journal of discount retailers, DSN format are having dramatic impacts on both
Retailing Today, observed that in the 1990s ‘‘the general merchandise and grocery retailers. Al-
era of the supercenter had begun. Shunned for ready in the twenty-first century, Montgomery
years by discounters, food had become a key Ward and Kmart have been forced into decla-
strategic weapon for Wal-Mart, Kmart, and rations of bankruptcy, and for a period of time
Target’’ (The Supercenter Era 2002, 27). The the bonds of JC Penney were downgraded to
present article examines the expansion of and junk status. American grocery retailing has be-
the competition among these three national come increasingly concentrated among the
chains of supercenters. largest grocery chains. From 1995 to 1999, the
Wal-Mart Stores Inc. has become a major five largest U.S. grocery chains (Wal-Mart,
catalyst for changes in the American retailing Kroger, Albertson’s, Safeway, and Royal Ahold)
structure over the past two decades. The dom- increased their share of the grocery market from
inant discount chains, Kmart, Target, and Wal- 26 percent to 37 percent (Turcsik 2001). In
Mart, along with several regional discount 2005, Wal-Mart alone controlled more than 20
chains, compete in most American metropolis- percent of the U.S. grocery market, and this
es. Through market segmentation each dis- market share continues to increase rapidly.
counter has focused on serving a distinct In the constantly changing American retail-
segment of the American market. Target has ing environment, a new paradigm for the largest
focused on a middle-class clientele, Wal-Mart retailers is emerging. Despite many difficulties,
has catered to the blue-collar segment, and the largest retailers are becoming even larger
Kmart has focused on a clientele between the through mergers, acquisitions, new construc-
The Professional Geographer, 58(1) 2006, pages 54–64 r Copyright 2006 by Association of American Geographers.
Initial submission, April 2004; revised submission, November 2004; final acceptance, December 2004.
Published by Blackwell Publishing, 350 Main Street, Malden, MA 02148, and 9600 Garsington Road, Oxford OX4 2DQ, U.K.Unequal Competition Among Chains of Supercenters 55
tion, and international expansion. These large Laulajainen (1987, 79) observed that the low-
retailers are selling an ever-expanding variety of cost logistical function critical for the survival of
merchandise to consumers. Global sourcing as a grocery chain ‘‘is difficult to obtain without
well as private warehouse and distribution sys- one’s own warehouse and delivery fleet.’’ A gro-
tems are becoming the norm for such huge re- cery trade journal recently noted that a private
tailers. Through such efforts, they acquire a grocery warehouse system was a necessity for a
growing proportion of consumer expenditures, retailer to become a major national grocery
and they more fully control the flow of goods chain (Summerour 2002). In addition, concen-
from the factory to the consumer. Their huge tration of retail outlets within a market permits
size and massive buying power allow them to advertising costs to be reduced by allocating
demand lower prices and better terms from these costs among multiple outlets.
suppliers. Wal-Mart includes grocery merchan- Laulajainen (1987) and Graff and Ashton
dise with its rapidly expanding Supercenter for- (1994) have studied the expansion of Wal-Mart.
mat, and the firm has entered the international They observed that Wal-Mart has employed an
arena. The other large American discount expansion strategy that differs from most re-
chains, Target and Kmart, have also adopted tailers. Wal-Mart started in very small commu-
the supercenter format. Large American gro- nities and only after solidifying its small-town
cery retailers such as Kroger, Safeway, and base did the firm expand into larger markets.
Albertson’s have made numerous grocery ac- Laulajainen (1987, 242) concluded that Wal-
quisitions and now serve national markets. Mart practiced ‘‘hierarchical diffusion in reverse
Kroger, with its acquisition of Fred Meyer, has order.’’ Wal-Mart is similar to most successful
become a regional supercenter operator in the general merchandise and grocery retailers in
Pacific Northwest. Through acquisitions of that it emphasizes close coordination between
U.S. grocery chains, European grocery retail- the distribution facilities and retail outlets in its
ers such as Royal Ahold and Delhaize have be- expansion program.
come major American grocery retailers. And Graff (1998) compared the expansion strate-
Aldi, the no-frills German grocery chain, has gies employed by Wal-Mart and Kmart with
also entered the American market. their supercenter outlets. He observed that
In the late 1990s, Kmart, Target, and Wal- Wal-Mart tended to cluster its Supercenters
Mart identified the supercenter that a major around its grocery distribution centers and most
format for future expansion. This article (1) of the Supercenters were located in compara-
compares and contrasts the strategies that Wal- tively modest-sized communities. In contrast,
Mart, Kmart, and Target employ for locating Super Kmarts were scattered in metropolitan
their supercenters, (2) describes the grocery markets around the country. Consumer surveys
distribution system each firm has developed for revealed that in direct competition, the combi-
its chain of supercenters, and (3) evaluates nation of perceived superiority of Wal-Mart
whether either Kmart or Target is likely to Supercenter general merchandise and overall
compete successfully with the expanding chain lower prices produced a consumer preference
of Wal-Mart Supercenters. for Supercenters over the Super Kmarts (Tigert,
Arnold, and Cotter 1993).
Location Strategy Burt and Sparks (2001) examined the Wal-
Mart expansion into the United Kingdom.
Laulajainen (1987, 1988) analyzed the expan- They analyzed the Wal-Mart expansion in the
sion strategies employed by many retailers. He United States in order to project the impacts of
found that retailers have successfully employed a the Wal-Mart entry into the U.K. grocery mar-
variety of diffusion strategies. He observed that ket. They identified five characteristics that
both grocery retailers and discount store mer- combine to make Wal-Mart a uniquely success-
chandisers market massive quantities of low- ful retailer: (1) culture, (2) supply systems, (3)
cost merchandise. For these types of retailers, a price and cost control, (4) innovation, and (5)
close relationship between retail outlets and market destabilization. The first four of these
distribution facilities is imperative for success. characteristics combine to permit Wal-Mart to
Distribution costs can be minimized by cluster- have the lowest cost structure in the retail in-
ing retail outlets around a distribution center. dustry. As a result, Wal-Mart is able to be the56 Volume 58, Number 1, February 2006
low-price leader in most markets, and Wal- Table 1 Comparison of major discount store
Mart exploits this position to expand its market chains
share at the expense of competitors. As Wal- 2000 2001 2002 2003 2004
Mart increases its market share and forces prices
down, its competitors must adapt to a lower Kmart
No. of discount stores 2066 2089 1715 1453 1415
price structure and decreased profitability, and Discount store sales 31,828 31,057 24,906 20,853
adjust to a diminished market position. When ($1,000,000’s)
Wal-Mart’s growing market share is large No. of Super Kmarts 105 110 126 114 60
Super Kmart sales 4,915 5,097 4,446 2,400
enough, competitors are forced to restructure, ($1,000,000’s)
retrench, and initiate new marketing strategies. Target
The market becomes destabilized. No. of discount stores 896 967 991 1053 1107
Discount store sales 27,568 29,367 32,037 35,500
In an edited volume focusing on emerging ($1,000,000’s)
trends in geographic research on retailing, No. of SuperTargets 16 30 62 94 118
Wrigley and Lowe (1996) suggested that cor- SuperTarget sales 1,759 3,224 4,880 5,550
($1,000,000’s)
porate culture and corporate strategies have Wal-Mart
been neglected topics in geographic research. No. of discount stores 1801 1738 1647 1568 1478
They view these topics as key to understanding Discount store sales 59,900 63,100 61,372 62,200
($1,000,000’s)
corporate behavior in the present competitive No. of Supercenters 721 886 1066 1258 1471
environment. They suggest that a ‘‘cultural log- Supercenter sales 61,900 76,000 94,872 110,800
ic as well as an economic logic’’ are significant ($1,000,000’s)
factors in understanding the behavior of retail- Sources: Annual Industry Report (2003); Annual Retailer
ing firms of the twenty-first century (Wrigley Ranking Report (2001); Top 150: Annual Industry Report
and Lowe 1996, 16). As a result of unique his- (2004).
tories and traditions, firms develop distinct
strategies for survival and expansion in compet-
itive economic environments. discount merchandiser and supercenter opera-
tor has deteriorated markedly.
Corporate Histories Wal-Mart
In 1962, Kmart, Target, and Wal-Mart each In contrast to other discount retailers, Sam
opened its first discount store. The first Kmart Walton believed that discount merchandising
was in a Detroit suburb, the first Target was in a would be successful in modest-sized towns as
Minneapolis suburb, and the first Wal-Mart was well as in metropolitan markets. Walton recog-
in Rogers, Arkansas, a small town in the Ozarks. nized that for Wal-Mart to be successful, the
As the new discount store formats of major re- firm needed to offer brand-name merchandise
tailers, both Target and Kmart had access to at discount store prices. Metropolitan-based
significant financial resources and were able to discount chains such as Kmart and Target han-
expand rapidly into additional metropolitan dled large volumes of merchandise and were
locations. Wal-Mart was the discount format able to obtain brand-name merchandise at low
of Sam Walton, a small-town merchant who prices, but a single Wal-Mart, located in an iso-
lacked significant financial backing, and in the lated small town, did not produce sufficient
1960s Wal-Mart expanded more slowly than sales volume to interest major suppliers. At its
other discounters. By the beginning of the beginning, Wal-Mart was relegated to market-
twenty-first century the relative position of the ing off-brands of merchandise at very low pric-
discount chains had changed dramatically (Ta- es. In order to increase its sales volume, Wal-
ble 1). In the new century, Target and Wal-Mart Mart opened additional stores. Since Wal-Mart
have continued to increase their number of feared competition from other discount chains,
stores and sales volumes, but Kmart’s sales vol- most of the early Wal-Marts were located in
umes and number of stores have declined pre- very small towns, towns too small to interest
cipitously. Wal-Mart has been focusing its competing discount retailers.
expansion on the Supercenter format, and the Distribution of merchandise to the first Wal-
SuperTarget format is of growing importance to Marts was always a major issue. Some of the first
the Target Corporation. Kmart’s position as a retail outlets were in towns so small they wereUnequal Competition Among Chains of Supercenters 57
not served on scheduled freight routes. Wal- yond that of a discount merchandiser. In the
Mart was forced to utilize private delivery to 1980s and early 1990s, Kmart Corporation pur-
distribute merchandise to these early stores. chased several established retailers including
Capital raised from the first offering of stock Builder’s Square, Borders, Waldenbooks, Furr’s
was used to construct the first Wal-Mart distri- Cafeterias, PACE Membership Warehouse,
bution facility. Now Wal-Mart uses its private Payless Drugs Northwest, Sports Authority,
distribution system to supply its retail outlets to and Office Max. In the 1990s, as retail compe-
a greater extent than any retailer in the world. tition in the United States continued to in-
From its origin, Wal-Mart Stores Inc. has tensify, the financial position of Kmart
been obsessed with growth. The firm has viewed Corporation deteriorated. Kmart sold its ac-
large sales volumes as the key element for gain- quisitions and initiated a program to refurbish
ing leverage with suppliers. Wal-Mart has ag- its discount store base. In 1995, Kmart barely
gressively increased its number of stores and avoided a declaration of bankruptcy, and the
constantly improved and upgraded its informa- firm shuttered hundreds of unprofitable or mar-
tion and distribution systems in order to sell ginally profitable discount stores.
ever-increasing volumes of merchandise at low In 2001, Kmart proclaimed a new retailing
prices. Wal-Mart aggressively negotiates with strategy that included less advertising, fewer
suppliers to obtain the lowest possible prices on advertised specials, and lower daily prices on
the best possible terms. Consequently, vendors many items. In short, Kmart tried to challenge
are forced to offer their best prices and terms to Wal-Mart as the everyday low-price leader.
Wal-Mart or to forgo sales to the world’s largest Wal-Mart responded to the Kmart challenge
retailer. with still lower prices. These new initiatives
Throughout its existence, Wal-Mart has pur- further weakened the financial position of
sued an extremely aggressive expansion pro- Kmart Corporation. The Kmart assault on the
gram. Now it is not only the world’s largest Wal-Mart image as the low-price leader failed,
retailer by sales volume, but it has become the and Kmart was left with huge volumes of unsold
largest grocery retailer in the United States, merchandise (Turner 2003, 71–72). In January,
with grocery sales volume surpassing Kroger. In 2002, after disappointing fall and Christmas
2000, outlets operated by Wal-Mart Stores Inc. sales seasons, the financially strapped Kmart
sold 6.2 percent of the nonautomotive and non- Corporation declared bankruptcy. Following
boating retail merchandise purchased in the the declaration of bankruptcy, about 600
United States (Kaufman 2000, 1). By 2004, this Kmarts (almost 30 percent of its store base)
percentage had increased to 8 percent (Scardino and about half of the Super Kmarts were closed.
2004, 74). Wal-Mart has become a dominant
American retailer and the firm continues to im-
plement very aggressive expansion plans. In Target
spite of its tremendous size and growth, Wal- Target has expanded its number of stores more
Mart Stores Inc. has never altered its corporate slowly than the other two national discount
focus from that of a discount retailer. chains. Target started in the suburbs of Min-
neapolis as the discount format of Dayton’s, an
Kmart upscale Minneapolis department store. Addi-
Kmart started as the discount format of S. S. tional Targets were opened in Denver, St. Louis,
Kresge and it quickly became the pre-eminent and other cities. Despite recently severing its
discount merchandiser in the nation. Kmart ex- last ties with department stores, Target contin-
panded from the Detroit suburbs and opened ues to focus on more expensive, more stylish,
stores throughout the nation, primarily in sub- and higher quality merchandise than other dis-
urban locations within metropolitan markets. In count chains. From its origin as an offshoot of
1977, the Kmart sales volume was about twenty an upscale department store, Target has always
times the Wal-Mart volume. However, the rap- focused on the market niche as the upscale dis-
idly expanding number of Kmarts did not in- counter (Rowley 2003, 122). At present, though
crease the profitability of the firm (Turner 2003, it operates stores in all regions of the country,
81). To increase its profitability, Kmart Corpo- the Target discount chain has yet to enter all of
ration tried to broaden its retailing focus be- the states.58 Volume 58, Number 1, February 2006
Supercenters Table 2 Comparison of Wal-Mart discount stores
and Wal-Mart Supercenters
The large American discount chains did not in-
Discount store Supercenter
vent the supercenter format. In Europe, the
hypermart format has long been utilized. For Average size (sq. ft.) 94,947 181,692
decades, regional American retailing chains Average sales $34,100,000 $72,500,000
Operating income $2,700,000 $5,400,000
such as Meijer of Michigan and Fred Meyer of Capital Invested $10,100,000 $19,700,000
the Pacific Northwest have employed the su- Return on investment 26.4% 27.6%
percenter format. In the 1980s, both Wal-Mart Source: Nowhere to Hide (2001).
and Kmart experimented with large retail out-
lets that combined a full-service grocery store
with a discount department store. Both firms enters are expansions or relocations of existing
found these early prototypes too large (typically discount stores.
about 250,000 sq. ft. of space) and eventually Wal-Mart’s focus on expansion of its number
settled on a slightly smaller supercenter format of Supercenters is a result of the profitability of
(typically about 180,000 sq. ft., in size, though the format. The Supercenters provide greater
each firm employs several different sizes). Wal- returns on capital investment than do Wal-
Mart opened its first Supercenter in Washing- Mart’s discount stores (Table 2). Though gen-
ton, Missouri, in 1988; Kmart opened its first eral merchandise usually provides retailers
Super Kmart in Medina, Ohio, in 1991; and greater profitability than groceries, the higher
Target opened its first SuperTarget in Omaha, customer visitation rates for grocery merchan-
Nebraska, in 1994. dise offset the low profit margins of groceries.
Despite some differences, the supercenters of By employing the supercenter format, Wal-
the three national discount chains are quite Mart can use groceries to attract higher rates of
similar. True to its nonmetropolitan origins, customer visitation for its general merchandise
most Wal-Mart Supercenters have extensive offerings (Burt and Sparks 2001, 1472). Wal-
sporting goods and automotive departments. Mart also clusters its Supercenters around its
Wal-Mart strives to maintain its position as the grocery distribution centers. It plans to have
low-price leader and a recent price survey sup- about ninety Supercenters located within 300
ports this perception (Heller 2001). Kmart has miles of each grocery distribution center.
announced that it is focusing on becoming the As Wal-Mart has rapidly expanded its num-
urban, ethnic merchandiser of choice. Super ber of Supercenters, the firm has spread that
Kmarts tend to be a bit smaller than Wal-Mart format nationwide (Figures 1–3). In 1995, 45
Supercenters. SuperTargets have a more up- percent of the Wal-Mart Supercenters were lo-
scale ambience than the stores of either of its cated in metropolitan statistical areas (MSAs)
discount store competitors. Most SuperTargets counties. Although the firm retains its small-
include a Starbucks coffee bar, in contrast to the town bias, its Supercenters are in cities of many
McDonald’s included at many Wal-Mart Su- sizes and the company now tends to locate more
percenters or the Little Caesar’s Pizza at some of its Supercenters in larger communities—
Super Kmarts. Another distinction between more than half are in MSA counties.
Target and its competitors is that the Super- Wal-Mart is now entering some major met-
Target private label grocery brand, Archer ropolitan markets, and concentrations of its Su-
Farms, is advertised as a gourmet rather than a percenters can be found in the Dallas-Ft.
low-priced alternative. Worth, Atlanta, and Houston markets. Though
it has scarcely entered the New York City,
Wal-Mart Supercenters Detroit, Chicago, Boston, Washington, DC,
Wal-Mart has been extremely aggressive in em- Philadelphia, or California markets with Su-
ploying the Supercenter format and has identi- percenters,Wal-Mart has already become the
fied the Supercenter as its prime format for largest grocery retailer in the nation.
growth in the United States. At present, Wal-
Mart has more than 1,400 Supercenters in op- Super Kmart Centers
eration and is increasing the number by more Kmart began establishing its network of Super
than 15 percent annually. Most of these Superc- Kmarts in 1991. Though the Super KmartUnequal Competition Among Chains of Supercenters 59
Figure 1 Wal-Mart Supercenters:
1995.
initiative was a major focus of the firm, Kmart that date. Since 1996, Kmart has made multiple
Corporation had additional foci competing for announcements about plans to expand the Su-
corporate resources and attention. Kmart con- per Kmart format, but the corporation has been
tracted with established grocery wholesalers to financially unable to open significant numbers
supply groceries to its new Super Kmarts. Be- of new Super Kmarts (Super Kmart 2001). Cor-
cause these established wholesalers had consid- porate pronouncements since 2000 about the
erable experience with grocery retailing, the future of the Super Kmart format have been
grocery merchandising at Super Kmarts was of mixed. After a new Chief Executive Officer
high quality from the beginning. In the early (CEO) assumed leadership of the firm that year,
1990s, as a result of the superior grocery distri- Kmart announced plans to open 200 Super
bution infrastructure and merchandising exper- Kmarts within five years. The firm also an-
tise, Kmart could have successfully competed nounced the closing of seventy-two Kmarts, in-
with Wal-Mart in most grocery markets (Turn- cluding six Super Kmarts. Quickly, two of the
er 2003, 115–16). But as Wal-Mart gained ex- closed Super Kmarts ( Jackson, Mississippi, and
perience with groceries and developed its own Valdosta, Georgia) were reopened, only to be
grocery distribution system, it became a more closed again in later rounds of closures.
potent grocery competitor and the early Super In summer 2001, the Kmart CEO stated that
Kmart advantages disappeared. eventually more than 900 existing Kmarts could
By 1996, Kmart had opened ninety-six Super be converted into Super Kmarts (Howell 2001a,
Kmarts (about one-third the number of Su- 106). In the fall of 2001, Kmart opened fifteen
percenters that Wal-Mart had in operation at additional Super Kmarts, and at the time these
the time), but the number has stagnated since openings were thought to reflect a renewed
Figure 2 Wal-Mart Supercenters:
2001.
one supercenter
one distribution center60 Volume 58, Number 1, February 2006
Figure 3 Wal-Mart Supercenters:
2004.
one supercenter
one distribution center
emphasis by Kmart on expansion of the super- Between 2000 and 2003, more than seventy
center format (Howell 2001c). Since its bank- unprofitable or marginally profitable Super
ruptcy declaration in 2002, Kmart has reduced Kmarts were closed. The majority of the clo-
its number of Super Kmarts to less than half of sures were in the southern and southwestern
its maximum number. portions of the nation, though no region was
Kmart has tended to locate its Super Kmarts spared the Super Kmart downsizing. With the
in metropolitan locations scattered around the exception of a few Super Kmarts in Colorado,
nation (Figure 4). In 2001 approximately 78 Kmart retained few Super Kmarts in the West.
percent of the Super Kmarts were located in Similarly, the concentrations in Detroit, Cleve-
MSA counties. Because Kmart opened a rela- land, and Chicago markets have been greatly
tively small number of Super Kmarts, the firm reduced. Now, Kmart is less able to dominate
never attained a concentration sufficient to the grocery business in any major market.
dominate the grocery business in any major
metropolitan market or to support a private SuperTargets
grocery distribution system. Through an exclu- In 1994, when Target opened its first Super-
sive alliance with Fleming Foods, a grocery Target in Omaha, Nebraska, the firm stated
wholesaler, Kmart sought to compete with Wal- that the format was an experiment and that it
Mart on price and quality of private-label gro- planned to open about twenty SuperTargets be-
cery items. But as a result of the Kmart bank- fore it determined the future of the format. The
ruptcy, Fleming lost its largest customer and firm stayed with this plan and in 2000 its original
also declared bankruptcy. goal was reached. After this period of experi-
Figure 4 Super Kmarts.Unequal Competition Among Chains of Supercenters 61
Figure 5 SuperTargets: 2004.
mentation, the firm announced plans to open the continuation of an aggressive expansion
200 SuperTargets in the next decade (Super- program will produce an even greater disparity
Target 2001). Based on the number of openings in numbers. On one level, the announced plans
in 2001–2003, Target will greatly surpass its of both Target and Kmart appear aggressive, but
goal of 200 SuperTargets within this decade. these plans pale when compared to the Wal-
One expert suggests that Target will greatly in- Mart expansion program. Because of its massive
crease its speed in opening new SuperTargets size and growth, Wal-Mart has reduced all of its
and that Target will be one of the top ten Amer- national supercenter competitors to niche mar-
ican grocers by 2007 (Summerour 2002). keters.
The Target Corporation has accelerated the The corporate bankruptcy ends Kmart’s pre-
opening of SuperTargets so that Target now has tense as a national supercenter competitor.
more than 100 SuperTargets operating (Figure Kmart’s difficulties with its Super Kmart Cen-
5). Though the SuperTarget expansion appears ter format appear to stem from the overall fi-
modest compared to Wal-Mart, the growth in nancial problems of the corporation rather than
the number of SuperTargets is a major focus for inherent deficiencies in the Super Kmart Center
Target Corporation. In 2002 and 2003, more format. By scattering Super Kmarts in metro-
than 40 percent of the corporation’s expansion politan locations throughout the nation, Kmart
square footage was devoted to the SuperTarget never achieved the concentration of Super
format. Target has concentrated its SuperTar- Kmarts necessary to minimize costs for adver-
gets in metropolitan locations. With the excep- tising and distribution of groceries.
tion of the store in Mason City, Iowa, all The recently announced plans to merge Sears
SuperTargets are located in MSA counties. Roebuck and Company and Kmart into a single
The present number and concentration of Su- firm illustrate the magnitude of the changes oc-
perTargets are insufficient to permit Target to curring in American retailing. In 1991, Wal-
develop a private grocery distribution system. Mart surpassed both Sears and Kmart in sales
Previously, the prime SuperTarget grocery sup- volume to become the largest American retailer.
plier was Fleming. If Target is to become a ma- The merger of Sears and Kmart will produce the
jor American grocery chain, the firm will need third largest retailer in the nation but its com-
to develop a private grocery distribution system bined sales volume will be only 30 percent of the
(Summerour 2002). Wal-Mart sales volume. As Sears and Kmart at-
tempt to merge two distinct companies and cul-
Discussion tures into a viable firm, better established and
financed competitors continue to try to expand
Obviously, Wal-Mart has dominated the com- their customer base at the expense of the newly
petition among the national chains of superc- merged firm.
enters. The present number of Wal-Mart Superficially, Target seems to be repeating
Supercenters dwarfs all of its competitors, and the ill-fated Kmart strategy of locating a small62 Volume 58, Number 1, February 2006 number of supercenters in metropolitan mar- Grocery sales data from the Dallas-Fort kets scattered throughout the nation. But in fact Worth Metroplex reveal the magnitude of the Target has identified a market niche, a more difficulties competitors face in competing with upscale clientele, than either Wal-Mart or Wal-Mart. Wal-Mart’s image as the low-price Kmart. Target’s comparatively slow expansion leader provides the firm with a major attraction of the SuperTarget format is consistent with the over its competitors. With sixteen SuperTar- methodical expansion tradition of the corpora- gets, the Metroplex has the greatest concentra- tion. After identifying a satisfactory model, the tion of SuperTargets in the nation. Wal-Mart firm has increased the number of SuperTargets. has fifty-five Supercenters serving this same A slow rate of expansion combined with a wide market. Wal-Mart is the top grocery retailer in geographic dispersion of stores implies that the Metroplex with more than 23 percent of the Target will be forced to employ grocery whole- grocery market. In grocery sales per supercen- salers rather than developing a private grocery ter, Wal-Mart Supercenter sales are almost distribution system. In order to become a major twice the sales volume of SuperTargets force in the grocery industry, a private distribu- (TDLinx 2004). tion system is probably a necessity, and a suffi- The locations of some Super Kmarts are par- cient concentration of SuperTargets is unlikely ticularly difficult to understand. In Rogers, Ar- in the near future. kansas (location of the original Wal-Mart), Wal-Mart’s huge size and its efficient distri- directly across the street from the present loca- bution system provide the corporation with a tion of the Wal-Mart Supercenter (Wal-Mart price advantage over all competitors. Wal-Mart #1), Kmart upgraded an existing discount store purchases huge volumes of merchandise and to become its single Super Kmart located in therefore is in a position to demand the most Arkansas. This store was closed following the favorable terms from its suppliers. Its advanced bankruptcy declaration (at the same time Kmart distribution system permits the firm to move abandoned its big advertisement billboard lo- goods from the warehouse through the check- cated across the highway from Wal-Mart cor- out line more efficiently than any retailer in the porate headquarters). Similarly, the location of world. Wal-Mart strives to be the price leader in the single surviving California Super Kmart in all markets and its combination of huge sales the massive Los Angeles market is difficult to volumes, a superior distribution system, and the understand. In Texas, the sole surviving Super best terms from suppliers means that Wal-Mart Kmart is located in Lubbock, hundreds of miles usually to meets that goal. Wal-Mart Super- from any other Super Kmart. With only a few center sales per square foot average more than scattered Super Kmarts, Kmart cannot hope to 30 percent higher than either Kmart or Target be a dominant grocery retailer in any major superstores. western market in the near future. Wal-Mart’s rapid expansion of its Supercen- The Wal-Mart expansion into grocery retail- ter format is producing direct competition with ing is having a dramatic destabilizing impact on all major supercenter operators. Major compe- the American retail grocery industry. In its fif- tition among the supercenter chains now is oc- teen years of employing the Supercenter format, curring in Dallas-Fort Worth, Memphis, Wal-Mart has become the largest grocery re- Indianapolis (where Meijer has multiple out- tailer in the nation and has forced significant lets), Atlanta, Denver, Houston, and San adjustments in the market shares of the major Antonio. Wal-Mart has opened a grocery dis- grocery chains. The chains are being forced to tribution center in Northeastern Indiana and restructure to accommodate the growing Wal- has opened Supercenters in Michigan, the cor- Mart market presence. Wal-Mart started its Su- porate headquarters of both Kmart and Meijer. percenter expansion in the southeastern states. In the Pacific Northwest base of Fred Meyer, Competition with Supercenters was the major Wal-Mart has opened several Supercenters and factor in the downsizing of the Winn Dixie a grocery distribution center. As Wal-Mart con- grocery chain (Wal-Mart’s expansion 2000). tinues a nationwide expansion of its Supercenter Similarly, competition with Wal-Mart expan- format, greater competition will develop be- sion Supercenters has forced national grocery tween Wal-Mart and all of its supercenter com- chains such as Albertson’s, Kroger, and Safeway petitors. to restructure by adopting lower pricing strat-
Unequal Competition Among Chains of Supercenters 63
egies and abandoning some markets (Duff While Wal-Mart tries to expand its market seg-
2001; Scheraga 2002). No longer do metropol- ment to include a more upscale clientele, Target
itan markets provide a safe refuge for grocery continues to focus its efforts upon this same
chains from Supercenter competition. Oklaho- market segment.
ma City provides an example of the Wal-Mart Wal-Mart’s adoption of the Supercenter for-
invasion of metropolitan markets. From 1998 to mat shows the flexibility of this huge retailer. In
2002 Wal-Mart opened nine Supercenters and 1988, when Wal-Mart first opened a Supercen-
additional formats selling groceries in the Okla- ter, the firm sold relatively limited quantities of
homa City market. At least twenty-eight large grocery merchandise. Now Wal-Mart is the
Oklahoma City grocery stores were closed in largest grocery retailer in the nation, and half of
the wake of the Wal-Mart expansion. Now Wal- the firm’s discount stores are Supercenters. Be-
Mart has captured 35 percent of the Oklahoma fore the end of this decade all Wal-Mart outlets
City grocery market (Rogers 2003). in the United States will derive a major portion
Wal-Mart is experimenting with new formats of sales from groceries. And Wal-Mart will con-
that may be better adapted to metropolitan tinue to seek new forms of retailing to dominate
markets. It has introduced the Neighborhood (gasoline–convenience stores are already facing
Market (typically about 40,000 sq. ft.), which tremendous price competition from gasoline
combines a grocery store and a full service pumps located in more than 1, 200 Wal-Mart
pharmacy but carries only a limited selection of parking lots). Despite its present massive size,
general merchandise. Wal-Mart has also Wal-Mart still views itself as a growth company.
opened its first 99,000 sq. ft. Supercenter. This At present, Wal-Mart sells 8 percent of U.S.
smaller size meets the size limitations discussed retail merchandise, but the remaining 92 per-
in many California jurisdictions. These smaller cent offers tremendous opportunities for future
formats may permit Wal-Mart to better enter growth.
metropolitan markets where vacant real estate is A new array of nonretailing challenges has
scarce and regulations can be more restrictive. emerged to confront Wal-Mart. As the largest
A meeting of the National Grocer’s Associ- retailer in the world, Wal-Mart is the subject of
ation focused on survival strategies for inde- much public interest and scrutiny. Its pricing
pendent grocery stores in the wake of the policies, personnel practices, employee com-
massive Wal-Mart expansion into grocery re- pensation, antiunion activities, supplier rela-
tailing (Howell 2001b). The association advised tions, impacts upon communities, etc., have
its members against trying to compete with become the subject of much critical public in-
Wal-Mart on price, but to try to prosper by of- quiry. In addition to unwelcome publicity, Wal-
fering superior service and focusing on a par- Mart is fighting numerous legal challenges in
ticular market segment. This is the Target court. The traditional Wal-Mart practice has
strategy; serving a more upscale clientele with been to sell ever-increasing volumes of mer-
more upscale merchandise. The Kmart alliance chandise at low prices, try to avoid negative
with Fleming was designed to permit Kmart to publicity, and fight legal challenges strenuously
compete better with Wal-Mart on the basis of in court. The future success of these traditional
price. The Kmart bankruptcy suggests that strategies is far from certain, and whether Wal-
Kmart was unable to compete successfully on Mart can adapt successfully in the new ques-
that basis. tioning environment is uncertain. The Wal-
Mart corporate executives who have succeeded
Conclusions Sam Walton have lacked the public relations
acumen and the folksy charisma of the firm’s
The competition to dominate the national mar- founder. In short, the public has begun to eval-
ket for supercenters is over and Wal-Mart has uate Wal-Mart Stores Inc. on far more than low
defeated its supercenter competitors. The even- prices and huge sales volumes.’
tual survival of Kmart is uncertain, and the firm
is not in a position to become a major compet-
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