Category Killer

A category killer is a large retail chain superstore that is so competitive that it dominates its product category and puts less productive and highly specialized merchants out of business.

Category killers attained their massive competitive advantage, by having a bigger and deeper selection of merchandise in their category, at prices so low that smaller independent stores could not compete. Home Depot, with almost seven times the square footage and inventory of a local hardware store, can offer much more choice.

This distribution channel was invented by Charlie Lazarus, the founder of Toys R Us, which led the way for Barnes & Noble, Home Depot, Best Buy and Bed Bath & Beyond. But as the demise of Toys R Us teaches us, even category killers are mortal if they are mismanaged and fail to evolve with the times.

First, there was Wal Mart. Its expansion as a vast national discount retailer and move into superstores, did not just put smaller independent mom and pop stores out of business, but ate into the market share of retailers like Toys R Us.

Today, category killers are facing down the threat from Amazon and online retailing in general. Thanks to low prices, one-stop shopping and convenience, e-commerce is destroying the economics of the big box retailers, much of whose floor space has fallen below critical levels of retail productivity. Best Buy, despite having no brick and mortar competitor, has struggled to reinvent itself. And, even Walmart is finding that a large portion of its superstores are becoming unprofitable.

However, some big box category killers may yet be able to defend their category economics if they can create a compelling shopping experience. To do that, they will need to combine instant gratification, personalized selling, unique assortments and a sensory showroom experience that borders on entertainment. They may also need to downsize their stores to maintain maximum flexibility, as well as combining clicks with their bricks, as Walmart is now doing.