Big Box Stores Vs Mom and Pop Stores - Case Study Example

Running Head: BIG BOX STORES VS. MOM AND POP STORES Big Box Stores Vs. Mom and Pop Stores [The of the will appear here] [The of the writer id will appear here] [The name of the course will appear here] [The name of the course number will appear here] Introduction Big Retails Stores also known as Big Box Stores gained prominence in the last decade. At one side, they gained the favor of local customers for offering products at relatively cheap prices but on the other hand, they stood in direct contrast to small stores operating within the area, these being later called mom and pop stores. Big Box Stores such as Wal-Mart, Sears and K-Mart became the enemy of traditional mom and pop stores and such small stores vehemently objected to the development of Big Box Stores in the area. Managers and owners of small stores argued that national retailers were able to offer cheaper prices since they bought items in bulk amount and also that the reach of these national retails allowed them to offer a wider range of products. It was also observed that when big box stores opened up their stores in a new locality, several small stores were forced out of business. In this paper, an attempt has been made to understand the impact of big box stores on mom-and-pop shops and whether the criticism against big box stores is valid. Big Box Stores and Their Mode of Operation Big box stores as defined by Barry, Evans and Mathur, 2011 are discounters with stores between 50,000 and 200,000 square feet, single-story buildings, and strategies based on high volume via low markups’ (Barry, Evans and Mathur, 2011). The term big box store is generally meant for stores that are operating as part of a retail chain and have numerous products to offer. Big Box stores can generally be divided into two categories: specialty stores and general merchandise. Retail stores such as Wal-Mart, K-Mart and Target fall in the category of general merchandise while JC Penny and Best Buy are categorized under specialty stores. Big box stores are always big; this means that with large operating units these stores have a bigger shelf display. These retail stores occupy a huge space in terms of land which allows them to stock greater merchandise. This means two advantages for big box stores; firstly, when big box stores buy products to sell further, they usually go directly to the manufacturer. This implies that they go away with intermediaries and are thus wholesalers in the true sense. Being wholesalers, they have the advantage of selling their wares at a cheaper price as compared to ordinary stores including the traditional mom-and-pop stores. And with the recent recession this means more customers for the stores. Also big box stores, and popularly Wal-Mart, derive profit by selling products at highly competitive prices and using a higher volume of sales to make profit. Thus by reducing the profit margin, these stores offer tempting prices to the customers and most customers are willing to buy products even when they do not necessarily need it. The second advantage that big box stores enjoy due to large space is that they are able to display a bigger variety of goods. This means that when customers shop from these stores, they are presented with more variety to choose from. Thus customers usually gravitate towards stores that offer them greater variety and that too at intensely competitive prices. Big box stores are mostly a one stop solution for customers. This means that when they want to buy monthly groceries, they only have to visit the nearest big box store. Another advantage that big box stores offer to its customers is friendly and attentive customer service. These stores hire labors at minimum wages and mostly this labor is college dropout who wants to earn easy income. The customer representatives at such stores are trained to be courteous to the customers and give them all the support required. Since small stores cannot provide customers service of the same kind, big box stores gain further advantage. Recently, Big Box Stores have come under a great amount of criticism and citizens are vehemently opposing the concept of such stores. The argue that, ‘big-box stores impose hidden costs that don’t appear on the price tags of the products they sell: traffic congestion; loss of trees, open space and farmland; displaced small businesses; substitution of jobs that support families with low-paying jobs that don’t; air and water pollution; dying downtowns with vacant buildings; abandoned shopping centers; a degraded sense of community; and sprawl’ (Beaumont and Tucker, 2002). This paper is only going to discuss one aspect of big box stores, namely the displaced small businesses. Local Competition and Big Box Stores In most instances, big box stores are widely criticized for developing a near monopoly over the market. When such stores open up in new vicinity, it raises red flags for the local competition. Big box stores such as Wal-Mart have a ruthless attitude towards competitors; they do not want them there. Thus, it is not surprising that the average Wal-Mart stores do not gain instant favor by small stores owners. The Case in the Favor of Mom-and-Pop Stores It has been a widely observed phenomenon that stores such as Wal-Mart and K-Mart negatively impacted small stores in the vicinity to such an extent that these small stores were forced to shut down their business. Big stores, such as Wal-Mart, entered the local market with the objective of killing local competition. They do this by offering products at highly competitive prices; prices that small stores cannot hope to match. It has also been observed that retail giants such as Wal-Mart reduce prices even below the cost price in order to drive local competition out. They can do so because they have a good amount of capital at hand and their stores in other areas may be generating enough profit to see through the loss of one new store that would potentially bring in good profits in the near future if local competition is killed. Thus, when a big box stores open up in a new locations, customers are attracted to these stores because of new prices. Also these stores have good amount of capital and are well funded. This gives the benefit of advertising to these stores that mom-and-pop stores do not have. Big Stores advertise when they offer discounts or when a new product range is introduced. This brings in customers to their doorstep and while the customers came for one product, they end up doing their monthly buying at the retail store. Also since these stores are part of big chains, it helps reduce costs in some significant areas. For example, such chains may have one headquarter for several stores and within these headquarters they may be hiring one accountant or graphic designer. This significantly reduces costs since two or more stores are sharing the costs of such people. On the other hand, the small store retailer does not have this advantage. If he needs a graphic designer or an accountant, he has to pay his full salary himself (Leonard and Conrad, 2010). The Case in the Favor of Big Box Stores However, some also argue that big box stores are severely criticized and they do not have a disastrous impact of the local stores. They put forward the claim that with every new entrant in the market, the competition increases to a great extent. It would be unreasonable to expect that mom-and-pop stores continue to enjoy the same position year in and year out. With the competition increasing in almost all industries and the market being saturated with products, it is inevitable that all kinds of stores will have to fight for their survival and mom-and-pop stores are no exception. Some also argue that comparing the two stores is just like comparing apples to oranges (Bickle, 2012). Though, these two stores offer essentially the same products but their mode of operation is different. Both have their advantages and disadvantages and thus it would be wrong to assume that big box stores enjoy all the advantages. Those claiming to favor big box stores believe that such stores add the needed competition for mom-and-pop stores. They ensure that small stores do not take their customers for granted and would rather fight for maintaining such customers. It is true that change is constant. Small stores could not have hoped that they could always remain in favor in the same way that big box stores can hope to continue blooming. Consider the example of music recording. CDs took the place of cassette records; and now the time has come when CDs are being replaced by online music downloads. Thus, a company or store for that matter cannot hope to remain in favor forever. The idea is to innovate with the changing needs of the customers. It is true to a certain extent that mom-and-pop stores do have certain advantages over big box stores. One of them is personal touch. Big stores cannot hope to personally know their customers since customer service representatives usually have a higher turnover rate and thus customers do not see familiar faces when they visit such stores. However, in the case of small stores, owners and managers can develop a rapport with their customers and attract customers just through their familiar touch (Stanely, 2012). Discussion One can continue argue in the favor or against the concept of big box stores. Such stores have had both their pros and cons. While they were offering good prices to the average customer, they were doing so at the expense of the small stores. These small stores were not willing to innovate their strategies given the increase in competition and this partly led to their downfall; thus to a great extent mom-and-pop stores were responsible for their closing up. The recent recession also had its role in impacting the business for both big and small stores. With customer buying power being reduced to a great extent, customers had to cut back on their expenses. Since most small stores do not have enough capital to see them through the bad times, they had no option but to close down business. In such cases, big stores flourished since they attracted customers through discounted prices and thus in a manner forced small stores out of business. The Role of the American Public The American Public plays an important role in both fighting and supporting big box stores. Since big box stores offer a good price advantage to these customers, certain customers prefer to shop at these stores. It is because of such customers that big box stores continue to earn profits year in and year out, even when the recession was in full swing. However, as awareness regarding the impact of big box stores is increasing, the public is vehemently fighting the concept of such stores. In the beginning when big box stores opened up in a new locality, the public welcomed them with open arms. They went for the opening day and brought in products that they did not need but only brought because the price was low. They saw big box stores as offering not only good prices but also good employment opportunities. But with time, customers realized the dangers of such stores. The public soon realized that big stores were bent against driving local competition out which meant that the local economy was severely impacted. These stores, though providing employment opportunities, did so at the expense of good employment rates. Also noise pollution increased, crimes rates increased and traffic congestion increased. This subsequently led to the public protesting against the development of such stores. They did not buy from these stores just out of principle and chose small retailers. Some argue that this phenomenon took too long and small retailers had suffered greatly and were forced out of business long ago. Conclusion If one is to look at the above argument, it can be concluded that big box stores do indeed increase the competition for small stores and that too at a great extent. However, this does not mean the end of small stores in places where big stores are thriving. Competition is increasing in every industry and retail stores are no exception. Small businesses such as mom-and-pop stores need to improve on their overall package in order to attract or even retain customers. It is also true that big box retailers were the need of that time. If big box retailers were not needed or were too evil to be allowed within a community, they would not have thrived to such an extent. The success of such stores is proof that big box retailers were needed by the average public so that they could buy what they needed or even wanted without worrying about their limited pockets. References Barry, B., Evans, J. and Mathur, M. (2011) Retail Management: A Strategic Approach, New Delhi: Pearson Education India Beaumont, C. and Tucker, L. (2002) Big-Box Sprawl (And How to Control It), Municipal Lawyer, Vol. 43, No. 2, pp.7- 31 Bickle, M (2012) Big Box Retailers Vs. Local Retailers: Survival Of The Most Creative, Forbes, Available at http://www.forbes.com/sites/prospernow/2012/12/04/big-box-retailers-vs-local-retailers-survival-of-the-most-creative/ [Accessed 7 January, 2012] Leonard, A. and Conrad, A. (2010)The Story of Stuff, New York: Simon and Schuster Stanely, J. (2012) Setting Up Shop: The Complete Step by Step Guide to Starting and Running a Successful Retail Business in Australia, USA: John Wiley & Sons Read More