Variety Stores Industry Analysis: Products In Variety Stores (Essay Sample)

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Variety Stores Industry Analysis
Basic Information
A variety store is a store that mostly deals with goods that are inexpensive and, in most cases,, all the products in the retail store have the same price. Products that are commonly found in variety stores include supplies for cleaning, toys, household goods, and gardening equipment. It is widely perceived that variety stores are associated with low income areas which are not the case most of the time as there are variety stores in a lot of places that have high end individuals. Some variety stores may have a food section depending on the size and ability of the owner. Variety stores are also called price point stores. Sales in these stores are mostly on a cash and carry basis; this is a policy whereby there is a cash payment without the merchandise being delivered by the wholesaler. The method of display is often used with open selling method in this industry and a customer selection of merchandise. The variety stores do not generally have a complete line of products, and they do not deliver them as well.
Products in variety stores
Products that are available at variety stores include cooking supplies, personal hygiene supplies, small office supplies, electronics, gardening equipments, supplies for interior décor, toys, novelties, out of print books, DVDs and VHS tapes, food supplies, and automotive products. Some products in these variety stores may cost just as much as in other stores, others may cost lower than in other stores while some are more expensive. It is possible for them to sell their products at a low cost because most of them are specifically meant for that type of variety stores, and the product is most of the time manufactured at very cheap rates or discounted at other variety stores. This makes it easier for them to sell their products at the same price.
Historical Background
The variety stores industry is widely dominated by Target, Wal-Mart, Kmart, and Sears. These three leading variety stores had began as individual variety stores with Kmart and Sears merging in 2005 and, in the 2000s, they have evolved to having chain outlets with 80000 square feet of selling space per store. There products range from clothing, hardware, house supplies, cleaning materials, stationeries, candy, shoes, jewellery and others to selling pharmaceuticals. Wal-Mart expanded its businesses during the 2000s as it entered the grocery business selling, all groceries, meat and other dairy products. In addition, the variety store went ahead to adding to its list pharmaceuticals. By 2009, Wal-Mart had outdone all its competitors and became a $408 billion variety store. Wal-Mart closely followed its target in endeavors to supersize itself and became a $ 65 billion variety store. Kmart took the third place in 2009 by becoming a $16 billion variety store in revenues. Apart from these big three variety stores, there are other regional variety stores that have managed to make their marks in the US economy. They include Family Dollar stores which managed to clinch $7.9 billion in revenues, Dollar General with $11.8 billion in revenue, and Dollar Tree stores with $5.2 billion in revenue.
The variety store also has another category of membership based on warehouses. These stores enable their customers to buy their products in bulk and at a discount price (James 20). Costco club is the largest membership club with revenue of $ 77.9 billion which operates almost 560 locations. Sam’s club which is owned by Wal-Mart is the second club operating on 600 locations with revenue of about $ 46.7 billion.
Factors influencing demand in variety stores
Tough competition by other retailers
Variety stores handle a great range of products and hence face stringent competition from other retailers. Most of the competitors have expanded the offerings of their products limiting the available market and reducing the scales of economies for the variety store industry. Drug stores pose a great danger to variety stores that sell toiletries and non-prescription drugs. Supermarkets continue to expand their outlets daily, and other discount stores also continue to lower prices for their products (Adam, 30). These low prices offered by competitors have further reduced the variety stores industry’s revenues and their investments which they could have used to invest in computer technology.
Difficulty in accessing high sales volume areas
Variety stores cannot afford the rents associated with the major shopping mall locations. Consequently, they have been unsuccessful in hijacking many individuals who go to shop in the malls and other shopping centers. These have led to lower product turnover which has reduced the ability to use their benefits of economies of scale.
Inability to install computer technology
Apart from the major players in the variety stores industry, the small stores are unable to install computer technology. Without computer technology, the stores have difficulty in updating their information thus becoming slow and having a lot of work to be done. Without computer technology, most of the stores lag behind, and their competitors take over which leads to low revenues.
Factors that influence cost structures and profitability
Stage of the product lifecycle
Most of the products in this industry are at their maturity stage where there are low returns, and others are almost going into their decline stage. Products in their maturity stage do not allow for great investments and do not bring in viable cash flows. This in the long run affects the profitability of the industry as it is not profitable as such.
Competitive environment
Threats of new entrants
The variety industry has faced a major threat as many stores are rising up each day and coming into the industry. This decreases the profitability of other stores that had already established themselves.
Threat of substitutes
Substitute products by other competitive industries lower the attractiveness of the variety industry and their profitability as well. They do so by introducing either cheap goods or invading the market of the products being sold by the variety stores. They also limit their price levels.
Bargaining power of suppliers
This is a major problem for the variety store industry as some of the manufacturers threaten to start their own retail outlets. The variety store industry is also not the major customer of the suppliers, and this makes the suppliers have a greater bargaining power which often leads to the variety industry losing some of its powers to negotiate (Stutz and Barney 98).
Bargaining power of buyers
The variety store industry is also faced with a great bargaining power of the buyers since they have a lot of options of buying the merchandise that is being offered by the stores through other stores such as supermarkets and malls.
Intensity of rivalry
The industry has major players hence inter industry competition is very low as the top players have already identified their customer base. A high competitive environment affects the costs of the products as well as the profitability of the stores. They have to lower their prices to attract more customers, and this does not reflect well in their profitability as revenues will decrease immensely.
Cost drivers
The major cost drivers of variety stores include:
Manufacturing costs
Most of the products are specifically manufactured for the variety stores using cheap material hence they can charge their products at lower prices.
Competitor’s price
Some of the variety stores set prices based on the prices of competitors of other industries. This way, they can still maintain their customers and even attract new ones.
Opportunities in the variety store industry
Partnering and brand names
The variety stores could embark on having brand names and other proprietary brands as this will significantly increase their customer base hence leading to good returns. They could also partner with various people such as those who have home products and other individual products (Lynch, 45).
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