March 25, 2008
Shopko Seeks Differentiated and Defensible Position
After years in pullback mode, the Shopko discount chain is once again opening new stores and seeking to stake out a position that will set it apart from a wide and diverse group of competitors.
“At the end of the day, the idea is: How do we differentiate ourselves from Wal-Mart and Target?,” Douglas McHose, senior vice president, store operations, told the Milwaukee Journal Sentinel. “There’s a niche in the middle, between those low-price operators and J.C. Penney and Kohl’s.”
While Shoko has identified what it sees as its position in the market, it remains to be seen if its offerings address needs that consumers see as important at the current time.
Shopko is in the process of opening three new format stores, one in its Brown Country, Wisc. backyard and two others in Minnesota.
The newest stores, according to the Journal Sentinel, have “more upscale display walls and fixtures that give the discounter more of a department-store feel.”
Where others such as Target have expanded grocery, Shopko has gone in the opposite direction to offering basically soda and snacks.
Shopko’s current CEO, Michael MacDonald, who came to the company from Sak’s former Northern Department Store Group, is focusing his differentiation efforts by playing up national brands and a higher quality private label selection in apparel, shoes, accessories and housewares.
Under Mr. MacDonald, Shopko has added brands including Asics, Bongo, Gateway, Kenneth Cole, LEI, Rachel Ray and Unlisted. The company has also opened a gift registry, with networked kiosks being added to all its stores by May.
Mr. McHose sees moves made by rivals such as J.C. Penney and Kohl’s to go more upscale, opening a window of opportunity for Shopko.
George Whalin, president and chief executive officer of Retail Management Consultants and a member of the RetailWire BrainTrust, said regional chains have a tough row to hoe.
“There’s too many retailers going after the consumer,” Mr. Whalin said.
Britt Beemer of America’s Research Group told the Journal Sentinel, “The question is: Does America need another discounter, given how strong Wal-Mart is, and Target?”
Discussion Questions: Is Shopko’s new positioning an answer to the needs of enough consumers in middle-income America? Does being a regional retailer put Shopko at an advantage or disadvantage versus national chains?
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Shopko comes out with a feel good story every couple of years. However they are no match for Wal-Mart. These feel good stories that hype the company are usually a prelude to bad news.
What Shopko does offer that you cannot get at Kohl’s or JCP are categories like ready to assemble furniture, a focused home electronics offering, a phenomenal home storage assortment, over the counter drugs/health and beauty aids/ and a pharmacy and optical department that are as strong as any in the industry. What Shopko offers that Target and Wal Mart do not are Nike, Adidas, Reebok, New Balance, and other national athletic shoe and apparel brands that are just as good as the assortments at KSS and JCP.
It looks as though they are adding other mid tier moderate brands as well throughout apparel, accessories, and home that are being deemphasized by the mid tier chain stores. The customer recognizes and values the national brands that have been distributed at the May Company, KSS, and JCP stores for years but are being eliminated in the pursuit of trading up and private brand exclusivity.
Shopko also staffs their stores with associates that are friendly, knowledgeable, and helpful, vs. associates that try to hide from customers to avoid being “troubled” in between breaks. Go to one of their stores and experience it yourself.
Shopko will not have an easy time of it, but the customer will respond to a retail model that is more responsive to what THEY want and not a business model that gives them what is good for the efficiency of the retailer.
Changing perceptions of consumers is challenging. Reinventing yourself is expensive. The road to success means hitting a point of differentiation with consumers dead-on.
If Shopko has done their homework on consumer insight and has truly identified a point of differentiation with consumers in this region and has the money to make the transformation happen and the time to let consumers change perceptions, then it could be an exciting entry. However, the point of differentiation is going to have to connect hard and strong. Then the question is how does that differentiation work when and if Shopko decides to move outside the region.
It is difficult to see what niche Shopko is really filling. When Wal-Mart was primarily a chain rooted in the South, regional retailers like Shopko and Pamida served a niche because they were willing to open stores in areas where discounters dared not tread.
Shopko staked out the northern rim of the country, and that served them well. But with Kohl’s, Wal-Mart, etc, all willing to open stores in these same areas, I’m not certain that Shopko can out-perform these retailers. And if you can’t win, or at least win in the city in which you are opening the store, why stay in the game?
Shopko is positioning itself to be purchased, because there always is another investor who thinks they can turn a slow-growth chain into a fast growing one. In this case, when the day comes that Shopko is sold, I believe the acquirer will not be overly pleased with the ultimate purchase.
This really does not look like a lot of differentiation, it only looks a lot more like Kohl’s than an old Shopko store. Looks may get customers in the door the first time but what is going to bring them back?
What will the consumer get at the new Shopko that they cannot get anywhere else?
I agree with Raymond. There’s a big difference between survival and prosperity. Being regional should (at least in theory) give you a better feel for the shopper but it clearly doesn’t begin to give you the ability to buy in enough volume to make a significant price statement.
Shopko is targeting a fairly narrow niche in terms of a middle range discounter. They do, however, have some regional strength and a shopper following. You need only look at the attempts by national chains such Macy’s and Safeway to provide a “one size fits all” solution in markets like Chicago to see that there is some opportunity for regional players.
I suspect Shopko can survive with this strategy. The bigger question is whether they can thrive with it.
At a time when consumers are gravitating towards the top and the bottom and avoiding the “middle,” parsing and defining a narrow space in a larger space that is shrinking is a loser’s game no matter how well Shopko plays it.
Shopko went private a few years ago when the stock was bought by Sun Capital Partners. Sun Capital Partners has a lot of retail experience, with investments in Mervyn’s, Marsh Supermarkets, Limited Stores, Friendly’s, and others. Shopko competes with other mass merchants like Wal-Mart, but they aren’t the same. Because Shopko is now private, their financials aren’t easy to get. But a glance at the 2003 Shopko and Pamida results shows the difference in the merchandise mix: about 25% health-related, and less than 20% apparel. Shopko was started by a pharmacist, James Ruben, in 1962. In 2003 half the locations were owned, not leased. When a retailer owns the real estate, longevity is much more likely.
The Shopko merchandise mix is more like a mass merchant anchored by a drug and vision care store, compared to Wal-Mart, which is like a mass merchant anchored by a supermarket, or Target, which is like a mass merchant anchored by apparel. All 3 sell prescription drugs, health and beauty aids, groceries, and clothing, but the mix emphasis isn’t the same. And Sun Capital Partners are very careful at capital allocation. If Shopko expands, it will be at a very cautious, prudent pace.
There is a theory going around that Wal-Mart has slowed its growth as a way to set a trap. Similar to the way an athlete will fake a limp to make the competition think he is injured.
If Wal-Mart slows it growth and pulls out of projects, this will encourage chains like Shopko to spend capital and build stores. Then when the money has been spent, Wal-Mart kicks it into high gear again with new stores creating financial chaos for companies like Shopko after they have maxed out their resources.
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Shopko comes out with a feel good story every couple of years. However they are no match for Wal-Mart. These feel good stories that hype the company are usually a prelude to bad news.
What Shopko does offer that you cannot get at Kohl’s or JCP are categories like ready to assemble furniture, a focused home electronics offering, a phenomenal home storage assortment, over the counter drugs/health and beauty aids/ and a pharmacy and optical department that are as strong as any in the industry. What Shopko offers that Target and Wal Mart do not are Nike, Adidas, Reebok, New Balance, and other national athletic shoe and apparel brands that are just as good as the assortments at KSS and JCP.
It looks as though they are adding other mid tier moderate brands as well throughout apparel, accessories, and home that are being deemphasized by the mid tier chain stores. The customer recognizes and values the national brands that have been distributed at the May Company, KSS, and JCP stores for years but are being eliminated in the pursuit of trading up and private brand exclusivity.
Shopko also staffs their stores with associates that are friendly, knowledgeable, and helpful, vs. associates that try to hide from customers to avoid being “troubled” in between breaks. Go to one of their stores and experience it yourself.
Shopko will not have an easy time of it, but the customer will respond to a retail model that is more responsive to what THEY want and not a business model that gives them what is good for the efficiency of the retailer.
Changing perceptions of consumers is challenging. Reinventing yourself is expensive. The road to success means hitting a point of differentiation with consumers dead-on.
If Shopko has done their homework on consumer insight and has truly identified a point of differentiation with consumers in this region and has the money to make the transformation happen and the time to let consumers change perceptions, then it could be an exciting entry. However, the point of differentiation is going to have to connect hard and strong. Then the question is how does that differentiation work when and if Shopko decides to move outside the region.
It is difficult to see what niche Shopko is really filling. When Wal-Mart was primarily a chain rooted in the South, regional retailers like Shopko and Pamida served a niche because they were willing to open stores in areas where discounters dared not tread.
Shopko staked out the northern rim of the country, and that served them well. But with Kohl’s, Wal-Mart, etc, all willing to open stores in these same areas, I’m not certain that Shopko can out-perform these retailers. And if you can’t win, or at least win in the city in which you are opening the store, why stay in the game?
Shopko is positioning itself to be purchased, because there always is another investor who thinks they can turn a slow-growth chain into a fast growing one. In this case, when the day comes that Shopko is sold, I believe the acquirer will not be overly pleased with the ultimate purchase.
This really does not look like a lot of differentiation, it only looks a lot more like Kohl’s than an old Shopko store. Looks may get customers in the door the first time but what is going to bring them back?
What will the consumer get at the new Shopko that they cannot get anywhere else?
I agree with Raymond. There’s a big difference between survival and prosperity. Being regional should (at least in theory) give you a better feel for the shopper but it clearly doesn’t begin to give you the ability to buy in enough volume to make a significant price statement.
Shopko is targeting a fairly narrow niche in terms of a middle range discounter. They do, however, have some regional strength and a shopper following. You need only look at the attempts by national chains such Macy’s and Safeway to provide a “one size fits all” solution in markets like Chicago to see that there is some opportunity for regional players.
I suspect Shopko can survive with this strategy. The bigger question is whether they can thrive with it.
At a time when consumers are gravitating towards the top and the bottom and avoiding the “middle,” parsing and defining a narrow space in a larger space that is shrinking is a loser’s game no matter how well Shopko plays it.
Shopko went private a few years ago when the stock was bought by Sun Capital Partners. Sun Capital Partners has a lot of retail experience, with investments in Mervyn’s, Marsh Supermarkets, Limited Stores, Friendly’s, and others. Shopko competes with other mass merchants like Wal-Mart, but they aren’t the same. Because Shopko is now private, their financials aren’t easy to get. But a glance at the 2003 Shopko and Pamida results shows the difference in the merchandise mix: about 25% health-related, and less than 20% apparel. Shopko was started by a pharmacist, James Ruben, in 1962. In 2003 half the locations were owned, not leased. When a retailer owns the real estate, longevity is much more likely.
The Shopko merchandise mix is more like a mass merchant anchored by a drug and vision care store, compared to Wal-Mart, which is like a mass merchant anchored by a supermarket, or Target, which is like a mass merchant anchored by apparel. All 3 sell prescription drugs, health and beauty aids, groceries, and clothing, but the mix emphasis isn’t the same. And Sun Capital Partners are very careful at capital allocation. If Shopko expands, it will be at a very cautious, prudent pace.
There is a theory going around that Wal-Mart has slowed its growth as a way to set a trap. Similar to the way an athlete will fake a limp to make the competition think he is injured.
If Wal-Mart slows it growth and pulls out of projects, this will encourage chains like Shopko to spend capital and build stores. Then when the money has been spent, Wal-Mart kicks it into high gear again with new stores creating financial chaos for companies like Shopko after they have maxed out their resources.