What Is Big-Box Retailer?
A big-box retailer is a retail store that occupies an enormous amount of physical space and offers a variety of products to its customers. These stores achieve economies of scale by focusing on large sales volumes. Because volume is high, the profit margin for each product can be lowered, which results in very competitively priced goods. The term "big-box" is derived from the store's physical appearance.
- A big-box retailer is a store that occupies a large physical footprint while offering a wide variety of products to its customers, often in bulk.
- Designed to be a one-stop-shop for customers, big-box stores can offer great convenience and value.
- Some criticize big-box stores for displacing smaller mom-and-pop shops and aggressive pricing practices when dealing with vendors and suppliers.
- A big box store's customer service typically pales in comparison to smaller, local businesses.
Understanding Big-Box Retailer
Located in large-scale buildings of more than 50,000 square feet, the store is usually plainly designed and often resembles a large box. Walmart, Home Depot, and Ikea are examples of big-box retailers. Warehouse clubs such as Costco and BJ's are the original kind of big-box retailers.
Big box stores offer consumers many benefits, such as low prices, variety, and convenience. However, they often do so at the expense of smaller, local competitors, who find it difficult to compete with behemoth budgets and economies of scale. With the increasing attractiveness of online shopping, box stores face special challenges on how to increase revenues and what to do with their physical facilities.
Big-box retailers are meant to be a one-stop shop for customers. In Walmart, a customer can find every consumer good from groceries to clothing to technology. Walmart has one of the broadest product mixes of the big-box retailers. Home Depot and Ikea are more focused versions of the same concept. Home Depot carries everything for the DIYer (do-it-yourself) and Ikea does furniture and home décor on a scale that is unprecedented. These and other similar retailers claim to offer great value and selection for a low price, which is what most consumers are looking for.
The success of big-box retailers has segmented retail as a whole. There are big-box stores, and there are niche or bespoke retailers often focused on a few high-end product lines big-box retailers don't bother with. Anything in the middle is squeezed whenever a big-box retailer comes to town.
The percent of U.S. retail sales accounted for by 6 big box stores as of 2020.
Big-Box Stores Vs. Small Retailers
The original big-box stores like BJ's, Costco, and Sam's Club lure customers with the promise of saving by buying in bulk. But do they really pay off for the average consumer, or can you get better deals by shopping at smaller retail stores and local shops? Is shopping big worth it for you? Here are five pros and cons to consider.
- Price: this is the biggest factor most of us consider when choosing where to shop. Big-box stores offer their most attractive discounts on big-ticket items, undercutting specialty stores and smaller retailers. So yes, you can save hundreds of dollars on electronics, appliances, and other major purchases. But not everything in big-box stores carries a deep discount or is even better priced than the local supermarket, butcher, or clothing store. Once they have you in the store, they're counting on you to purchase other items that aren't deeply discounted and that you might not even need. When you're in a big-box store, your best bet is to buy what you came for and avoid browsing around. Check out the weekly specials in your neighborhood market or discount store and collect their coupons. You may find you'll get a better deal on some items.
- Quantity: Big-box stores typically carry items in extra-large sizes. Real bargains can be had by purchasing bulk non-perishable items like paper goods. Food items with a long shelf life such as soda, canned goods, or jumbo bags of frozen chicken wings are usually well priced. That works for large families, but it might not be worth it for singles or small families. And it doesn't often work well at all for people who live in small spaces with limited storage.
- Membership Fees: Warehouse clubs charge yearly membership fees, usually $60 to $100 a year. That fee gets you in the door. If you have a large family and shop frequently, the money you save over the course of a year should easily cover the cost of the membership fee. If you don't frequent the store, your fee may not be recouped, and you're better off shopping at smaller retailers and local markets.
- The Shopping Experience: Big-box stores attract big crowds, which can mean long checkout lines and mobbed parking lots. Sometimes fighting the crowds is worth it. If it weren't, retailers wouldn't be able to count on Black Friday sales to get them through the fourth quarter. But sometimes the struggle isn't worth it, not to mention the time and stress.
- Customer Service: When it comes to customer interaction, big-box stores are very different from your typical Main Street shop. Some big-box stores don't spend much on customer service. The few employees on the floor are kept busy re-stocking the shelves. For that matter, their customers typically aren't so much interested in chatting with the sales associates as they are in making their purchases. If you're confident being on your own, the big-box store is the place for you. Some shoppers like the personal attention and expert assistance that mom-and-pop stores and specialty shops can offer.
Big-Box Retailer Downside
Big box retailers tend to have a negative reputation for two main reasons—one earned and one that is debatable.
- When it comes to dealing with suppliers, big-box retailers are seen as bullies. The volume of purchasing done to fill the shelves at a network of big-box retailers is enormous. This type of scale tends to force any small supplier into exclusively supplying to the big-box retail chain, which opens them up to risk in that 100% of their revenue comes from one company. When you have one customer, it is hard to push back on pricing squeezes when they know dropping you from their product lines hurts you far more than them.
- When big-box retailers move into an area, it is often met by concern from local businesses that can't compete with the vast logistics advantage and purchasing power for lower pricing. Other businesses in the area start to fail because the customers go to the local big-box retailer rather than the local store. In reality, it is the customers that are killing the other businesses because they quite reasonably want to get the best value for their dollars.
Interestingly enough, big-box retailers are experiencing a unique challenge as more of people's shopping dollars are moving from physical stores to online shopping.
Big-Box Example: Walmart
Based out of Rogers, AR, Walmart, Inc. (WMT) operates over 10,500 retail stores in 25 countries and online. Known for its pricing strategy "Every Day Low Price," Walmart aims to provide its customers the convenience of one-stop shopping for low-cost products and services.
Walmart operates three segments of retail establishments: Sam's Club, Walmart International, and Walmart U.S. In the U.S., Walmart operates under three different formats: the Supercenter, Neighborhood Market, and Discount Store.
In the U.S. segment, the Supercenters have the largest footprint (average 182,000 square feet) and offer the most products and services—from groceries to clothing. The Discount Store is the next largest facility (average 106,000 square feet), offering most of what the Supercenter offers, excluding groceries and automotive care. Neighborhood Walmart is the chain's grocery retail option, with the average store measuring 38,000 square feet. The smallest of Walmart's stores, it offers customers pharmacy services, groceries, and other household items.
Walmart's membership-only retail warehouse, Sam's Club, allows its members to purchase products in bulk and enjoy exclusive benefits. Walmart International includes more than than 5,900 retail stores in 25 countries. Much like its U.S. operations, it operates under different formats, such as supercenters and warehouse clubs.
For 2021, Walmart earned $559.2 billion in revenues, a 6.7% increase from 2020. It reported $22.55 billion in operating income, a 9.6% increase from 2020. The increase in revenues stemmed largely from an increase in consumer demand due to the economic crisis and lockdown.
Big-Box Example: Home Depot
Founded in 1978 as a simple hardware store, The Home Depot, Inc. (HD) is one of the world's largest home improvement retailers, with more than 2,200 stores in the U.S, Mexico, and Canada. The typical Home Depot store has approximately 105,000 square feet of indoor retail space and more than 35,000 products available for purchase. Its e-commerce platform features more than 1 million products for purchase.
Home Depot offers products for the do-it-yourself shopper and the home improvement professional. In addition to products, they also provide services, such as installation and repair.
In 2020, Home Depot earned $132.1 billion in revenues, a 19.85% increase from 2019. Its operating income for 2020 was $18.23 billion, a 15.4% increase from 2019. More than 14% of net sales were from online sales, which saw an 86% increase in 2020. This increase was largely due to the lockdown driving customers to alternative shopping methods.
What Does Big Box Mean?
A big box store is a physically large retail store that sells a variety of products to consumers. Many big box stores exist as chains, with locations in various areas.
What Stores Are Considered Big Box Stores?
Examples of big box stores include Walmart, Target, Home Depot, and Lowe's. Each of these retailers has large physical locations and offers a wide selection of products and services for purchase.
Is Costco a Big Box Store?
Costco is a membership-only retail warehouse, with facilities ranging in size from 80,000 square feet to 230,000 square feet. Like Walmart's Sam's Club, Costco is stocked with thousands of various products, from tires to food. It employs more than 275,000 employees and has more than 800 stores worldwide.
Are Big Box Stores Worth It?
Big box stores generally offer lower prices and a wider selection of products than their smaller counterparts. Alternatively, they often dominate the market, making it difficult for small businesses to thrive.
Big box stores' customer service pales in comparison to that of small businesses. Also, not every advertised deal is worth the purchase. For example, a big-box retailer may advertise a low price for bulk orders; however, if you do not need or cannot use all of the product, it becomes a waste of product and money.
Are Big Box Stores Good or Bad for Small Communities?
Critics of big box stores argue that these giants deplete natural resources and eliminate open space, traditionally used for farming and wildlife. When big-box companies enter small communities, they often do so to the detriment of the small business. Small businesses, with their limited budgets, are no match for big box stores that have more room to negotiate with suppliers and offer more products at lower prices.
Alternatively, big box stores can provide small communities with additional jobs, boosting their economy and improving citizens' standards of living. They can also provide products and services not ordinarily accessible from existing establishments.