What Is a 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.

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 BJs are the original kind of big-box retailers.

Understanding Big Box Retailers

Big box retailers are meant to be a one-stop shop for customers. In a 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 and Ikea does furniture and home decor on a scale that is unprecedented. These retailers offer great value and selection for a low price, which is all most consumers are looking for.

The success of big-box retailers has segmented retail as a whole. There are big box stores and then 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. 

Key Takeaways

  • 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 & pop shops and aggressive pricing practices when dealing with vendors and suppliers.

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

Price 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.

The Downside of Big Box Stores

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 themselves are experiencing what they do to small businesses as more and more of people's shopping dollars are moving from physical stores of any size and into online shopping.