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.
BREAKING DOWN Big Box Retailer
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.
The Bad Reputation of Big Box Retailers
Big box retailers tend to have a negative reputation for two main reasons - one earned and one that is debatable. One, 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.