What is a Category Killer?

A category killer is a large retail chain superstore that is so competitive that it dominates its product category and puts less productive and highly specialized merchants out of business.

Understanding Category Killers

Category killers mainly attain their massive competitive advantage, by having a bigger and deeper selection of merchandise as compared to small and independent stores. Those merchandise numbers enable category killers to become cost-efficient and sell their products at prices so low that other stores are unable to compete with them. An example of a category killer superstore is Home Depot, which has almost seven times the square footage and inventory of a local hardware store and offers more choice in product variety.

Charlie Lazarus, founder of Toys R Us, is generally credited with inventing the concept of a category killer. Bookseller Barnes & Noble, electronics retailer Best Buy and home products and furnishings store Bed Bath & Beyond are other examples of this type of superstore.

While they may seem insurmountable, category killers are not invincible. This can especially be the case if they are mismanaged or fail to keep up with the times. Toys R Us, which pioneered the concept and filed for bankruptcy in September 2017, is an example.

Key Takeaways

  • Category killers typically dominate a product category by offering low prices and wide product selection.
  • They proliferated during the 1980s and 1990s but fell by the wayside as online retailers took center stage in the subsequent decade.
  • Toys R Us, a pioneer among category killers, filed for bankruptcy in 2017.
  • A new breed of online category killers, which focus on convenience and after-sales support in addition to price, has emerged in recent years.

Category Killers and Competition

While Toys R Us was founded in 1948, the heyday of category killers was during the 1980s and 1990s. That was when category killers proliferated across the country. Borders, a bookstore that is now no longer operational, was opening stores at the rate of one every nine days in 1997. Barnes & Noble was even more aggressive, opening a single store every four or five days. Office products retailer Staples was opening two stores a week while Home Depot, which had reported bumper profits earlier that year, was opening three stores a week. The offerings at these store went beyond products and incorporated experiences, complete with entertainment and fancy promotions and demonstrations of latest technology.

Within the next decade, however, the fortunes of these category killers unraveled. Some declared bankruptcies, others shut down, and yet others began reporting steep losses. Several factors were responsible for their gloomy condition.

One of them was the continued dominance of Walmart as a vast national discount retailer. The Arkansas-based behemoth not only ate into market share of independent stores but also that of retailers like Toys R Us.

Another was the rise of e-commerce companies like Amazon. They offered low prices, one-stop shopping and the convenience of online shopping, destroying the high-expense economics of big-box retailers. Best Buy, despite having no brick and mortar competitor, has struggled to reinvent itself against Amazon's encroachment of its market. Even Walmart is finding that a large portion of its superstores are becoming unprofitable.

However, some big box category killers may yet be able to defend their category economics, if they can create a compelling shopping experience. To do that, they will need to combine instant gratification, personalized selling, unique assortments and a sensory showroom experience that borders on entertainment. They may also need to downsize their stores to maintain maximum flexibility, as well as combining clicks with their bricks, as Walmart is now doing.

A new type of category killer has also emerged online. Such sites typically specialize in offering a specific product category at different price points. For example, Warby Parker specializes in retailing prescription glasses and sunglasses. Casper, another online startup, specializes in selling different kinds of mattresses while Harry's and Dollar Shave Club offer shaving products.

These startups are built on a different business model as compared to the earlier category killers, which mainly competed on price. The new breed of online businesses not only compete on price but also on convenience of purchase and after-sales support.