You've probably heard the term "big-box store" thrown around from time to time. But what is a big-box retailer? Let's explore.
What is a big-box retailer?
A big-box retail store is a store that occupies a large amount of space while offering a wide range of products to its customers. These stores, which emerged in the mid-1980s, aren't discount stores per se, but they are known for being able to provide extremely competitive prices, especially compared to smaller retailers.
Target (NYSE: TGT) and Walmart (NYSE: WMT), also sometimes referred to as hypermarkets, are two examples of well-known big-box retailers, and anyone who's ever shopped at one of these stores knows perfectly well how easy it is to buy everything from groceries to cosmetics to apparel under the same roof.
What gives big-box stores an advantage?
Big-box stores can capitalize on a concept known as economies of scale. By moving large amounts of product in and out, these retailers are able to snag their inventory at a discount and then pass those savings on to consumers, who, in turn, reward big-box stores with loyalty and repeat visits.
One major advantage big-box stores have over smaller stores is that they're often considered a one-stop shop for customers. Consumers like the convenience of being able to buy food, household supplies, and electronics in a single trip. During the coronavirus pandemic, that alone has helped big-box retailers thrive while smaller stores struggled.
Furthermore, big-box stores, due to the nature of their inventory, are considered essential businesses. That, too, helped them during the pandemic. When other stores were forced to close down, big-box retailers like Target and Walmart were allowed to stay open, but they never had to cut off access to aisles that stocked nonessentials. That allowed them to increase their revenue at a time when consumers were barred from shopping at niche retailers.
Better logistics, but lower quality customer service
One area where mom-and-pop stores tend to win over big box-retail is in the customer service department. Many of these smaller shops are family-owned and thrive on reputation. As such, consumers generally get better, more knowledgeable service from mom-and-pop store employees. Plus, many mom-and-pop shops are considered specialty stores. While a small shop may carry an extensive array of cosmetics and personal care items, a big-box retail store may have a more limited supply in that particular category,
On the other hand, big-box retailers definitely win when it comes to giving customers access to goods. Big-box stores have the resources to compete with online competitors because they can offer options like in-store pickup and returns, curbside pickup, same-day delivery, and shipping. It's this point that allowed many big-box stores to do so well during the pandemic. Mom-and-pop stores, on the other hand, struggled during the pandemic because many did not have the capacity to offer the convenience of same-day delivery or outdoor pickup.
Essential retail tenants
Big-box stores are an important part of the retail landscape, and they tend to serve as anchor tenants in shopping centers, drawing in customers as well as smaller businesses. Mom-and-pop stores, by nature, aren't considered essential tenants on an individual basis (though losing them collectively is unquestionably bad news for commercial landlords).
On the other hand, big-box stores have a bad reputation for driving out smaller businesses. Shoppers may get a better customer experience at local businesses, but they're more likely to get the best price at a big-box store.
Some shopping center operators, interestingly, aim to steer clear of big-box retailers with superstore potential for fear their remaining tenants won't opt to renew their leases if they're afraid of the competition at hand. But by and large, real estate investors and developers have come to rely on big-box stores to fill spaces and generate revenue.
What's in store for big-box retailers?
One of the greatest threats to physical retail is the boom of online commerce. But whereas smaller stores may not have the capacity to offer the same pricing and quick delivery as online giants like Amazon (NASDAQ: AMZN), big-box stores can hold their own in this regard.
In fact, it's easy to argue they have an advantage, because consumers who buy products on Amazon can't walk over to a retail location and fetch them that day, nor can they exchange or return items in stores. Big-box retailers, by contrast, can ship products but also serve as a physical hub for pickup, exchanges, and returns. This, combined with their competitive price points, will allow them to thrive even as more retailers shift away from physical locations to the internet.
The Millionacres bottom line
All told, big-box retailers are an essential tenant and a source of affordable goods for consumers. The fact that mom-and-pop shops are often hurt in their wake is unquestionably unfortunate, but it's hard to argue with the convenience and solid price points these massive stores have to offer.