What Bed Bath & Beyond, Toys ‘R’ Us and RadioShack have in common

New York (CNN) In the 1980s, a new type of specialty store chain began to appear: “category killers”.
The stores’ powerful business model was aimed at giving shoppers access to every different size, style and color of product imaginable – all in one place and at reduced prices.
Category killers, who came to dominate entire product categories, opened stores typically under 50,000 square feet—larger than independent stores but smaller than Walmart superstores—in shopping centers across the suburbs. Shoppers embraced these crowded emporiums.
Staples is “a classic ‘category killer,’ like Toys R Us,” Mitt Romney, then Bain & Co.’s managing general partner, said in 1989.
Those companies, along with RadioShack, Blockbuster, Barnes & Noble and others, proliferated into the 2010s, reshaping how Americans shopped and steamed around mom-and-pop stores.
Toys “R” Us filed for bankruptcy in 2018. The company was an early category killer.
But the category killer’s time has passed.
Toys “R” Us, Blockbuster and RadioShack are gone. Staples and Barnes & Noble still exist, but they have struggled and closed hundreds of stores.
Another category killer fell this week, when Bed Bath & Beyond filed for bankruptcy.
Bed Bath & Beyond was once a one-stop shop for everything in customers’ homes, but was destroyed by shopping changes, competition and its own missteps. But it was also a retail concept designed for a bygone era.
“That model was exciting and new. If you liked that category, it was like a kid walking into the candy store,” said Z. John Zhang, a professor of marketing at the Wharton School at the University of Pennsylvania. “The concept has become passé.”
How category killers evolved
During the heyday of the category killer, a period when the game show “Shop ’til You Drop” was a long-running television series, people wanted to collect as many items as they could, largely unaware of how those products were made or their impact on the environment.
By buying in huge volumes, retailers can demand lower prices from suppliers and undercut competitors.
By focusing on one product area and becoming a leader in that area, companies bet that customers would turn to them when they needed, for example, new toys for their children, a DVD player or bedding.
The combination of global supply chains, cheap overseas container shipping, falling telecommunications costs and computers enabled the category killer concept.
Businesses can suddenly commission manufacturers around the world to make products and monitor supply in real time.
“What was key in the development of many category killers was the use of modern supply chain methods,” said Marc Levison, an economist and historian, and author of “The Great A&P and the Struggle for Small Business in America.” “It became possible to communicate from an office in New York with a supplier in China.”
Large companies with the ability to invest in sophisticated technology and software systems gained an advantage over local and regional stores.
Other factors also enabled the rise of category killers, such as the expansion of suburbs, which led to larger stores with larger parking spaces than in cities. Customers could fill things up and throw them in the back of the trunk.
The 1980s also saw a wave of department store bankruptcies, debt-financed takeovers and leveraged buyouts. This meant heavily indebted rivals to category killers were unable to invest in technology and supply chain management to keep up.
“Local and regional merchants still existed in the 1970s and 1980s, and it was easy to kill them,” Levison said. “Traditional retailers swimming in debt.”
Bed Bath & Beyond was an archetype of the category model for home furnishings.
Founded in 1971 as Bed ‘n Bath as a small linen and bath store, the company changed its name to Bed Bath & Beyond in 1987 to reflect its expanded product line and built larger supermarkets. It piled sheets, towels, pots and pans high to the ceiling, and used coupons to draw customers into the stores.
“We had witnessed the department store boom and knew that specialty stores were going to be the next wave of retail,” co-founder Len Feinstein said in 1993, a year after the company went public with 38 stores and about $200 million in sales.
In 2000, these numbers increased to 241 stores and $1.1 billion in annual sales.
As Bed Bath & Beyond grew, it spun off smaller linen and home decor stores.
To kill the murderers
In 2011, two Harvard Business School professors predicted that online shopping would lead to a collapse of category killers.
“Just as category killers led to the demise of mom-and-pop stores, [online retailers] leading to the death of the killer in the big box category,” they wrote. “The focus that made them so powerful in the 1980s and ’90s is creating the conditions for their current struggles.”
And online shopping decimated category killers.
Amazon can compile endless product choices on its online marketplace, taking away the advantage category killers once had over product assortment rivals.
The lower cost advantages that category killers once enjoyed due to scale, which allowed them to drive down prices, have disappeared.
Unlike Bed Bath & Beyond and other chains, Amazon does not have to buy products and keep inventory in warehouses – which are costly expenses. It connects buyers and sellers and charges a fee on sales.
And big-box chains like Walmart and Target can focus on picking high-demand products in each category, limiting their cost burden.
There’s nostalgia for category killers like Barnes & Noble these days.
“If you’re a category killer, you have to assemble everything. You have to carry slow-moving products, which increases costs,” said Wharton’s Zhang.
Recently, category killers have also been hit hard by customers pulling back on discretionary spending due to inflation.
And they have also suffered from a change in many consumers’ priorities. People have prioritized spending money on experiences rather than owning infinite things, in a transition towards what has been called the “experience economy”.
“People place more emphasis on experiences, rather than having material goods,” Zhang said. “Why do you need so many things in one category?”
There are still a few brick-and-mortar category killers left like Home Depot and Lowe’s for home improvement; Dick’s Sporting Goods for sporting goods; and Best Buy for electronics.
These companies sell products that many customers prefer to see and try out in person, such as a new baseball glove or home theater system. The chains have been boosted by major trends such as a strong housing market, more people playing sports and innovative new gadgets.
It’s somewhat ironic that there is now nostalgia for Bed Bath & Beyond and other once-dominant chains that drove mom-and-pops out of business. But as more category killers fall, customers may be left with fewer options and lose out on convenience and product knowledge.
“We’re going to miss these places when they’re gone. There are fewer and fewer stores where you can go and find any real variation or options for a product,” urbanist writer Addison Del Mastro so on Twitter this week. “We should have more than just the Walmart option or 100 pages of Amazon garbage.”