Western Michigan University ScholarWorks at WMU
Master's Theses Graduate College
12-2007
Wal-Mart Versus Meijer: A Spatial and Economic Analysis of Supercenter Competition in Michigan
Christopher J. Washebek
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Recommended Citation Washebek, Christopher J., "Wal-Mart Versus Meijer: A Spatial and Economic Analysis of Supercenter Competition in Michigan" (2007). Master's Theses. 4049. https://scholarworks.wmich.edu/masters_theses/4049
This Masters Thesis-Open Access is brought to you for free and open access by the Graduate College at ScholarWorks at WMU. It has been accepted for inclusion in Master's Theses by an authorized administrator of ScholarWorks at WMU. For more information, please contact [email protected]. WAL-MART VERSUS MEIJER: A SPATIAL AND ECONOMIC ANALYSIS OF SUPERCENTER COMPETITION IN MICHIGAN
by
Christopher J. Washebek
A Thesis Submitted to the Faculty of The Graduate College in partial fulfillment of the requirements for the Degree of Master of Arts Department of Geography
Western Michigan University Kalamazoo, Michigan December 2007 Copyright by Christopher J. Washebek. 2007 ACKNOWLEDGEMENTS
I would like to thank several people fr their guidance and friendship throughout my graduate career. First, I would like to thank my committee:
Ors. Jordan Yin, David Lemberg, and Benjamin Ofori-Amoah. Dr. Yin served as the advisor for the thesis committee, not only providing great advice for the project, but also giving some great career-oriented tips along the way. I had the pleasure of taking two courses with Dr. Lem berg, and learned a great deal about Transportation Planning and "Wicked Problems" from him. Dr. Ofori
Amoah had a very large role in my career preparation in the field of site location research, as he ofered to teach a comprehensive course in Retail and Service Location Analysis. This thesis would also not be possible without a research grant from the WMU Graduate College.
Additionally, I would like to thank Dr. Elen Cutrim and Dr. Greg Veeck.
Dr. Cutrim was a great professor to TA for and I will most certainly miss our weekly lunch outings. A week would not be complete without stopping by Dr.
Veeck's ofice to talk about my thesis, sports, or whatever else was on my mind. He also assisted with some of the statistical analyses for this thesis. I also had a creative outlet while studying for my master's degree, serving as a graduate assistant for the WMU Bronco Marching Band. I'd like to thank
Professor David Montgomery for that opportunity, as it gave me a necessary diversion from the daily grind and allowed me to work with a very talented and
ii Acknowledgements-Continued inspiring group of people.
I would also like to thank my family, friends, colleagues, and the Delta
Iota chapter of Phi Mu Alpha Sinfonia fraternity for all of their support. Finally,
I would also like to take this time to thank Ors. Howard Botts, Thomas Jeffery,
John Patterson, and Carol Rosen from the University of Wisconsir
Whitewater Geography Department, who all played a large role in helping me discover my true calling as a geographer. To everyone mentioned and those not directly mentioned here, thanks for everything!
Christopher J. Washebekr •
iii WAL-MART VERSUS MEIJER: A SPATIAL AND ECONOMIC ANALYSIS OF SUPERCENTER COMPETITION IN MICHIGAN
Christopher J. Washebek, M.A.
Western Michigan University, 2007
My research will examine the spatial and demographic strategies of supercenter firms in the State of Michigan, namely those operated by Meijer,
Inc. and Wal-Mart, Inc. The competitve nature of retailing in Michigan shifted heavily in 2000 when Wa�Mart brought its Supercenter format to Michigan, making it a direct competitor to Meijer, who has operated. in Michigan since
1962. Within seven years, Wa�Mart expanded its Michigan Supercenter operations from one in 2000 to fortyfve in 2007. In many cases, small towns throughout the state are supporting both Meijer and a Wal-Mart Supercenter.
Heavy competition of this nature between two supercenter chains is unequaled anywhere else in the United States, making this an interesting and necessary study. This research examines the location strategies of Wa�Mart and Meijer in Michigan, and determines which chain, if either, has a distinct spatial and demographic advantage in the state. A thorough study of available business, spatial, economic, and demographic data supports this conclusion. The result of this research is the first comprehensive analysis of supercenter competition in the State of Michigan, and illustrates the very unique retail challenges existing there. TABLE OF CONTENTS
ACKNOWLEDGMENTS ...... ii
LIST OF TABLES ...... vii
LIST OF FIGURES ...... ix
CHAPTER
I. INTRODUCTION ...... 1
1.1 Introduction to the Research Problem ...... 1
1.2 Thesis Structure ...... 2
II. LITERATURE REVIEW ...... 4
2.1 Introduction to Retailing ...... 4
2.2 Retail Location Theories ...... 4
2.3 Location Strategies in a New Retail Era ...... 10
2.4 Supercenters and their Effects ...... 13
Ill. METHODS AND PROCEDURES ...... 20
3.1 Study Area ...... 20
3.2 Research Design/Data Collection ...... 22
3.3 Formatting, Processing, and Analysis of Data ...... 24
IV. HISTORY OF SUPERCENTER OPERATORS IN MICHIGAN ...... 28
4.1 1962: Ground Zero of Discount Retailing • ...... 28
4.2 Taret Corporation ...... 29
4.3 Kmart Corporation ...... 32
iv Table of Contents-Continued
CHAPTER
4.4 Wal-Mart Corporation ...... 35
4.5 Meijer Corporation ...... 39
4.6 Company Financials ...... 44
4.7 Grocery Industry Market Share Infrmation ...... 52
V. LOCATION STRATEGIES OF WAL-MART AND MEIJER...... 58
5.1 Location Strategies of Wa�Mart and Meijer ...... 58
5.2 Locations of Wal-Mart and Meijer in 1995, 2000, and 2007 ...... 60
5.3 Nearest Neighbor Analysis ...... 74
VI. RETAIL POSITIONING MATRIX ...... 90
6.1 Matrix Compilation ...... 90
6.2 Matrix Results ...... 98
VII. CONCLUSION ...... 105
7.1 Summary ...... 105
7 .2 Predictions ...... 108
7 .3 Limitations ...... 111
7.4 Future Research ...... 112
REFERENCES ...... 114
APPENDICES ...... 122
A. Woods & Poole Michigan County Data - (2000, 2007) Sorted by % Change in Retail Sales...... 122
V Table of Contents-Continued
APPENDICES
B. Woods & Poole Michigan County Data-(2007, 2015) ...... 124 Sorted by % Change in Retail Sales
C. Ann Arbor, Ml CBSA Market Share: 2002-2007 ...... 126
D. Battle Creek, Ml CBSA Market Share: 2002-2007 ...... 127
E. Benton Harbor/Niles, Ml CBSA Market Share: 2002-2007 ...... 128
F. Detroit,.. Ml CBSA Market Share: 2002-2007 ...... 129
G. Flint, Ml CBSA Market Share: 2002-2007 ...... 130
H. Grand Rapids, MI CBSA Market Share: 2002-2007 ...... 131
I. Jackson, Ml CBSA Market Share: 2002-2007 ...... 132
J. Kalamazoo, Ml CBSAr MarketY Share: 2002-2007 ...... 133
K. Lansing, Ml CBSA Market Share: 2002-2007 ...... 134
L. Muskegon, Ml CBSA Market Share: 2002-2007 ...... 135
M. Saginaw, Ml CBSA Market Share: 2002-2007 ...... 136
vi LIST OF TABLES
4.6a Target Corporation Financial Statistics (1998-2006) ...... 45
4.6b Kmart Finarial Statistics (1998-2006) ...... 46
4.6c Wal-Mart Corporation Financial Statistics (1998-2006) ...... 47
4.6d Meijer Corporation Financial Statistics (1998-2006) ...... 48
4.7a Grocery Market Share Positions- Meijer vs. Wal-Mart Supercenters ...... 53
5.3a Distances from Meijer outlets to the nearest Wa�Mart Discount Store, 2000 ...... 75
5.3b Distances from Wa�Mart Discount Stores to the nearest Meijer store ...... 78
5.3c Distances from Meijer stores to the nearest Wal-Mart store, 2007 ...... 80
5.3d Distances from Wa�Mart stores to the nearest Meijer store, 2007 ...... 85
5.3e Distances from converted Wa�Mart Supercenters to the nearest Meijer store, 2007 ...... 89
6.1a Retail Positioning Matrix - Competition Axis Ranges ...... 91
6.1b Correlation between Changes in Population and Retail Sales including Wayne County ...... 94
6.1c Correlation between Changes in Population and Retail Sales without Wayne County (2000-2007) ...... 95
6.1d Correlation between the Percentage Changes in Population and Retail Sales without Wayne County (2000-2007) ...... 95
6.1 e Retail Positioning Matrix - Retail Sales Axis Ranges ...... 97
vii List of Tables-Continued
6.2a Retail Positioning Matrix Scores: Wal-Mart\. Meijer (2000) ...... 100
6.2b Retail Positioning Matrix Stores: Wa�Mart Supercenters vs. Meijer (2007) ...... 102
6.2c Retail Positioning Matrix Scores: All Wa�Mart Stores\. Meijer (2007) ...... 104
viii LIST OF FIGURES
3.1a Supercenter Competition in Michigan ...... 21
4.6a Retail Sales per Square Foot (1998-2006) ...... 50
4.6b Retail Sales per Store (1998-2006) ...... 51
4.7a Wal-Mart and Meijer store locations in Grand Rapids, Ml, 2007 ..... 56
5.2a Michigan Wal-Mart and Meijer Locations, 1995 ...... 62
5.2b Michigan Wal-Mart and Meijer Locations, 2000 ...... 65
5.2c Michigan Wal-Mart and Meijer Locations, 2007 ...... 66
5.2d Michigan Wal-Mart Locations, 1995 ...... 68
5.2e Michigan Wal-Mart Locations, 2000 ...... 69
5.2f Michigan Wal-Mart Stores and Distribution Center Locations, 2007 ...... 70
5.2g Michigan Meijer Locations, 1995 ...... 71
5.2h Michigan Meijer Locations, 2000 ...... 72
5.2i Michigan Meijer Stores and Distribution Centers, 2007 ...... 73
6.1 a Population and Retail Sales Change Scatterplot with Wayne County ...... 94
6.1 b Retail Positioning Matrix ...... 98
6.2a Retail Positioning Matrix - Wal-Mart vs. Meijer (2000) ...... 100
6.2b Retail Positioning Matrix - Wal-Mart Supercenters vs. Meijer (2007) ...... 101
6.2c Retail Positioning Matrix - All Wal-Mart Stores vs. Meijer (2007) ...... 104
ix CHAPTER I
INTRODUCTION
1.1 Introduction to the Research Problem
The State of Michigan has become one of the most contested retail battlegrounds in the United States, due to heavy competition between supercenters 1 within the state. Meijer, a regional retail chain headquartered in Grand Rapids, Ml, uses a supercenter concept in every store, combining general merchandise and groceries in the same building. From Meijer's inception in 1934, it has remained a private firm, operating regionally, including 89 stores in Michigan. For more than thirty years, Meijer was the state's only significant supercenter operator. K-Mart, another Michigan-based retailer, has a very limited supercenter operation in the state, with only six
Super K-Marts scattered around metropolitan Detroit. Target Corporation of
Minneapolis, MN owns a relatively small set of supercenter concept stores, but does not operate any in Michigan and they do not appear to be opening one there anytime soon. Wal-Mart entered as the most threatening and formidable competitor in 1990, rapidly opening stores throughout Michigan.
The competitive nature of retailing shifed heavily in 2000 when Wal
Mart brought its Supercenter format to Michigan, making it a direct competitor to Meijer. Within six yars, Wal-Mart expanded its Michigan Supercenter operations from one in 2000 to forty in 2006. In many cases, small towns
1 Supercenters are sometimes termed to as Hypermarkets. See Chapter 2.4 for further discussion.
1 throughout the state are supporting both a Meijer and Wal-Mart Supercenter.
This thesis will examine the location strategies of these two chains, determine the extent of competition, and come to a conclusion on which chain has the best competitive positioning. Both qualitative and quantitative means will be used, as the story behind the numbers is just as important when attempting to understand the history between these two chains.
1.2 Thesis Structure
This thesis uses several quantitative measures, including figures that indicate the financial performance of the firms being studied, market share percentages, and the distance from a given outlet to the location of the nearest competitor. Additionally, the history and future plans of each
Michigan supercenter operator are evaluated to complete the comprehensive analysis of all firms being studied. A quantitative answer as to which supercenter operator has a spatial and demographic advantage in Michigan is achieved through the use of the Retail Positioning Matrix, taking into account the competitiveness and demographics of each market. It must be noted that the sources for this work derive from both academic and business-related sources. Peer-reviewed work on retail geography is not extensive, and academics that routinely perform this research cite nonacademic sources often and out of necessity (Fishman, 2006).
The thesis will comprise seven chapters. The second chapter, a literature review, will briefly review the evolution of retail store location techniques, the retail industry's use of modern predictive techniques, and a
2 glance at the development of the modern supercenter. Chapter three contains the methodology for evaluating Wal-Mart and Meijer's store portfolio.
Chapter four includes the histories of Target, Kmart, Wal-Mart, and Meijer, and has infrmation on their financial and market share standings. Then,
Chapter five displays the geographic positions of Wal-Mart and Meijer stores and includes quantitative clustering data. Next, Chapter six describes the parameters of and executes the Retail Positioning Matrix, giving a quantitative measure of Wal-Mart and Meijer's performance in Michigan. Chapter seven ofers a recap of the thesis information and ofers predictions and suggestions for future study. The result of this research will be the first comprehensive analysis of supercenter competition in Michigan, and will illustrate the very unique retail challenges in the state.
3 CHAPTER II
LITERATURE REVIEW
2.1 Introduction to Retailing
Retailing in the United States has undergone large transformations in the last century, each changing the way people shop and think about shopping. In a span of under 100 years, the focus of retailing has decentralized, with a majority of commerce shifing from the traditional Central
Business District to the periphery of most cities (Berry and Parr, 1988). From this decentralization came the evolution and development of retail formats that had never been seen before. While the strategies of businesses such as the grocery industry changed between 1900 and 2000, the general merchandise industry changed even more (Hernandez and Bennison, 2000).
General merchandise stores existed for centuries, though they were small enough that specialty stores such as those ofering hardware, for example, could easily coexist. However, the strategies required for small stores to survive would change drastically with the advent of the "big box" stores of today, such as Wal-Mart or Target.
2.2 Retail Location Theories
As society in the United States became more complex and more decentralized from the urban core, the retailing industry faced a dilemma.
With the rapid expansion of retail chains, both individual entrepreneurs as well as chain stores needed to develop a way to determine where and who
4 their market consisted of as well as where to place new stores. Companies could no longer plant a new store in the Central Business District (CBD) of a city and expect success (Bowlby, et al, 1984). As a result, several researchers began to experiment with different methods in order to determine a more efcient way of learning who their customers were and how to attract more consumers to an establishment. To understand the methodologies of retail location today, one must understand the evolution of market theories in a historical context; the following will describe some of the commonly known location theories datir to the 1930's.
Christaller - Central Place Theor
The Central Place Theory was developed by Walter Christaller in 1933 to assist in explaining the spacing and distribution of urban settlements as service centers and is represented through a series of connected geometric shapes, usually hexagons (Christaller, 1933; Agaral, 2007). Originally used to describe the relationship between cities, villages, towns, and hamlets in southern Germany, the theory has been utilized to explain this spatial interaction elsewhere. Christaller introduces four concepts with this theory: central places, complementary regions, the range of a good or service, and the threshold of a good or service (Ofori-Amoah, 2000). The theory carries with it several assumptions: the existence of an isotropic plain, a uniform distribution of population and demand, equal ease of transportation, settlements must depend only upon hinterland trade, producers and consumers are optimizers, and a steady state economy (Ofori-Amoah, 2000).
5 By defnition, a central place is any location ofering goods and services, with a location's importance depending on the order of the goods and services being ofered. For example, low-order goods are found in the smallest of settlements, while high-order goods are found in larger cities
(Ofri-Amoah, 2000). High-order goods, due to their availability in only the largest cities, have a larger range than lo�order goods. This means that one must visit a highorder service center• to find high-order goods,.. as there is no other alternative. The spatial structure can be analyzed quantitatively through using "K" values, defined as the rate at which marketarea territories increase from one level to another (Berry and Parr, 1988). Using this measure as well as the assumptions of the Central Place Theory, the highest order central places are located at the center of a given trade area (Ofori-Amoah, 2000).
It has also been found that the Central Place Theory applies to settlements... in areas such as mountains and rivers. Centrality is more important than topography and other barriers, a significant breakthrough
(Ullman, 1941 ). Christaller fund that, for example, it is not a safe assumption to say a city is near a river due to the presence of water as opposed to centality, because one cannot say that there would be no cities without rivers (Ullman, 1941 ). Criticisms of the theory center.. on its static and simplistic nature, whereas the changing of societal parameters may render parts of the theory obsolete (llleris and Phillipe, 1993). However, the Central
Place Theory remains widely-taught, and provides a base.... level understanding of the distribution of human settlements as service centers.
6 Applebaum - Analog Method
One of the first accepted strategies for delineating retail market areas was created by William Applebaum, commonly known as the analog method
(Applebaum, 1966; Drummey, 1984 ). Applebaum was an employee of the
Kroger grocery chain in the 1930's, and the premise was that comparing a store site with the same characteristics as an existing store would give an acceptable indication of how well a new store would perform. This method, however, relies on both experience and judgment.
Applebaum developed a systematic way to operationalize this premise, which came to be known as customer spotting. Customers were asked to provide their addresses and total amount of goods purchased as they left the stores. The addresses were then plotted on a map. Concentric circles were then drawn, with the ring containing 75-80% of the customers representing the spatial extent of a primary trade area (Ghosh and Mclafferty, 1987).
Using the sales information gathered, Applebaum was able to estimate potential sales in each concentric ring. This was then superimposed on the fture site to determine how the store would perform. While many more sophisticated prediction models exist, a more complex version of the analog method has been used long after more comprehensive ones were developed
(Rogers and Green, 1979).
Reilly - Law of Retail Gravitation
Simplistic models using little if any statistical calculations quickly were superseded by models incorporating the "pull," or gravity of trade areas.
7 William J. Reilly was the first to develop such a theory, entitled "Reilly's Law of Retail Gravitation." This particular theory incorporated Newtonian laws of gravity to assist in explaining that areas of larger population has a larger retail
"pull" than an adjacent, smaller populated area (Reilly, 1931; D.S. Rogers,
1984; Ghosh and Mclaferty, 1987). Reilly's law states that the boundary of a city's trade area is determined by its population, the population of competitive urban areas, and the distances between these cities (Buckner, 1998). Based upon the population of the cluster of municipalities, "breaking point" lines would be created to indicate the point at which one consumer would choose a market over another. For example, given two urban areas of equal size, the breakpoint line would occur halfay between the two cities.
Reilly's law, along with other similar models, relied on many assumptions that do not necessarily represent human shopping behaviors.
For example, the Law of Retail Gravitation assumes that people shop in one area or another based on distance and urban area size (Buckner, 1998). In reality, the model does not take into account customer preferences for shopping at particular outlets, among other variables. By the 1960's, academics would begin to experiment with adding variables to Reilly's law to eliminate some of the model's limitations (Buckner, 1998). However, Reilly's
Law of Retail Gravitation was the first to take into account Newton's Law of
Gravity to explain retail trade areas.
8 Converse - Inertia input fr Reilly's model
Reilly's method was later modified by P.O. Converse, who in 1949 added a new component to the Retail Gravitation mode: inertia (Converse,
1949; Ghosh and Mclafferty, 1987). Converse sought to revise the model to account for multiple communities competing for customers from a given area.
Therefore, towns with many surrounding trade areas "stealing" customers from it are assigned a closer breaking point, decreasing the size of its market
(Converse, 1949). A common theme of the models released to this point is that they are predictors of success for a market area and do not have the capability to successfully predict the viability of an individual outlet. This changed with the advent of the spatial-interaction model.
Huf Gravity Model
David Huf created a spatial-interaction model commonly used in retail location analysis today, known as the Huff model. This ground-breaking model does not solely take into account the gravitational pull of market areas, but also incorporates consumer behavior as a variable (Huff, 1966; Epstein,
1984; Ghosh and Mclafferty, 1987). "Attractiveness" is used to describe the consumer behavior variable, and is generally linked to the square footage of a store, product variety, and many other factors. Rather than being used to define the success of a trade area, this allowed researchers and retailers to create sales forecasts for a planned retail outlet. However, many researchers have found potential flaws in the model and have either criticized or made changes to it. Researchers acknowledge the model's many limitations, but
9 also accept that if used correctly it can be a valuable tool (D.S. Rogers,
1984). Others wish to add variables to the Huf model, such as store image, or believe it inflates the value of variables such as travel time too much
(Stanley and Sewall, 1976; Gautschi, 1981 ). Despite the continuing conflict, the Huff model is generally used in its original form, including in heavily used computer programs such as ESRl's Business Analyst (ArcGIS Business
Analyst, 2007).
2.3 Location Strategies in a New Retail Era
During the last 50 years, the mass exodus of people from cities has changed the way people live, work, and play. Theories such as "white flight" from the inner cities to the suburbs and the increased mobility of people with the automobile help to explain the phenomenon of suburban growth (Frey,
1979). The amenities of a metropolitan area are no longer located only within a city itself, as increasing populations in city peripheries have allowed for the development of services that could be supported in the suburbs for the first time. Resulting from this massive change in demographics, retailing and the strategies utilized to locate stores needed to change.
In many ways, the shift from the downtown CBD's to the suburbs was a positve move for retailers, especially discounters such as Wa�Mart.
Following the Bid-Rent Curve, downtown department stores were occupying very expensive land, which was necessary for prestige and pedestrian flow, among other reasons (Jones and Simmons, 1990). With the exodus of people and services to the suburbs, retailers were able to purchase relatively
10 inexpensive plots of land in almost every metropolitan area to expand their businesses. While almost every discounter started to build in the suburbs, their strategies were very diferent and brought both fortune and misfortune depending on their choices.
As discount store chains started to expand and competition increased, using a solid strategy became very important. Simmons ( 1984) advocates the use of sales forecasting techniques such as regression and closest-fit models, but also acknowledges that employing these methods improperly can
severely hurt a business. Three retail store marketing objectives were also introduced: Attracting Customers, PersLding Customers to Spend, and
Building Up Store Image (Simmons, 1984 ). The means of successfully performing all three operations can be done through monadic level decision making, with options such as opening new store outlets, refurbishing existing stores, or remerchandising to tailor to the tastes of local consumers
(Hernandez and Bennison, 2000).
Site Selection Literature
A large portion of the research on retail site selection has been
dedicated to the positioning of individual stores rather than developing a large
network of retail outlets (Clarke, Bennison, and Pal, 1997). Important works
such as Ghosh and Mclaferty (1987), which was discussed previously,
emphasized the importance of location in corporate strategy. Clarke,
Bennison, and Pal fur ther note that corporate strategy literature discuss the
relationship between a company and its environment and do not explicitly list
11 location as a primary concern when locating stores. This is one example of many that illustrates the major gaps existing between retail location planning and management literature (Clarke, Bennison, and Pal, 1997).
Corporate Use of Retail Site Selection Methods
Until the advent of more sophisticated site location analysis techniques, and even to some extent after they were developed, store placement was seen as more of an "art" than a "science" (Hernandez and
Bennison, 2000). Many retailers were accustomed to using only their experience for making site location decisions, and made decisions requiring a large amount of capital based on the "feel" of a site alone (Beaumont, 1987).
Retailers have been forced to utilize more complex analytical techniques, as the lack of obvious store construction sites and increased competition has decreased the efectiveness of using human judgment as the sole arbiter
(Bowlby, et al, 1984). Explaining a part of the reason why many analytical techniques were shunned by companies was the dificulty of obtaining the data required to perform these operations. With the availability of more timely and accurate infrmation, the use of more than human judgment becomes more efective (O'Malley, et al, 1995).
Hernandez and Bennison (2000) found that retailers used an average of 2.75 techniques for locating new stores. These techniques include the use of a Geographic Information System (GIS), location-allocation models, and cluster analyses. Using a GIS can not only execute many existing site location models within one sofware package, but has more importantly
12 quantified what was once a qualitative decision for many firms (Hernandez and Biasiotto, 2001 ). Clarke, Bennison, and Pal (1997) believe the advent of
G IS to be one of three main achievements in retail research during the 1980's and 1990's, which is the means for utilizing the other two highest achievements of the era: the building of geodemographic classifications, and refining spatial interaction modeling.
In the year 2000, 53 percent of retailers responding to an academic study utilized GIS (Hernandez and Bennison, 2000). A linear relationship was found between the number of techniques used in store location research and the use of GIS, as well as with the number of outlets a chain operates and the number of techniques used. This does make sense, as smaller companies may not have the resources or expertise available to use the more sophisticated analytical tools such as GIS or statistical analyses. It was also noted in the study that superstores were the most likely to use more sophisticated techniques. This sets the stage for the competition amongst the larger retailers. Despite their increased use of technology, the decisions made behind the analyses are what will dictate their futures.
2.4 Supercenters and their Effects
Supercenters evolved out of innovation and necessity, stemming from consumers' desire to take care of their shopping in one place as well as well as the ability for retailers to increase their profit margin. By definition, a supercenter, also known formally as a "hypermarket," is a store that sells groceries and general merchandise under one roof (Graf, 2006). The exact
13 origin of the supercenter is sometimes credited to Europe, which is rather controversial (Graf, 2006). Europe's pioneer of the format, Carrefour, built their first store in 1963 ("History- Carrefour Group", 2007). In the United
States, Hendrik Meijer opened the first Meijer store in 1962, potentially making it the world's first supercenter (Meijer, 1984 ). Others disregard this and attempt to differentiate a "hypermarket" from a "superstore;· with the latter being a smaller store; this is not seen anywhere in mainstream literature on the topic (Bianco, 2006). Additionally, one researcher erroneously gives
credit to Bigg's for constructing the first American supercenter in 1984
(Bianco, 2006). However, using the author's own definition of a supercenter,
the Meijer store constructed during the early 1970's in Canton Township, Ml
would qualify, as the store spanned more than 246,000 square feet (Meijer,
1984 ). Regardless of their origin, supercenter have taken the stage as the
newest form of retail innovation.
Genesis of the Supercenter
The genesis of the supercenter is the result of companies' desire to
ascend to a new level in the retail store hierarchy. It was a logical next step
for both discount stores and grocers to increase their profits by selling general
merchandise and groceries in the same building. As a raw statistic, the
advantage for a discount chain to begin selling groceries is not impressive.
Wal-Mart's return on investment is 26.4% for a discount store and 27.6% for a
Supercenter, a 1.2% diference (Graf, 2006). However, selling groceries is a
high-volume, lowmargin business, and ofering both general merchandise
14 and groceries is the only way to significantly increase profits for a discount chain. The reasoning behind this is to entice more customers to enter the store by selling groceries as a "loss leader'' and plan on them also purchasing the more profitable general merchandise (Graf, 2006). While the desire of consumers to shop for all necessary items in one store certainly assisted in the rapid spread of supercenter development, the economics behind opening up these stores and ascending to the top of the retail store hierarchy was the primary reason.
Relatively few retail frms operated the supercenter format in the
United States until the 1980's, with both Meijer and Fred Meyer supercenter stores operating before this point. In 1984, Bigg's built their first supercenter in Cincinnati and began their operations in Kroger's home town. Three years later in 1987, Wa�Mart built the predecessor to the Wal-Mart Supercenter,
Hypermart USA (Bianco, 2006). Unlike the successful nature of the supercenter format today, doubts existed as to whether or not the format was a fad of the era. In a 1988 article, industry experts doubted that supercenters would become the next great phenomenon in the retailing industry
("Hypermarkets: super stores or super hype?", 1988). Three short years later, 1991 was declared the "Year of the Supercenter'' (Lisanti, 1991 ). Wa�
Mart, Carrefour, Meijer, Kmart, and others all began planning major supercenter expansions in 1991, which is ironic considering all four firms commenced their operations in the same year.
15 Widespread Expansion of Supercenters
By the mid-1990's, the four major operators of supercenter in the
United States emerged. Wa�Mart opened its first Supercenter in 1988, Kmart built its first Super Kmart in 1991, and Target's SuperTarget format opened for business in 1994 (Graff, 2006). Meijer, while smaller in scale, operated several tight clusters in the upper-Midwest, setting up their impending battle with Wal-Mart. Wa�Mart has emerged as the most successful of the supercenter operators, as they captured 16% of the United States grocery market share in 2004. Supercenters are large entities no matter who the operator is, with the average Wal-Mart Supercenter being approximately
180,000 square feet (Graf, 2006). These very large stores are not being constructed without resistance, however, and this will continue as supercenter continue to spread across the United States.
Public Resistance
A popular phrase representing the public view of new facility construction is the acronym "NIMBY," meaning "Not In My Backyard." With the spread of big-box stores and supercenter, a new mentality called
"BANANA" has now surfaced: Ban Anything New Anywhere Near Anything
(Rowley, 2003). Cities are increasingly regulating the expansion of big-box, chain retail not only to stem its growth, but also to attempt to force changes in company policies. The City of Chicago recently passed a measure to require all stores 90,000 square feet and larger to pay their employees a minimum of ten dollars per hour plus three dollars in additional benefits (Eckholm, 2006).
16 In order to reduce the number of retail chains opening large stores, some communities have placed a cap on store square footage, usually near
100,000 square feet (Rosta, 2005). To counter these restrictions, chains are now becoming more innovative by modifying their typically large stores to fit within more stringent parameters. Wal-Mart, considered to be a principal target of these types of rules, recently began constructing 99,000 square foot
Supercenters (Troy, 2004 ). Many other firms can be expected to develop stores that will conform to local regulations and fit into an urban environment, furthering the ability of chains to continually increase sales and market share.
Negative Effects: Reality and Perception
One cannot discuss the effects of supercenter without addressing some of their negative effects. Besides the relatively mundane concerns with the road trafc and public service needs of these large stores, concerns exist with the number of small businesses that close as a result of a supercenter's entry into a market. The sheer size of supercenter and supercenter stores can cause treme:dous strain and market hostility in the areas they enter, primarily smaller cities and towns (Peterson and McGee, 2000). Wa�Mart has been blamed with the closing of approximately one-third of all small businesses in Iowa, and the company is blamed fr the shuttering of smaller stores throughout the United States (Sobel and Dean, 2007). Additionally, some studies find that Wa�Mart is lined to countywide poverty and erodes local wages (Goetz and Swaminathan, 2006; Boarnet, et. al, 2005).
However, some find this is based on perception.
17 Sobel and Dean (2007) ran a statistical analysis to determine how much of an effect Wa�Mart had on the closing of other stores, and determined that the company had no effect on this phenomenon. Despite this finding, small businesses in smaller towns are closing due to the Wa�Mart phenomenon. A study of small retailers in Virginia concluded that 52 percent of these shopkeepers did not alter their product lineup and 42 percent did not adjust their pricing, resulting in many store closures (Marquard, 2007a). As many small business owners do not have the ability to negotiate lower prices from their suppliers and further specialize their merchandise, "mom and pop" stores are failing in small towns with a Wa�Mart presence.
The spread of supercenters throughout the United States and the world has changed the way the consumer thinks and behaves when shopping. Companies such as Wa�Mart, Carrefour, Meijer, and Target are actively expanding their base of supercenter stores, bringing to each marketplace new challenges that have never been seen before. However, some markets are experiencing a diferent type of challenge. Some markets in the United States have had supercenters operating in their area since the
1960's, and are facing the arrival of a second company. Meijer Corporation of
Grand Rapids, Ml operates a chain of 89 supercenter stores in Michigan and has done so since 1962 (Meijer, 1984 ). Wal-Mart recently began Michigan
Supercenter operations in 2000 while facing heavy competition from Meijer,
creating an unprecedented situation where Wa�Mart could be threatened due
18 to an existing portfolio of stores. This is a new frontier in supercenter,· competition with a conclusion that. ..- is largely unknown.
19 CHAPTER Ill
METHODS AND PROCEDURES
3. 1 Study Area
The study area selected for this research is the State of Michigan, located in the Midwest region of the United States. Michigan had an estimated July 2006 population of just over 10 million people, most of whom inhabit the southern half of the state (US Census Factfinder, 2007). The state's population is highly centralized, with Wayne, Oakland, and Macomb counties in the metropolitan Detroit area comprising 40% of the population
(Michigan in Brief, 2007). Most retail operations in Michigan operate in the state's Lower Peninsula due to this centralization, although Wal-Mart has a significant presence in the Upper Peninsula region.
The state was chosen for intensive study due to the unique competition that takes place between two major discount retailers. Wal-Mart Corporation of Bentonville, AR has faced stif competition since its entry into Michigan in
1990 from Grand Rapids, Ml based Meijer Corporation. This competition is signifcant and worthy of academic study as both are major operators of supercenter in the region. Most of this competition takes place in the southern half of the lower peninsula of Michigan, and both firms maintain significant clusters of stores in close proximity to each other (Figure 3.1 a).
20 Supercenter Locations Michigan, 2007
Legend M Suprcent 0 35 70 140 Stre Chain --==---===------Miles • Me;• * Wal-Man
Sources: Chain Store Guide. 2007, ESRI ArcGIS Online. 2007 Chris washebek, 2007
Figure 3.1 a - Supercenter Competition in Michigan
21 3.2 Research Design/Data Collection
A combined quantitative and qualitative approach was used to complete this research, and in many cases allowed for the compilation of complementary information. Data such as market share information, company news, and clustering statistics are portrayed in a way that tells the story behind the numbers. The combination of data disseminated from a GIS, financial and market share data, as well as news articles outlining the plight of each firm allowed for a comprehensive analysis of supercenter retailing in
Michigan.
Retailing is a very competitive industry, and as such, the acquisition of accurate financial data can be very dificult even from the most public of companies. The largest share of data was obtained through the many
diferent publications and services of Chain Store Guide (CSG), a leading
provider of retail data and consulting services based in Tampa, FL. In order
to obtain the most accurate information regarding the sales performance and
square footages of individual outlets, the retail consulting division of CSG was
employed to provide a database with this information for every Meijer, Wa�
Mart, Target, and Kmart in Michigan (Chain Store Guide - Custom Database,
2007). Coordinates for each location were also provided within this database,
making the geocoding process very simple.
The aforementioned database provided by CSG provided the store
locations for the year 2007; however, to thoroughly examine each retail
chain's movement across time, obtaining locations for other time periods
22 became necessary. CSG publishes an annual publicaton titled, "Directory of
Discount and General Merchandise Stores." These books contain a directory of every discount and general merchandise store in the United States as well
as a wealth of information about each firm. To create a relatively even set of time periods, the 1995 and 2000 editions of the publication were consulted.
Based on the address of each individual location, these stores were
appended to the existing GIS database. Separate attribute columns were
then added, indicating whether or not each individual store was in existence
in 1995, 2000, or 2007. The 1998-2006 editions of the same books were
utilized to obtain financial information for Wa�Mart, Meijer, Kmart, and Target.
In addition to acquiring all of the spatial information, several sources
were consulted to determine the financial situation of all four firms. Financial
infrmation was gathered using the Directory of Discount Stores publications
for a nine year time period between 1998 and 2006. The source was very
important in tat Meijer, a private company, does not release its financial
information. Additionally, the annual reports from Wa�Mart, Target, and
Kmart were utilized to gain a further historical perspective on the financial
situation of each company.
Information on the market share of each supercenter operator by Core
Based Statistical Area (CBSA) was collected from the 2004-2007 editions of
the Grocer Industr Market Share Guide, published by Chain Store Guide.
The statistics collected from these publications indicate the percentage of
market share each grocery or discount store has amongst their competitors in
23 each metropolitan area. Specifically, data was gathered for 11 CBSA's in
Michigan, covering most of the state's largest cities. When combined with the pattern of growth for Meijer and Wal-Mart as well as articles about both companies' strategies, these numbers are easily explained by all surrounding factors.
3.3 Formatting, Processing, and Analysis of Data
Cluster Analysis
As stated previously, the way in which supercenter compete in the state of Michigan is unprecedented and warrants additional analysis. To determine the distance from the outlet of one company to the nearest store of its competitor, a GIS was used to obtain the necessary results. ESRI ArcGIS
9.2 was used to plot and analyze each store, which was geocoded using geographic coordinates included in the dataset. The database purchased from Chain Store Guide was utilized in this analysis, and additional locations for WalMart and Meijer in 1995 and 2000 were added to the existing data.
The tool routinely used in ArcGIS to determine the extent of clustering across space is the "Average Nearest Neighbor'' tool in the program's Spatial
Statistics menu (ESRI, 2007). However, the tool provided by ESRI has its shortcomings; the average distance from a given point to the nearest point could only be processed within one firm and time period. To calculate distances across two datasets, a third-party ArcGIS extension would be required to generate distances from each store to the competing chain's nearest store. Hawth's Tools, a free extension created by Hawthorne Beyer,
24 an ecologist, allows a GIS user to calculate distances both within and across datasets and shapefiles (Beyer, 2004). While not explicitly stated on the extension's support webpage, the program appears to calculate each point's
"nearest neighbor" using Euclidean distance.
Shapefiles were created for both Wal-Mart and Meijer that included locations for each firm in 2000 and 2007 based on information from both the custom database provided by CSG and the respective yearly editions of the
Director of Discount and General Merchandise Stores. Once the geocoding was complete, the Nearest Neighbor function in Hawth's Tools was employed to determine the distance from an outlet to the nearest competitor's store.
The output from this process is a table that includes the original store location, nearest competing store location, and the calculated Euclidean straight-line distances. Measurements for several scenarios were executed, such as the distance from all converted Wa�Mart Supercenters to the nearest
Meijer. This information provides a strong quantitative measure of both chain's competitive tactics in recent years.
Retail Positioning Ma1ix
The primary question being asked in this research is if either Wal-Mart or Meijer has a distinct spatial and demographic positioning advantage in
Michigan. With the information collected on the clustering of stores and the demographic changes for most Michigan metropolitan areas, the method for determining the strength of spatial and demographic positioning will be the utilization of a custom matrix. The most similar method to this is the "Market
25 Attractiveness Matrix" as displayed in the book Location Strategies of Retail and Service Firms (Ghosh and Mclaferty, 1987). In this metric, "Competitive
Position" and "Economic Potential" make up the axes of the three by three cell matrix, delineating three "positive," "neutral," and "negative" areas of retil attractiveness.
This matrix, known hereafter as the "Retail Positioning Matrix," will be made up of two axes with three rows each, the axes being "Competition" and
"Retail Sales" (Figure 6.1 b). On the "Competition" axis, three indices will denote the level of competition for each individual store based solely on the distance from a given outlet to the nearest competitor's store: Nor
Competitive, Competitive, and Very Competitive. The "Retail Sales" axis will be broken down into three categories that indicate the overall population trend of an area: Slow, Moderate, and Rapid Growth.
For both measures, county-level data from the 2007 Michigan State
Profile, a publication by Woods & Poole Economics Inc., will be used (Woods
& Poole Economics, 2007). The "Retail Sales" axis data will be drawn from the change in retail sales between 2000-2007, and 2007-2015 in percentage format. An argument against using this measure is that the same growth percentage in a small and large city will result in drastically different raw sales numbers. However, this is most important when determining the possibility of a market expansion, which is not the focus of this method. The Retail
Positioning Matrix was designed to determine whether Wa�Mart or Meijer's
existing stores have superior store locations; therefore, a sharp percentage
26 increase in retail sales for any given county, small or large, would benefit the stores involved equally.
There will be a total of three matrices generated, each providing a score fr different competitive situations between Wal-Mart and Meijer over time: (1) 2000 Wa�Mart Discount Stores vs. Meijer Stores, (2) 2007 Meijer
Stores vs. Wal-Mart Supercenters, and (3) 2007 Meijer Stores vs. All Wa�
Mart Stores. In all three matrices, Wal-Mart and Meijer stores will be given classifications in these two categories and will then be entered into the Retail
Positioning Matrix. Once the totals for each chain are in the matrix, a score will be assigned based on the stores' position amongst the nine. The most advantageous position is a situation where retail sales in a given metropolitan area are rapidly growing and the store is "NonCompetitive," and is assigned a score of 5. Conversely, the least advantageous position is in a "Very
Competitive" ara with "Slow Growth" in retail sales, yielding a score of 1.
The number of stores for the two chains in each cell will then be multiplied by the score in the corresponding cell. An overall score for each chain will be derived from this operation, giving an indication as to which chain has a spatial and demographic advantage in Michigan.
27 CHAPTER IV
HISTORY OF SUPERCENTER OPERATORS IN MICHIGAN
4.1 1962: Ground Zero of Discount Retailing
The year 1962 represents the beginning of what has become the foundation of today's retail environment. A disproportionately high number of large retailers had begun operations in 1962, including Wal-Mart, Target, K
Mart, Meijer (first supercenter), Kohl's, and Crate and Barrel (Meijer, 1984;
Rowley, 2003). While all of these companies evolved during the same era, their futures could not be more diferent. Most of these companies, regardless of their place of origin, would eventually end up in heavy competition with each other decades later.
In the 1960's, discount stores were not highly regarded by retail industry analysts and corporate CEO's alike. One of Target's first presidents, as well as founder, Douglas Dayton found himself defending the opening of his new discount chain to members of the American Merchandising
Corporation. Other members, many owners of their own large department stores, were against this type of retail growth and especially could not understand their new concept, as Dayton was the owner of a successful department store (Rowley, 2003). The shif from the traditional department store to discount stores as the largest retail medium was quite drastic.
Today, traditional department stores in both downtown areas and in suburban
28 shopping malls are feeling ill effects from the evolution of big box discount stores.
All of the stores mentioned above have gravitated their way into
Michigan, but this chapter will only examine those chains that have supercenter stores and operate in Michigan: Wal-Mart, Meijer, K-Mart, and
Target. To truly understand the retail landscape of Michigan, knowledge of the background of these companies is required.
4.2 Target Corporation
Founded: 1962 Headquarters: Minneapolis, MN Store Count: 1500+ Number of Michigan Stores (2007): 57 Number of Michigan SuperTargets (2007): 0
Like many existing discount chains, Target Corporation began as a traditional retailer. George Dayton opened his first department store in 1902 in downtown Minneapolis, MN, and the company would eventually give way to becoming Target Corporation. Despite its Minnesota origin, Dayton's company would become linked to Michigan through the acquisition of the J.L.
Hudson Company of Detroit, Ml in 1969, creating the DaytonHudson
Company (Rowley, 2003). This would aid both companies later, as the demise of downtown retailing would take the Dayton and Hudson department stores with them.
Target discount stores did not expand in exactly the same pattern as
Wal-Mart, as they did not expand in dense clusters from their headquarter city, Minneapolis. Rather, they spatially expanded very quickly without
29 creating a critical mass of any kind. In 1969, Target's 17 stores were located
in Minnesota, Colorado, Missouri, and Texas (Rowley, 2003). At the time,
another company born in the same year, K-Mart, was expanding much more
quickly than Target. The response from Douglas Dayton, one of the five
Dayton brothers that started Target, was, "I am thoroughly convinced that we are producing a superior product which will bear the test of time." (Rowley,
2003). This foreshadowing eventually proved to be correct, especially in relation to their competition with S.S. Kresge's K-Mart stores.
Target continued to gain strength through the 1990's, and would begin to change and solidify their identity. In 1995, Target opened their first
SuperTarget in Omaha, NE, and has since expanded to 175 general
merchandise and grocery combination stores ("Target: About Target: Fast
Facts", 2007). Compared with its primary supercenter rival, Wa�Mart, Target has been very conservative and methodical with their expansion plans.
Despite their relatively slow growth in the supercenter sector, Target has
emerged as the second most-shopped retailer in the United States, only
trailing Wal-Mart ("Target Second Only to Wa�Mart", 2006). The company
has done so by differentiating their product mix to target a mid to upper-class
demographic. This success is shown in their "same-store sales" data, which
indicates the increased or decreased profitability of a company's existing
stores every quarter. In 2006, Target reported "same-store sales" increased
by 4.6%, well ahead of Wal-Mart's reported increase of 1.5% (Rivkin, 2007).
30 A steady expansion plan is being executed by Target Corporation, and the chain is attempting to operate approximately 2,000 stores by the year
2010 (Rivkin, 2007). The SuperTarget format could be very profitable for the company, but the lack of their own grocery distribution network may prevent
them from matching prices on products sold by Wa�Mart (Facenda, 2001 ).
Additionally, as of 2002, 60% of all SuperTarget locations overlapped with those of Wal-Mart (Rowley, 2003). However, with their diferentiated product and the niche they occupy in the retail market, Target is proving that they can
exist as a solid competitor to Wal-Mart.
Michigan Operations
Target entered the Michigan market in 1987 with plans to build up to
40 stores in the state, beginning with the Detroit metropolitan area. The
DaytonHudson Company fund Detroit, in particular, to be underserved by
retail (Paxton, 1986). Entry into the Detroit area would start a battle against
Troy, Ml based Kmart. Since then, Target has built up their portfolio of
Michigan stores past their initial planned buildup of 40 and currently operates
57 properties in the state (Chain Store Guide - Custom Database, 2007).
None of these Target stores are SuperTargets, most likely due to the heavy
competition existing between Wa�Mart and Meijer supercenter stores.
Should Target Corporation decide to launch SuperTarget operations in
Michigan, it would set up an unprecedented three supercenter firms
competing in the same area, potentially creating a situation of market
oversaturation.
31 4.3 Kmart Corporation
Founded: 1962 Headquarters: Hoffman Estates, IL- Part of Sears Holdings Company Store Count: 1400+ (2006) Number of Michigan Stores (2007): 85 Number of Michigan Super Kmarts (2007): 6
Kmart, once America's largest retailer, began as a simple five-and dime in downtown Detroit, Ml. S.S. Kresge's chain of discount stores then expanded throughout metropolitan Detroit, opening seventeen new Kmart stores between 1962 and 1963 (Turner, 2003). Without Wal-Mart competing directly with the chain for several years, Kmart grew rapidly, but did so at a cost. The rapid growth thought to improve the company's profitability by
Kmart CEO's would eventually lead to its near demise.
For much of their history, Kmart attempted to designate themselves as the "urban retailer," locating themselves primarily in city environments. In the
1970's, the chain began to build stores regardless of the suitability of their locations (Turner, 2003). At the same time Kmart was attempting to build an urban empire of stores, Wa�Mart quietly began developing the countryside and worked its way into major markets from the outside looking inward.
Seemingly ignoring the encroachment of their competitors, Kmart began to look for other ways to increase their profit line.
By the 1980's, Kmart felt comfortable enough with their position in the discounting marketplace that they acquired several subsidiaries, including
Waldenbooks, The Sports Authority, and OfceMax (Graff, 1998). In 1991,
Kmart took a large step forard and opened their first Super Kmart
32 supercenter store in Medina, OH (Graf, 1998). However, by the early to mid
1990's, Kmart began to see their retail stature decline severely. In 1990, Wal
Mart bypassed Kmart as America's largest retailer, with Wal-Mart having a far superior infrastructure (Graf, 1998).
Kmart's decline came from a lack of planning, mismanagement, and a mismatch in economies of scale. Marcia Layton Turner's book Kmart's 10
Deadly Sins illustrates some of the reasons for the company's poor performance, including the underestimation of Wa�Mart, not knowing its customers, and bad store locations (Turner, 2003). Kmart attempted to compete with Wal-Mart on a price basis in 2001, which eventually led to the company's eventual bankruptcy (Marquard, 2007b). Aside from the chain operating stores in very poor locations, Kmart could not viably sustain and grow its Super Kmart business. The company located its stores sporadically throughout the United States, and did not own its own grocery distribution system (Graf, 1998). As a result, Kmart's grocery operation became unprofitable.
Kmart publicly announced its financial condition by filing for Chapter 11 bankruptcy protection in 2002 ("Kmart Files Chapter 11", 2002). This follows the decision by Fleming Companies, Inc, a grocery distribution company, to halt the shipment of food to Kmart due to missed payments. Kmart filed for bankruptcy soon thereafter. The result of this was the closing of hundreds of stores throughout the United States (Turner, 2003). It was Kmart's hope that the closing of the most unprofitable stores would help revive the company.
33 A very short two years later in 2004, it was announced that Kmart
Corporation would purchase Sears, Roebuck, and Company for $11 billion
(Bhatnagar, 2004). The combined company would eventually become known as the Sears Holdings Corporation. As a part of this merger, Kmart essentially abandoned its plans for a nationwide expansion of their Super
Kmart stores and planned to reinvent itself by investing in Sears Holdings. It was proposed that the two chains would benefit by selling each other's products at both store concepts, including Sears' exclusive Craftsman tools and Kmart's Martha Stewart collection. The birth of Sears Holdings allowed
Kmart to reinvent itself and further diferentiate themselves from Wal-Mart, who soundly defeated them in the supercenter market. With the merger complete, Sears Holdings Corporation appears to be on its way to financial stability. In 2006, the company reported a net income of $858 million, indicating that Sears Holdings' initial reconstruction eforts may be working as planned ("Sears Holding Corporation", 2007). As successful as the chain may become, the initial growth and strategies of the original Kmart
Corporation will be viewed as a spatial and financial cautionary tale, demonstrating the danger of losing strategic focus.
Michigan Operations
Kmart currently operates 85 stores throughout Michigan, including six
Super Kmart stores located in metropolitan Detroit. It appears that the company is not currently expanding based upon examination of their most recent store locations. The Super Kmart locations near Detroit appear to be
34 legacy stores, as the former corporate headquarters of Kmart was located in nearby Troy, Ml. Kmart's supercenter operation appears to be in decline, making the company's future Super Kmart competition in Michigan non existent.
4.4 Wal-Mart Corporation
Founded: 1962 Headquarters: Bentonville, AR Store Count: 3300 (2300 Supercenters) Number of Michigan Stores: 79 (45 Supercenters)
Wal-Mart Corporation had a very humble beginning when one compares it to the retail powerhouse it eventually became. The company's first store opened in Rogers, Arkansas in 1962, with twenty-three more opening by 1967 ("The Wal-Mart Timeline", 2007). This initial expansion took place throughout the Arkansas countryside, inconspicuously striving for the critical mass that would someday let them dominate the United States' retailing environment. From this small beginning, Wa�Mart became the
United States' largest employer, corporate real estate owner, and is the equivalent of China's eighth largest trading partner (Boarnet, et. al, 2005).
Wal-Mart has emerged in the United States and many other countries as a leading retailer, and has become almost monopolistic in its expansion and capturing of market share on a global scale. Their growth since 1990 has been astounding, especially with their Supercenter format. In 1990, Wa�Mart operated nine Supercenter stores, and increased this number to nearly 900 in
2000 (Fishman, 2006). The company since that time has expanded
35 worldwide, and now operates almost 2,500 Supercenters in ten countries,
with 20% of their overall business taking place abroad (Wal-Mart Stores, Inc.
Annual Report, 2006). As Wal-Mart.. has a large profit coming in from its
stores in the United States, the company will be able to compete based on
price abroad and potentially dominate many more markets in the future
(O'Higgins and Weigel, 2002).
As successful as the company has been, Wal-Mart has encountered
dificulties with its business operations. As the chain began to open new
stores through the 1990's, its revenue generation deteriorated more than any
of its competitors (O'Higgins and Weigel, 2002). However, as Wa�Mart
began to exponentially expand its Supercenter operation, its financial
condition appeared to improve due in part to its increased eficiency. The grocery industry is a high volume, low yield business, and Wa�Mart
Supercenters are not an exception to that rule. Wa�Mart Supercenters are on average double the size of a Wal-Mart discount store and generate twice as much in sales and income (Graf, 2006). The reasoning for Wal-Mart
building more of these stores is quite clear.
The location strategies of Wa�Mart have been well documented. In a
1998 study, it was found that fifty percent of their Supercenters were located
in counties with fewer than 50,000 people (Graf, 1998). It was also found
that this replicated the strategies Wal-Mart utilized in locating their original
discount stores, and as before, faced little competition in these rural areas.
Based on store listings from Wa�Mart's corporate website, their expansion in
36 Michigan was no exception, with stores scattered across the countryside
("Walmart.com - Store Locator", 2007). However, it was WalMart's future expansion to the cities and its tactics in dealing with the existing supercenter competitors that captures the most attention.
As stated previously in the literature review, WalMart has responded to more stringent regulations regarding the stores' size by developing a more compact Supercenter store. However, laws such as these do not compare to the court of public opinion. Countering the notion that Wal-Mart is a "lowend" retailer, the chain has developed an upscale version of their Supercenter store. Wal-Mart opened the first such upscale store in Plano, TX, and features a quieter and more aesthetic shopping experience (Embrey, 2006).
Other models such as one resembling a European village are also being planned., (Gillette, 2005). Wal-Mart also continues to operate Sam's Club warehouse club stores, targeting additional customers that may not patronize their discount stores or supercenters (Wal-Mart Stores, Inc. Annual Report,
2006). Despite the continued innovation of the chain, Wal-Mart has run into a problem that can be dificult to fathom. The small retailer from Arkansas suddenly had a problem with overexpansion and withinchain store cannibalization.
In June 2007, Wal-Mart announced they would reduce their
Supercenter expansion in the United States by more than 25 percent, in part to reduce the cannibalization of their existing stores (D'lnnocenzio and Kabel,
2007). The chain appeared to also realize that their role in protecting the
37 environment and improving the customer experience outweighs the mission of providing "everyday low prices" (D'lnnocenzio and Kabel, 2007). Others think that Wal-Mart's dominance of the retail market is coming to an end. The increased competitive competence of other retailers and the prominence of online shopping have possibly decreased WalMart's clout in the marketplace
(McWilliams, 2007). It was also suggested that WalMart is falling short in its campaign to attract afluent shoppers. As competition with other chains continues to increase, it appears that WalMart will need to focus on the quality of the shopping experience to maintain its edge in the American market.
Michigan Operations
As of April 2007, Wal-Mart operated thirtyfour Discount Stores and fortyfive Supercenters in Michigan, with many of the Supercenters being converted from former Discount Stores. WalMart has constructed or renovated many stores in the Supercenter format since that time.
Conversions since April 2007 have been done in: New Hudson, Commerce,
Shelby Township, Three Rivers, and Kalamazoo ("Michigan", 2007). A new
Wal-Mart Supercenter was also constructed in Livonia, Ml, and Comstock, Ml is awaiting the arrival of a Supercenter conversion. Despite the reduction in store construction company-wide, Wal-Mart continues to aggressively expand in the Michigan market.
38 4.5 Meijer Corporation
Founded: 1934; First supercenter: 1962 Headquarters: Grand Rapids, Ml Store Count: 180+ (2007) Number of Michigan Stores (2007): 89
Meijer, Inc. was founded by a very unlikely businessman, Hendrik
Meijer, who emigrated from the Netherlands in 1907 (Meijer, 1984). As a very independent minded, working-class man, he eventually became a barber and did not open his first grocery store until 1934. North Side Grocery in
Greenville, Ml was the first grocery store owned and operated by Hendrik
Meijer, which began as a local corner market (Meijer, 1984). His first store was very successful, even when faced with heavy competition from then national grocery leader A&P, the Great Atlantic and Pacifc Tea Company.
Meijer was able to compete with the company based on emulating A&P's strategies observed before their arrival in Greenville, but also successfully competed against a large chain on the basis of price, foreshadowing the innovation and stro� business-sense that would be needed to compete in the present day (Meijer, 1984 ).
Hendrik Meijer expanded his chain around the Grand Rapids, Ml area for the next three decades, but the year that Meijer shaped his company's destiny was 1962. Responding from the threat of discount chains opening up stores near his own grocery stores, Meijer began drawing plans to incorporate both concepts in the same building (Meijer, 1984). While some believe the supercenter concept Meijer was proposing was a product of Europe, the development of the first present-day Meijer store was through Hendrik
39 Meijer's own innovation. The first Meijer Thrifty Acres supercenter was opened in 1962 in Grand Rapids, Ml with an initial store size of approximately
100,000 square feet. Ironically, stores opened in the first round of construction were built with a thick concrete floor so the building may be used as an automobile dealership if the enterprise failed (Meijer, 1984). As the company expanded through the 1960's and 1970's, it became apparent that
Meijer would not become a failing enterprise. Meijer eventually expanded beyond the borders of Michigan into Indiana and Ohio, where they would meet their most significant competitor: Wa�Mart.
Long before Wal-Mart entered Michigan, Meijer was competing with them in Indiana and Ohio, but most significantly in Cincinnati, OH during the
1980's (Bianco, 2006). Wa�Mart would not open their first Supercenter format store until 1988, making them only an indirect competitor to Meijer at that point in time (Graf, 2006). In 1990, Meijer began their first round of competition with Wa�Mart in their home state of Michigan. At that time, Wal
Mart was only building their discount store format stores in the state, maintaining Meijer's advantage as a supercenter retailer. However, it was predicted immediately afer Wal-Mart's entry that Meijer would be one day fight to stay in business, especially once Wa�Mart made the decision to build
Supercenter format stores in Michigan ("Meijer faces chalenge from Wal-Mart thrust", 1990).
Meijer made its first ofensive maneuver against Wal-Mart in 1993, attacking the company for their misleading operating slogan: "Always the low
40 price. Always" (Bianco, 2006). Federal regulators agreed with this stance, with Wal-Mart changing their slogan to, "Always low prices. Always" (Bianco,
2006).
Meijer's current challenge began seven years later in the year 2000, when Wal-Mart built its first Supercenter in Michigan. The company would endure a major identity crisis in the early 2000's as they battled a competitor that could profitably maintain a price advantage due to economies of scale.
By 2004, Meijer was in dire straits. While the company was successfully implementing new stores with relatively little competition in metropolitan Chicago, the battle for Michigan was tougher than had been imagined (Gallanis, 2000). Wal-Mart Supercenters began affecting Meijer's bottom line, leading to the termination of almost 2,000 managers in the company ("Meijer Reorganiztion Afects 1,900 Positions", 2004). During this time, Meijer Corporation was attempting to define itself, as the supercenter aspect of their stores was no longer unique. Rumors of a takeover by British grocer Tesco were rampant, leaving.. the company's status as a locally-owned, private company in question ("Tesco-Meijer Deal Rumors Swirl", 2005).
In 2003, Fred Meijer, the son of founder Hendrik Meijer, met with his executives to determine what Meijer Corporation had to become to survive in a retail landscape run by Wal-Mart (Marquard, 2007). They discovered soon thereafter that the company could not compete on a pricing basis. Rather than utilizing the Wa�Mart Every Day Low Price (ELDP) method, Meijer chose to implement a hybrid of ELDP and "Hi-Lo" pricing (Marquard, 2007).
41 This program became known as Meijer's "Price Drop" program, essentially a
program that continually implements unannounced price cuts on their
merchandise ("Meijer to Launch 'Price Drop' Program", 2006).
Along with a refocusing of their pricing strategy, Meijer focused on the quality of their own products. Meijer operates an extensive private, store label food product line, and has won several awards based on quality, such as their frozen pizza and barbecue sauce being rated number one by the
Cincinnati Enquirer (Thayer, 2003). This bodes well for Meijer, as their private products accounted for approximately fifteen to seventeen percent of dollar sales in 2003 (Thayer, 2003). The corporate refocusing of Meijer did not go unnoticed, as they received a very large honor in 2006. In December
2006, Progressive Grocer Magazine named Meijer Corporation "Retailer of the Year," recognizing the company's quality and customer service (Dowdell and Major, 2006). Progressive Grocer cited the company's relationship with their customers, a reputation for low prices and quality, and relative agility due to its private ownership (Dowdell and Major, 2006).
Meijer began as a grocery store, and is making strides to return to these roots. While the company currently utilizes 40-45 percent of its floor space for groceries, it is probable that this will increase, as the food quality is partially what diferentiates Meijer from Wal-Mart (Thayer, 2007). It has been mentioned that Meijer may be attemp• ting to partially emulate Cincinnati based
Kroger, as they have become especially adept at competing with Wal-Mart nationwide (Thayer, 2007). Recognizing its strengths and building of of them
42 is what allows Meijer to thrive in the harsh competitive environent brought by WalMart.
Looking toward the future, Meijer has made its intentions known that it will not surrender and maintain the status quo. In March 2007, Meijer
Corporation announced they would invest $463 million in the state of
Michigan by expanding their Lansing Distribution Center, opening three new stores in 2007, and remodeling five existing stores ("Meijer invests In
Michigan", 2007). Meijer also opened their first LEED-certified (Leadership in
Energy and Environmental Design) store in Alien Park, Ml in 2007 and announced its plans to construct seven more stores in 2008 (Kenny, 2007).
To address increasing competition with WalMart, Meijer is planning on remodeling all stores older than five years at an undisclosed cost (Kenny,
2007). All of these efforts are required to attempt to stay ahead of Wal-Mart in the supercenter race.
Today, Meijer Corporation is one of the largest operators of the supercenter format in the United States and the nation's tenth largest private company, operating over 180 combination grocery and general merchandise stores (Dowdell and Major, 2006). The company has nearly half of its stores in its home state of Michigan, and also operates in the states of Illinois,
Indiana, Kentucky, and Ohio ("Meijer: Store Locator", 2007). Given its size,
Meijer utilizes an outstanding distribution network, operating three distribution centers in Michigan and one in Ohio. Looking to the future, Meijer put forth a goal of operating 400 stores by the year 2020 (Dowdell and Major, 2006).
43 While their relatively slow growth process will make this a challenging goal to reach, Meijer believes it can continue to be successful through "slow, steady and thoughtful growth" (Kenny, 2007). In general, supermarketers are seen to be the least successful among firms entering the discounter industry, but
Meijer has been a great example of a company that can do so and survive
(Laulajainen, 1987).
Michigan Operations
Meijer operates approximately half of its store portfolio in Michigan and has concentrated their stores primarily around major metropolitan areas.
Many of their stores are in direct competition with Wa�Mart stores and
Supercenters, which in turn has afected Meijer's market share in these areas. In 2008, Meijer is scheduled to open three additional Michigan stores in Birch Run, Clinton Township, and Davison, all close to metropolitan areas.
The company's relatively slow expansion could be a boon or bust for Meijer, with the results yet to be seen.
4.6 Company Financials
Target Corporation
Target Corporation has done very well at managing its growth throughout its nationwide expansion. Table 4.1 below illustrates their relative success. Especially significant is the fact that Target expanded by 76% beteen 1998 and 2006 while increasing their sales per store numbers.
While the company has been doing so very slowly, their steady growth of
44 SuperTarget stores does not appear to have afected Target's profit margins, as the sales per square foot increased every year beteen 2002 and 2006.
Leading discounter Wal-Mart's sales per square foot figure is 54.8% greater than that of Target, but Target's position as a niche retailer continues to make them a viable and profitable entity.
Table 4.6a - Target Corporation Financial Statistics (1998-2006)
1998 $27,158,000,000 796 85,570,000 $34,118,090 $317.38 1999 $29,927,000,000 943 88,039,000 $31,735,949 $339.93 2000 $24,417,750,000 914 98,255,000 $26,715,263 $248.51 2001 $29,000,000,000 978 102,945,000 $29,652,352 $281.70 2002 $32,588,000,000 1053 132,678,000 $30,947,768 $245.62 2003 $36,917,000,000 1148 144,648,000 $32,157,666 $255.22 2004 $41,346,000,000 1252 157,752,000 $33,023,962 $262.09 2005 $46,839,000,000 1330 167,580,000 $35,217,293 $279.50 2006 $52,620,000,000 1400 176,400,000 $37,585,714 $298.30
Kmart Cor�oration
Kmart's growth was very explosive until companies like Wa�Mart began expanding toward the urban areas where they were located. As such, the company began losing money significantly starting in 2003 (Table 4.6b)2.
Between 1998 and 2006, Kmart closed 33% of its stores, including 40 of its
Super Kmart supercenter stores. A problem plaguing Kmart is their abysmal
sales per square foot figure. Compared to Wa�Mart, Target, and Meijer,
Kmart places last in this category. Additionally, even as Kmart was closing a
large number of their stores to cut their costs, their sales per store plummeted
2 Kmart became a part of Sears Holdings Corporation in 2004. The sales figures in this table are specific to Kmart stores.
45 at a greater rate than their store closings. This fgure, as high as $19.3 million per store in 2002, has dropped to $12.8 million by 2006. It is clear that Kmart is struggling in all financial facets of their organization, and an improved form of reconstruction strategy will be needed to save the company.
Table 4.6b- Kmart Financial Statistics (1998-2006)
Kmart (Sears Holdings Corporation)
$32,183,000,000 $15,166,352 $207.77 1999 $33,711,692,000 2161 $15,600,043 $219.72 $32,931,000,000 2177 154,567,000 $15,126,780 $213.05 $36,525,000,000 2103 225,494,175 $17,368,046 $161.98 $35,080,000,000 1822 201,897,575 $19,253,568 $173.75 $30,762,000,000 1829 196,114,525 $16,819,027 $156.86 $23,253,000,000 1506 161,480,850 $15,440,239 $144.00 $19,701,000,000 1479 152,152,275 $13,320,487 $129.48 $18,100,000,000 1417 145,826,000 $12,773,465 $124.12
Wal-Mart Corporation
Wal-Mart Corporation has been wildly successful over the last ten years, increasing their store portfolio by 41.2% between 1998 and 2006. An amazing part of this expansion is the construction, or store conversion, of
1,304 Supercenter stores by 2005. In a matter of a few years, the
Supercenter has become Wa�Mart's primary and preferred format. Analyzing the sales per store numbers clearly explain why this is the case. During Wa'r
Mart's massive building campaign, the company was able to increase their sales per store by 26%. However, their sales per square foot decreased over time, likely a reflection of the large influx of Wa�Mart Supercenter stores.
This reflects the relatively low cost and margins of the grocery items in their
46 expanded stores, and should not be a reason for alarm. Wa�Mart appears to be in good financial shape as of 2006, and their expansion potential is unlimited.
Table 4.6c - Wal-Mart Corporation Financial Statistics (1998-2006)
Wal-Mart Corporation Year Sales Stores Total $117,958,000,000 $49,541,369 $535.00 1 $137,634,000,000 225,666,200 $56,476,816 $609.90 2000 $108,721,000,000 2526 233,907,600 $43,040,776 $464.80 2001 $121,889,000,000 2649 245,297,400 $46,013,213 $496.90 2002 $139,131,000,000 2862 276,257,400 $48,613,208 $503.63 2003 $157,121,000,000 2875 388,685,164 $54,650,783 $404.24 2004 $174,220,000,000 3022 408,559,290 $57,650,563 $426.43 2005 $191,826,000,000 3205 433,299,975 $59,852,106 $442.71 2006 $209,910,000,000 3363 454,660,785 $62,417,484 $461.68
Meijer Coqoration
Meijer Corporation has maintained a relatively strong bottom line as chain-wide competition with Wa�Mart and other competitors increased. A period of slow growth and slight economic decline occurred between 2003 and 2005, which is indicated by the construction of only 10 new stores between 2002 and 2005 along with a decline in sales per store and square feet (Table 4.6d). This aligns perfectly with the trouble Meijer was having in their initial supercenter competition with Wal-Mart, as mentioned previously.
Meijer was able to rebound from this setback, and increased their sales per square foot from 2004 to 2006 by 19%. Their current financial position places them very close to that of Wa�Mart, who both have similar per -store numbers.
47 Table 4.6d - Meijer Corporation Financial Statistics (1998-2006)
1998 $7,350,000,000 112 22,400,000 $65,625,000 $328.13 1999 $8,268,000,000 117 23,400,000 $70,666,667 $353.33 2000 $9,210,000,000 127 25,400,000 $72,519,685 $362.60 2001 $10,450,000,000 143 28,600,000 $73,076,923 $365.38 2002 $11,000,000,000 152 30,400,000 $72,368,421 $361.84 2003 $10,900,000,000 156 31,200,000 $69,871,795 $349.36 2004 $10,400,000,000 158 31,600,000 $65,822, 785 $329.11 2005 $12,900,000,000 162 32,400,000 $79,629,630 $398.15 2006 $13,500,000,000 171 34,470,000 $78,947,368 $391.64
Financial Summar
Wal-Mart has emerged as the discount and supercenter industry's leader, with very rapid growth occurring in their overall sales and store portfolio. The raw power of the company's financial numbers, however, overshadows those of their very strong competitors. Meijer, a $13.5 billion company in 2006, was found to be leading Wa�Mart in sales per store by
26.5% while trailing them in sales per square foot. Figure 4.7a graphs the progress of the four firms' sales per square foot, while Figure 4. 7b displays their sales per store numbers. Meijer compares very favorably to Wa�Mart, and lead Target and Kmart considerably on a per store basis. Kmart's graph line indicates a very consistent slide into unprofitability with no improvement in their sales figures since 2002.
Wal-Mart and Meijer have a very fierce competitive situation in
Michigan, and will be the focus of the remainder of this study. Meijer's very competitive financial numbers could be very adversely afected by the arrival of Wal-Mart Supercenters in Michigan, as nearly half of their store base is
48 situated there. Wa�Mart has the advantage of size and a large economy of scale, meaning... that a strategic error by Meijer could prove to be very costly.
As Wal-Mart constructs new Supercenters and converts! 4 a large number of their existing discount stores to the new format, Meijer requires a strategy of diferentiation and smart growth to stay financially viable.
49 Figure 4.6a - Retail Sales per Square Foot (1998-2006)
Sales per Square Foot
$700.00
$600.00
(JI $500.00 0
fl) $400.00
$300.00 -Targ�t,
$200.00
$100.00
$0.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year Figure 4.6b - Retail Sales per Store (1998-2006)
Sales per Store
$90,000,000
$80,000,000
$70,000,000
$60,000,000 fl) $50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year 4.7 Grocer Industr Market Share Infrmation
Another measure that can numerically explain an area's retailing environment is market share. Chain Store Guide annually compiles a listing of the market share fr all grocery chains, indicating the percentage of the population each chain draws to its stores (Chain Store Guide, 2007). Market share information for each major Michigan metropolitan area was compiled and analyzed, revealing the store performance by metropolitan area. Each city and associated suburbs are grouped into a Core Based Statistical Area
(CBSA), which delineate the boundaries of each micro or metropolitan area.
This portion of the study will examine eleven Michigan CBSA's: Ann Arbor,
Battle Creek, Benton Harbor/Niles, Detroit/Warren/Livonia, Flint, Grand
Rapids/Wyoming, Jackson, Kalamazoo, Lansing/East Lansing, Muskegon, and Saginaw (Appendices C-M). Data for these cities from 2002-2007 were compiled, showing the market share percentages for each grocery store chain and year. Additionally, a market share percentage per store was calculated utilizing store number and market share information from the same publication.
Overall Store Performance
Until recent years, Meijer held a signifcant advantage in grocery market share, placing first in most of Michigan's CBSA's. However, with the continued development of Wal-Mart's Supercenter portfolio of stores in
Michigan as well as other factors, Meijer's market share position has weakened somewhat significantly. Afer leading ten of the eleven largest
52 Michigan markets in 2004, Meijer only claims first place in six in 2007 (Table
4.7a). Additionally, Meijer has gained market share in only six of eleven markets between 2002 and 2007, while losing market share in all eleven between 2006 and 2007.
Table 4.7a - Grocery Market Share Positions - Meijer vs. Wal-Mart Supercenters
Meijer Wal-Mart Supercenters I Number of markets 6/11 1 /11 the firm leads in market share Average Market 25.6% 11.5% Share (bv CBSA)
Conversely, WalMart only controls one of Michigan's top eleven markets, Benton Harbor/Niles, but the chain is steadily gaining on its competition in other areas (Appendix E). Wal-Mart operates Supercenters in ten of the eleven largest Michigan markets, the exception being Ann Arbor, and experienced a gain in market share in all ten from 2002-2007 (Appendix
C). Furthermore, WalMart gained market share in all ten of its largest markets between 2006 and 2007, a stark contrast to the performance of
Meijer during the same time period. However, the sharp contrast in grocery market share gains and losses is expected, as a large competitor such as
Wal-Mart will by nature erode the market share of a metropolitan area's leading chain. Between 2000 and 2007, WalMart constructed or converted existing stores into 45 Supercenter stores, compared to only 27 for Meijer.
53 This can create an illusion that Meijer stores are generally failing, when in reality it is the rapid expansion of Wal-Mart that is causing the disparity.
It is evident that the recent general trend indicates a decrease in grocery market share for Meijer stores and an increase for Wa�Mart
Supercenters. Further analysis indicates that Wal-Mart is not completely responsible for Meijer's decrease in grocery market share numbers. Between
2006 and 2007, Meijer lost an average of 6.5% of its market share, while Wal
Mart only gained an average of 3.9% in the same category. Wa�Mart
Supercenters are certainly changing the dynamics of each market they enter, but it appears that other grocery chains including Kroger and Save-A-Lot are taking market share away from both Wal-Mart and Meijer. Retail markets are very dynamic, and the inclusion of market share numbers for other chains in each CBSA's table show that Wal-Mart and Meijer are not just competing against each other for market share.
Another rather important statistic to examine is the market share per store. The overall market share of a grocery chain for a market is heavily dependent upon the size of its presence in a metropolitan area. As stated previously, the raw market share numbers are indicative of a grocery chain's overall strength and size in a marketplace, but do not allude to how well each store is doing financially. Dividing the total market share by the number of stores operating in a CBSA gives a number indicating the market share per store. The average market share per store in 2007 is 8.2% for Wal-Mart
Supercenters and 8.2% for Meijer stores, making them equivalent.
54 Additionally, the average percentage diferential between Wal-Mart and Meijer in each market is only 0.4%, with a maximum of 2.4%. Given these numbers, it might be generalized that the grocery market share for WalMart and Meijer on a head-to-head basis is merely a function of the number of stores for each chain in a given area.
Chain Performance by CBSA
The previous section made it clear that WalMart and Meijer supercenter stores compete evenly on a store to store basis. However, the degree of success in each market varies wildly. Meijer's most successful market area is Grand Rapids/Wyoming, with a grocery market share of 39.0%
(Appendix H). As Grand Rapids is the corporate headquarters for Meijer, the preference for patronizing a local firm is evident. Wal-Mart carries a very small presence in the city, due partially to this local support, but may have more to do with the heavy saturation of the market by Meijer. Figure 4.7 a displays the locations of Wal-Mart and Meijer in metropolitan Grand Rapids,
Ml as of April 2007. Meijer has saturated the area with eleven Meijer stores, compared to three for Wal-Mart, none of which are Supercenters. This is the only major city in Michigan with such a clustering of stores, and Meijer has efectively created a situation where Wal-Mart cannot enter the market due to saturation.
A polar opposite of this situation exists in the Benton Harbor/Niles
CBSA (Appendix E). Meijer is ranked fourth in grocery market share there in
2007 afer placing first the year prior. With one store in the CBSA, Meijer
55 pulls in 12.9% of the market, while Wa�Mart is in the lead with two
Supercenter stores and a 25.2% market share. This is the only Michigan market where Wa�Mart places ahead of Meijer in market share, as Meijer is behind Kroger in the other four major markets it does not lead. As Wa�Mart continues to expand, the state may see more situations like the one in Benton
Harbor/Niles. Wa�Mart has already made significant gains on Meijer in the
Muskegon and Saginaw CBSA's (Appendices L and M). However, at the present time, Meijer appears to be holding its ground in most of their urban and suburban locations.
I, ' , ;::.rr �•;1J1rr r ., A
• 0 5 10 -c=-=----25 M4es Legend Store Locations * Wal-MartStores (3) Grand Rapids, Michigan, 2007 Meij e Stores ( 11 ) Sources: Chain Store Guide, 2007; • ESRI ArcGIS Online, 2007 Chris Washebek. 2007 Figure 4.7a - Wa�Mart and Meijer store locations in Grand Rapids, Ml, 2007
Based upon this collected data, it appears that as the per store market shares of the two chains equalize, the overall market share of an area is a
56 function of who operates more stores in a metropolitan area. Another factor to consider is the individual CBSA market share per store figures. While Wa�
Mart and Meijer have equal market share per store numbers, the actual fgures fluctuate wildly from city to city. For example, Meijer enjoys a 13.2% market share per store in Jackson, while in metropolitan Detroit, the number is a very small 0.6% (Appendices I and F). This is likely a factor of the amount of overall competition in these regions, with light competition in
Jackson and heavy competition in metropolitan Detroit. Additionally, the low
0.6% market share per store is inconsequential if the overall 'pool' of retail sales for an area is large, meaning that the store may be experiencing the same volume of retail sales as a store with a 13.2% market share in another metropolitan area.
Both Wa�Mart and Meijer appeal to different demographics in every market they enter, as is shown by the preference for one chain over another
in the market share tables. Meijer has indeed lost ground to Wal-Mart over
time, but has by no means been overrun. Wal-Mart has operated their
Supercenter format fr seven years in Michigan and only leads one major
market, a major accomplishment for Meijer and other grocery store
competitors. As Wa�Mart continues to build their Supercenter stores in these
metropolitan areas, Meijer will need to focus on its strengths to survive in the
Michigan marketplace.
57 CHAPTERV
LOCATION STRATEGIES OF WAL-MART AND MEIJER
5.1 Location Strategies of Wa�Mart and Meijer
The to major supercenter store operators in Michigan are Wa�Mar and Meijer, and both have adopted and followed very diferent expansion strategies. It has been suggested that the basic discounter strategy was to stay in relatively large agglomerations, so as to minimize costs resulting from activities such as transportation and distribution (Laulajainen, 1987). Besides this general rule, every company has their own expansion methods. The strategies utilized by Wal-Mart and Meijer are quite diferent, which is a part of the reason it took thirtyeight years to directly compete in Michigan.
Wal-Mart Corporation Location Strategies
Contagious diffusion is what describes a good portion of location
strategies amongst companies (Laulajainen, 1987). This is a process where
stores radiate from a large city and progress outwards. However, Wa�Mart is one of the first companies to do completely the opposite and remain
successful. Rather than beginning operations in a city, Wal-Mart started in a
small town and expanded to other small towns, essentially creating a critical
mass of stores in the countryside. It took several years for the store chain to
begin operations in a sizeable city, which made some researchers take
notice. This method of expansion has been called "reverse hierarchical
diffusion," resulting in the chain entering cities later than other retail chains did
58 so (Laulajainen, 1987). The pattern accurately describes Wal-Mart's expansion of their discount stores, but their saturation of the United States makes the strategy seem irrelevant in their current expansion strategies.
However, Wa�Mart appears to be constructing their Supercenter stores in the same fashion, converting and building these outlets in sparsely populated areas and moving slowly towards the cities (Graff, 1998). The chain is currently building many Wa�Mart Supercenter stores at the periphery of larger urban areas, bringing with it challenges never before seen by pre existing retailers.
Meijer Corporation Location Strategies
Meijer Corporation utilized a very differer strategy than that of Wal
Mart. Rather than spreading out from small towns, Meijer expands around cities. The company has opened a large number of their stores at the periphery of metropolitan areas, usually near an expressway (Halverson,
1998). Meijer also clusters stores in large markets to minimize advertising and distribution costs. Prominently displayed in Chapter 5.2, this trend has continued as Meijer expanded to surrounding states, and is especially evident when examining their store locations around Detroit, Ml and Chicago, IL. As
Wal-Mart primarily located their discount stores and Supercenters in the countryside, Meijer was protected from Wa�Mart's competitive influence for many years. However, the inevitable convergence of the two firms in
Michigan occurred in 1990 with the introduction of Wal-Mart discount stores, and in 2000 with the arrival of the first Supercenter.
59 Competition between Wal-Mart and Meier
Competition between the two firms has been fierce, with WalMart positioning themselves in close proximity to Meijer in many cases, and Meijer locating near WalMart stores in some instances. WalMart might seem to be predatory in regards to their competition with Meijer, but some researchers are not convinced. Dr. Thomas Graff, an authority in retail firm strategies and cited several times in this thesis, indicated in a personal email that he does not believe Wal-Mart actively seeks out competition with Meijer, but also does not avoid it (Graff, 2007). Given Meijer's relatively strong financial standing, it might be unlikely that Wal-Mart is attempting to shut down the company, but may be utilizing a strategy such as cross-firm agglomeration. The company's two location strategies are different, but as their store locations converge, modifications are being made to make their strategies nearly equivalent.
5.2 Locations of Wal-Mart and Meijer in 1995, 2000, and 2007
The expansion strategies of each retail chain discussed in Chapter 5.1 become evident when viewing their locations over time. This section will display maps for both Wal-Mart and Meijer at three points in time: 1995, 2000, and 2007. Each year was chosen based on the timeline of competition between the two chains. In 1995, WalMart had a relatively minor presence in
Michigan, primarily operating outside of major metropolitan areas. The point in time at which data was collected for the year 2000 was just before the opening of WalMart's first Supercenter in Michigan, allowing a view at the
60 state's retail landscape before it completely changed. Finally, the 2007 map displays each chain's Michigan locations as of April 1, 2007.
Wal-Mart versus Meijer 1995
The year 1995 is a great point to begin the discussion of Wa�Mart and
Meijer's expansion strategies, as the accompanying map is a great example of the two chains' traditional market selection methods (Figure 5.2a). It is very clear that Meijer clusters around metropolitan areas, while Wa�Mart expanded throughout Michigan's countryside in the Lower and Upper
Peninsulas. Tracking Wal-Mart's expansion over time beginning at this early stage exemplifies the reverse-hierarchical difusion strategy executed in every new state. Especially in the northern portion of the Lower Peninsula and the
Upper Peninsula, Wa�Mart appears to be creating equal service territories while largely remaining out of major cities. However, even in 1995, some of the same competitive issues seen in the present emerged. Six Meijer locations outside of large metropolitan areas began competing in close proximity to a Wal-Mart sometime between 1990 and 1995, although at this time Wal-Mart was not yet employing their Supercenter format.
61 Store Locations Michigan, 1995
Legend 0 35 70 140 * \N.31-Mart Stores (36) --==---=:::::11------•Miles • Meijer Stores (51)
Sources: Chain Store Guide, 1995. 2007; ESRI ArcGIS Online. 2007 Chris Washebek, 2007
Figure 5.2a - Michigan WalMart and Meijer Locations, 1995
62 Wal-Mart versus Meijer, 2000
The competitive environment between Wa�Mart and Meijer changed in a relatively slight manner between 1995 and 2000. Figure 5.2b displays the store locations for Wal-Mart and Meijer in 2000. Both firms did what they do best; Wa�Mart continued to expand in the rural, less populated areas, and
Meijer continued to cluster around large metropolitan areas. However, it was during this time period where both firms became increasingly aggressive.
Meijer opened new stores in Cadillac and Port Huron, both near a Wa�Mart location, and Wal-Mart began to experiment with opening stores in metropolitan Detroit, Grand Rapids, and Flint. This is a very important moment in Michigan retailing history, as Figure 5.2b indicates the dynamics of the retailing environment months before the first Wal-Mart Supercenter opened its doors.
Wal-Mart versus Meijer, 2007
Since April 2000, Wal-Mart has opened up forty-fve Supercenters in
Michigan, with some stores being constructed from scratch and others resulting from the conversion of existing Discount Stores. By April 2007, both firms appeared to have become more aggressive toward each other. Figure
5.2c displays the distribution of Wa�Mart Discount Stores, Wal-Mart
Supercenters, and Meijer stores in Michigan. From a location standpoint, both Wal-Mart and Meijer continued to invade each other's territory, with Wa�
Mart beginning to saturate the cities and Meijer expanding into rural Michigan.
63 In the rural markets, Wal-Mart has placed Supercenter stores near many
Meijer stores, creating an abundance of retail space in small towns and cities.
Wal-Mart Discount Stores were located in all of Michigan's major urban areas by 2007, and it grew close to matching the number of Meijer stores in the Detroit, Flint, Lansing, Kalamazoo, and Muskegon markets. A strong contrast to this occurs in Grand Rapids, Ml, the home of Meijer Corporation.
Meijer appears to have completely saturated this market with twelve stores, and this can be seen as a significant reason why Wal-Mart has only opened three stores in metropolitan Grand Rapids. However, this is an anomaly in
Michigan, and many Meijer stores are faced with close, heavy competition from Wal-Mart.
Figure 5.2c also afirms the hypothesis by Graff that states WalMart is practicing reverse-hierarchical diffusion with the development of its
Supercenters (Graff, 2006). In Michigan, Wal-Mart constructed Supercenters in many small towns and has recently done so in smaller cities, including
Battle Creek, Flint, Kalamazoo, Muskegon, and Saginaw. It can be assumed, barring a reduction in Supercenter openings, that Wal-Mart will eventually build new stores or convert old stores in Michigan's larger cities over time.
This does not bode well for Meijer, as a large portion of their stores are located around larger cities.
64 Store Locations Michigan, 2000
Legend 0 35 70 14 * Vl-Mar Stores (46) --==--==------•Miles • Meijer Stores (62)
Sources: Chain Store Guide, 2000. 2007; ESRI ArcGIS Online. 2007 Chris washebek, 2007
Figure 5.2b - Michigan Wal-Martand Meijer Locations, 2000
65 Store Locations Michigan, 2007
0 !JI!' o·- -.,_ ·--� . . -o...... � o- ..,
E Legend * wal-Mart Stores (34) 0 35 70 140 --==---===------•Miles 0 wal-Mart Supercenters (45) • MeiJer Stores (89)
Sources: Chain Store Guide. 2007, ESRI ArcGIS Online. 2007 Chris washebek. 2007
Figure 5.2c- Michigan WalMart and Meijer Locations, 2007
66 A better understanding of Wa�Mart and Meijer's difusion.. patterns can be analyzed by viewing maps without the other chain's locations on them.
Figures 5.2d, 5.2e, and 5.2f display Wal-Mart's locations throughout Michigan in 1995, 2000, and 2007, respectively. Figure 5.2d, the 1995 Wa�Mart map,
clearly shows the company's relatively territorial expansion, with an even
spacing of stores throughout rural Michigan and relatively few stores in the city. Figure 5.2f shows Wa�Mart's 2007 locations along with the location of
their sole distribution center in Coldwater, Ml. Meijer's store locations can be
viewed in Figures 5.2g, 5.2h, and 5.2i, representing their locations in 1995,
2000, and 2007. Their three distribution centers in Grand Rapids, Lansing,
and Newport can be viewed in Figure 5.2i.
67 Wal-Mart Locations Michigan, 1995
Legend 0 35 70 140 --=::::::11--===------Miles * \/\el-MartStores (36)
Sources: Chain Store Guide, 1995. 2007; ESRI ArcGIS Online, 2007 Chris vvashebek, 2007
Figure 5.2d - Michigan Wa�Mart Locations, 1995
68 Wal-Mart Locations Michigan, 2000 ;:. ·I{_t...··
-.. -- -, •••-• - l
C
Legend 0 35 70 140 --===---===------Miles * V'Jal-Mart Stores(46)
Sources: Chain Store Guide. 2000. 2007; ESRI ArcGIS On!ine, 2007 Chris washebek. 2007
Figure 5.2e - Michigan Wal-Mart Locations, 2000
69 Wal-Mart Locations Michigan, 2007
0 1. ... , G;� o-- -� ,.. 0- . ·--··. . ·- --°'·! - --
Legend
'Mil-Mart Distribution Center .A. 0 35 70 140 * 'Mil-Mart Stores (34) --===---==------Miles 0 'Mil-MartSupercenters (45)
Sources· Chain Store Guide. 2007; ESRI ArcGIS Online. 2007 Chris Washebek. 2007
Figure 5.2f - Michigan Wal-Mart Store and Distribution Center Locations, 2007
70 Meijer Locations Michigan, 1995
Legend 0 35 70 140 --===---===------Miles • Meijer Stores (51)
Sources Chain Store Guide, 1995. 2007; ESRI ArcGIS Online. 2007 Chris washebek, 2007
Figure 5.2g - Michigan Meijer Locations, 1995
71 Meijer Locations Michigan, 2000
·"'--;..., • ...., N 'A·
-..- .... ·---.. ' Michigan Upper Peninsula ,., / {
Legend 0 35 70 140 --===---===------Miles e Meijer Stores (62) I--- . =- •-
Sources: Chain Store Guide. 2000. 2007; ESRI ArcGIS Onhne. 2007 Chris washebek.2007
Figure 5.2h - Michigan Meijer Locations, 2000
72 Meijer Locations Michigan, 2007
. "·-.. ·- ... �
Michigan Upper Peninsula �! ! \
Legend 0 35 70 140 A Meijer DistributionCenters --==:i--====------•Miles • MeijerStores (89)
Sources: Chain Store Guide. 2007, ESRI ArcGIS Online, 2007 Chris Washebek. 2007
Figure 5.2i - Michigan Meijer Stores and Distribution Centers, 2007
73 5.3 Nearest Neighbor Analysis
Based upon the maps shown in Chapter 5.2, it is clear that Wa�Mart and Meijer are located very close to each other. This section will analyze the exact distances between the two chains' stores in a variety of scenarios.
These distances were acquired using a free ArcGIS 9.2 extension called
Hawth's Tools (Beyer, 2004). Primarily marketed as a program fr ecology applications, the extension has a function not available in ArcToolbox: determining the nearest neighbor between two shapefiles by Euclidean distance. Unlike ArcGIS, which merely gives one figure indicating the average distance between points in one shapefile, Hawth's Tools allows a user to generate a table of distances for points in two datasets. The result is a more indepth analysis of how many stores are located in close proximity to those of a competing chain.
Meijer versus Wal-Mart: 2000
Wal-Mart was well established in Michigan in the year 2000 and had already begun to infringe on Meijer's locational monopoly. While not yet direct competitors in the food retailing market, Wa�Mart set itself up quite well for a more direct competitive battle with Meijer. Table 5.3a indicates the distance from all 62 Meijer stores to the nearest Wal-Mart Discount Store in the year 2000. In ten short years, Wal-Mart located furteen stores within two miles of a Meijer store, almost one-quarter of Meijer's store base. The average distance from Meijer to a Wa�Mart store in 2000 was 9.4 miles, with the longest distance being 25 miles. Meijer's store locations were becoming
74 increasingly claustrophobic, with competition from Wal-Mart being no more than a half-hour's drive.
Table 5.3a - Distances from Meijer outlets to the nearest Wal-Mart Discount Store, 2000
2000 - Distance from Meijer to the nearest Wal-Mart
Wexford Co. Wexford Co. FORT GRATIOT FORT GRATIOT St. Clair Co. St. Clair Co. GRAND RAPIDS GRAND RAPIDS
Washtenaw Co. Washtenaw Co. BAY CITY BAY CITY Ba Co. Ba Co. JENISON GRANDVILLE Ottawa Co. Kent Co. GRAND RAPIDS COMSTOCK PARK Kent Co. HOLLAND Ottawa Co.
75 Table 5.3a - Continued
FLINT FLINT Genesee Co. FLINT Genesee Co. WATERFORD Oakland Co. Oakland Co. GRANDVILLE Kent Co. Kent Co. GRAND RAPIDS GRAND RAPIDS Kent Co. GRAND RAPIDS COMSTOCK PARK Kent Co. NORTH MUSKEGON Muske on Co.
Livin ston Co. Uvin ston Co. ANN ARBOR Washtenaw Co. Washtenaw Co. ROYAL OAK AUBURN HILLS Oakland Co. Oakland Co. COMMERCE TWP WHITE LAKE Oakland Co. Oakland Co. BELLEVILLE YPSILANTI Wa ne Co. Washtenaw Co. SAGINAW BAY CITY Ba Co. MUSKEGON Ottawa Co. Muske on Co. ROCHESTER HILLS AUBURN HILLS Oakland Co. Oakland Co. KALAMAZOO Kalamazoo Co. CANTON Washtenaw Co.
Kalamazoo Co. GRAND HAVEN Ottawa Co. Muske on Co. WIXOM WHITE LAKE Oakland Co. Oakland Co. STERLING HEIGHTS AUBURN HILLS Macomb Co. Oakland Co. SHELBY TOWNSHIP AUBURN HILLS Macomb Co. Oakland Co. LANSING In ham Co. WESTLAND Wa ne Co. Washtenaw Co. PORTAGE PLAINWELL Kalamazoo Co. Alie an Co. LANSING CHARLOTTE In ham Co. Eaton Co.
76 Table 5.3a - Continued
NORTHVILLE Oakland Co. AUBURN HILLS Oakland Co. MONROE Wane Co. EAST LANSING In ham Co. SAGINAW
Midland Co. MASON In ham Co. TAYLOR Wane Co. ROSEVILLE Maco mb Co. OKEMOS In ham Co. SOUTHGATE Wane Co. CHESTERFIELD
Ionia Co. Kent Co. JACKSON JONESVILLE Jackson Co. Hillsdale Co. GREENVILLE GRAND RAPIDS Montcalm Co. JACKSON Jackson Co.
Wal-Mart versus Meijer: 2000
In terms of direct competition, Wal-Mart's store locations in 2000 were a bit more diversified, locating in both rural and urban areas. Table 5.3b shows Wal-Mart's fortysix Michigan locations in 2000, and besides the fourteen stores located within two miles of a Meijer store, a large number of stores were free from major competition. Fourteen of Wal-Mart's stores in
2000 were located thirty miles or more from a Meijer store, including five with
77 a separation of more than one-hundred miles. The average distance from
Wal-Mart to the nearest Meijer store in 2000 was 32.1 miles, a sizable advantage over Meijer.
Table 5.3b - Distances from Wa�Mart Discount Stores to the nearest Meijer store, 2000
2000 - Distance from Wal-Mar to the nearest Meijer
Wexford Co. FORT GRATIOT St. Clair Co.
Kent Co. HOLLAND Ottawa Co.
Genesee Co. Genesee Co. MOUNT PLEASANT MOUNT PLEASANT Isabella Co. Isabella Co. MUSKEGON
78 Table 5.3b - Continued
FLINT FLINT Genesee Co. Genesee Co. WHITE LAKE WATERFORD Oakland Co. Oakland Co. AUBURN HILLS Oakland Co. PLAINWELL Alie an Co. Kalamazoo Co. LANSING In ham Co. MOUNT PLEASANT Gratiot Co. Isabella Co. SAINT JOHNS EAST LANSING Clinton Co. In ham Co. FREMONr- NORTH MUSKEGON o Co.
Berrien Co. JONESVILLE Hillsdale Co. SOUTH HAVEN Van Buren Co. CARO Tuscola Co. COLDWATER Branch Co. Calhoun Co. STURGIS PORTAGE St Jose h Co. Kalamazoo Co. HOUGHTON LAKE CADILLAC Roscommon Co. Wexford Co. BIG RAPIDS GREENVILLE Mecosta Co. Montcalm Co. LUDINGTON NORTH MUSKEGON Mason Co. Muske on Co. BAD AXE BAY CITY Huron Co. Ba Co. GAYLORD TRAVERSE CITY Otse o Co. Grand Traverse Co. PETOSKEY TRAVERSE CITY Emmet Co. Grand Traverse Co. CHEBOYGAN TRAVERSE CITY Chebo an Co. Grand Traverse Co. ESCANABA TRAVERSE CITY Delta Co. Grand Traverse Co. ALPENA Al'.) ena Co. Ba Co. SAULT SAINTE MARIE TRAVERSE CITY Chi'.) ewa Co. Grand Traverse Co. IRON MOUNTAIN TRAVERSE CITY Dickinson Co. Grand Traverse Co. MARQUETTE TRAVERSE CITY Mar uette Co. Grand Traverse Co.
79 Table 5.3b - Continued
Meijer versus Wal-Mart: 2007
Meijer lost a lot of ground between 2000 and 2007, as Wa�Mart increasingly located near their existing stores. The average distance from
Meijer to the nearest Wa�Mart Supercenter of Discount Store in 2007 was 3.3 miles, approximately one third of the same number in 2000 (Table 5.3c).
Forty of Meijer's eightynine stores were within two miles of a Wal-Mart store, placing nearly half of the chain's Michigan store portfolio in a heavily competitive environment. Furthermore, only six of Meijer's outlets were more than ten miles from the nearest Wa�Mart, with the greatest distance being
15.3 miles. While only slightly over half of the Wa�Mart locations in the list are Supercenters, the general trend for Wa�Mart is to convert all of their
Discount Stores to the new format. It is becoming quite possible that Wa�
Mart could one day match most, if not all of Meijer's store locations, which could force Meijer into a strategic crisis.
Table 5.3c - Distances from Meijer stores to the nearest Wal-Mart store, 2007
2007 - Distance from Meijer to the nearest Wal-Mart Su ercenter or Discount Store
80 Table 5.3c - Continued
IONIA IONIA
Ionia Co. BENTON HARBOR Berrien Co. FORT GRATIOT
Wa ne Co. MONROE Monroe Co. PLAINWELL Alie an Co. PORTAGE Kalamazoo Co. GREENVILLE
Midland Co. OKEMOS In ham Co. ADRIAN Lenawee Co. ROYAL OAK Oakland Co. EAST LANSING In ham Co. WARREN Macomb Co. Macomb Co. HOLLAND HOLLAND Ottawa Co. Ottawa Co. COMMERCE TWP COMMERCE TWP Oakland Co.
81 Table 5.3c - Continued
TRAVERSE CITY TRAVERSE CITY Grand Traverse Co. CORUNNA Shiawassee Co. Shiawassee Co.
La eer Co. La eer Co. YPSILANTI YPSILANTI Washtenaw Co. Washtenaw Co. JENISON GRANDVILLE Ottawa Co. Kent Co. BAY CITY Ba Co. GRANDVILLE Kent Co.
Jackson Co. Jackson Co. GRAND RAPIDS COMSTOCK PARK
CHARLOTTE Eaton Co. Eaton Co. HOLLAND Ottawa Co. Ottawa Co. MOUNT PLEASANT MOUNT PLEASANT Isabella Co. BURTON Genesee Co. Genesee Co. LANSING LANSING In ham Co. In ham Co. CHESTERFIELD CHESTERFIELD Macomb Co. CANTON Wane Co. Wa ne Co. WASHINGTON TWP SHELBY TOWNSHIP Macomb Co. Macomb Co. SAGINAW SAGINAW Sa inaw Co. Sa inaw Co. PORTAGE PORTAGE Kalamazoo Co. Kalamazoo Co. GRAND RAPIDS COMSTOCK PARK Kent Co. Kent Co. FRASER ROSEVILLE Macomb Co. Macomb Co. WHITE LAKE WHITE LAKE Oakland Co. Oakland Co. GRAND LEDGE LANSING Eaton Co. In ham Co.
82 Table 5.3c - Continued
MADISON IIGHTS WARREN Oakland Co. STERLING HEIGHTS Macomb Co. SHELBY TOWNSHIP
BATTLE CREEK
Genesee Co.
Oakland Co. SOUTHGATE Wa ne Co. Wa ne Co. FLINT GRAND BLANC Genesee Co. Genesee Co. BAY CITY BAY CITY
Oakland Co. Oakland Co. AUBURN HILLS AUBURN HILLS Oakland Co. Oakland Co. WYOMING GRANDVILLE Kent Co. Kent Co. NORTH MUSKEGON MUSKEGON Muske on Co. Muske on Co. GRAND RAPIDS GRAND RAPIDS Kent Co. Kent Co. GRAND RAPIDS COMSTOCK PARK Kent Co. Kent Co. BRIGHTON HOWELL Livin ston Co. Livin ston Co. GRAND RAPIDS GRANDVILLE Kent Co. Kent Co. ANN ARBOR YPSILANTI Washtenaw Co. Washtenaw Co. NORTHVILLE LIVONIA Wane Co. Wa ne Co. SOUTHFIELD TROY Oakland Co. Oakland Co. LANSING LANSING In ham Co. In ham Co. CALEDONIA GRAND RAPIDS Kent Co. Kent Co. ROCKFORD COMSTOCK PARK Kent Co. Kent Co.
83 Table 5.3c - Continued
LOWELL GRAND RAPIDS Kent Co. ROCHESTER HILLS Oakland Co. ANN ARBOR Washtenaw Co. Washtenaw Co. MARYSVILLE FORT GRATIOT St. Clair Co. St. Clair Co. GRAND HAVEN Ottawa Co. MASON In ham Co. OXFORD Oakland Co. THREE RIVERS St. Jose h Co.
Wal-Mart versus Meijer: 2007
Wal-Mart is facing the same competitive difculties as Meijer, but operates several stores that do not have any large competitors nearby, specifically in the Michigan Upper Peninsula. The average distance from
Wal-Mart to the nearest Meijer store is 19.0 miles, partially inflated due to five stores being located more than one-hundred miles from their competitor
(Table 5.3d). Wal-Mart appears to be willing to enter Meijer's markets without hesitance, and forces Meijer to attempt to retain their existing customer base.
Should all of Wal-Mart's stores become Supercenters, this competitive situation would become as complex as it has ever been.
84 Table 5.3d - Distances from WalMart stores to the nearest Meijer Store, 2007
2007 - Distance from Wal-Mart Supercenters and Discount Stores to the nearest Meijer
Berrien Co. FORT GRATIOT St. Clair Co.
Branch Co. BATTLE CREEK Calhoun Co. WOODHAVEN
Monroe Co. PLAINWELL Alie an Co.
Midland Co. OKEMOS In ham Co.
85 Table 5.3d - Continued
TROY ROYAL OAK Oakland Co. EAST LANSING
Ottawa Co. Ottawa Co. COMMERCE TWP COMMERCE TWP Oakland Co. Oakland Co. TRAVERSE CITY TRAVERSE CITY Grand Traverse Co. CORUNNA Shiawassee Co. Shiawassee Co.
Wane Co. ROSEVILLE Macomb Co. LAPEER La eer Co. La eer Co. YPSILANTI YPSILANTI Washtenaw Co. ' Washtenaw Co. GRANDVILLE Kent Co. Ottawa Co. BAY CITY BAY CITY Ba Co. Ba Co. JACKSON JACKSON Jackson Co. Jackson Co. COMSTOCK PARK GRAND RAPIDS Kent Co. CHARLOTTE Eaton Co. MOUNT PLEASANT Isabela Co. Isabella Co. BURTON BURTON Genesee Co. Genesee Co. LANSING LANSING In ham Co. In ham Co. CHESTERFIELD CHESTERFIELD Macomb Co. Macomb Co. SHELBY TWP WASHINGTON TWP Macomb Co. Macomb Co. SAGINAW SAGINAW Sa inaw Co. Sa inaw Co. WHITE LAKE WHITE LAKE Oakland Co. Oakland Co. MUSKEGON MUSKEGON Muske on Co. Muske on Co. GRAND BLANC BURTON Genesee Co. Genesee Co.
86 Table 5.3d- Continued
TAYLOR TAYLOR
Genesee Co. Genesee Co. STERLING HEIGHTS SHELBY TOWNSHIP Macomb Co. Macomb Co. NEW HUDSON WIXOM Oakland Co. Oakland Co. AUBURN HILLS
Isabella Co. EAST LANSING Clinton Co. In ham Co. STURGIS THREE RIVERS St. Jose h Co. St. Jose h Co. COLDWATER Branch Co. NORTH MUSKEGON
Tuscola Co. SOUTH HAVEN Van Buren Co. Berrien Co. SANDUSKY FORT GRATIOT Sanilac Co. St. Clair Co. HOUGHTON LAKE CADILLAC Wexford Co.
Ba Co. BAY CITY B Co. TRAVERSE CITY Otse o Co. Grand Traverse Co. PETOSKEY TRAVERSE CITY Emmet Co. Grand Traverse Co. TRAVERSE CITY Chebo an Co. Grand Traverse Co. ESCANABA TRAVERSE CITY Delta Co. Grand Traverse Co. BAY CITY Ba Co.
87 Table 5.3d - Continued
SAULT SAINTE MARIE Chi ewa Co. IRON MOUNTAIN Dickinson Co. MARQUETTE Mar uette Co. HOUGHTON Hou hton Co.
Other Statistics
While Meijer is seeing Wa�Mart locate their stores ever closer to their own, they still have time to solidify their business strategy. Wa�Mart has either constructed or converted their stores into a total of fortyfive
Supercenters, leaving thirtyfur Discount Stores. Most of the existing Wa�
Mart Discount Stores are in urban locations, and true to Wal-Mart's reverse diffusion strategy, will be the last ones in Michigan to convert to the
Supercenter format. The average distance between Meijer and Wal-Mart
Supercenters in 2007 is 21.0 miles, explained in part by Wal-Mart's difusion pattern. However, Wa�Mart appears to be strategically converting their
Discount Stores to Supercenters, as ten of the twentyone stores converted between 2000 and 2007 were located within two miles of a Meijer outlet
(Table 5.3e). As Meijer expands rather conservatively compared to their much larger adversary, Wa�Mart will continue to build more Supercenters, leaving Meijer to respond in a reactionary fashion.
88 Table 5.3e -Distances from converted Wa�Mart Supercenters to the nearest Meijer store, 2007
2007 - Distance from converted Wal-Mart Supercenters to the nearest Meijer
Ottawa Co. BAY CITY Ba Co.
Muske on Co. JONESVILLE Hillsdale Co.
Chebo an Co. ESCANABA Delta Co.
89 CHAPTER VI
RETAIL POSITIONING MATRIX
6.1 Matrix Compilation
The analysis of Wa�Mart and Meijer involves some very complex data from many different sources, and could be analyzed infinitely. However, to
summarize each chain's performance in the Michigan Market, a simple, but accurate metric was devised. Titled the "Retail Positioning Matrix," this measure will attempt to quantitatively measure the quality of all Wa�Mart and
Meijer locations based upon competitive and predicted sales measures. The
result will be a weigted score that will indicate which chain is better positioned to compete in Michigan.
At the present time, there is no single tool known to measure a retail
chain's performance on a statewide or regional basis. Most current measures evaluate the suitability of a single site rather than a network of stores across
space. The Retail Positioning Matrix is modeled after what is called an
"Attractiveness Matrix," a nine by nine cell matrix utilizing competitive position
and economic potential measures to determine a site's suitability (Ghosh and
Mclaferty, 1987). However, the Retail Positioning Matrix is slightly different
in that it measures the strength of positioning for existing stores, and uses a
weighting system to determine a quantitative measure. As discussed in
Chapter 3.3, the matrix will consist of two axes, Competition, and Retail
Sales, and has a weighting system to indicate the overall spatial and
90 demographic strength of each store. When totaled, a quantitative measure of which supercenter chain has the spatial and demographic advantage in
Michigan will be the result.
Competition Axis
The Competition Axis will measure the competitiveness of each store's market based on the distance to its nearest competitor. It can be assumed that the closer a competing store is to a company's location, the more dificult it is for both companies to assert their dominance in the local market. Based on that assumption, three categories were created for the Competition Axis:
Very Competitive, Competitive, and Non Competitive. The delineations for each category were made by analyzing the natural breaks in the collected data, and the rubric below (Table 6.1 a) indicates the boundaries of each range.
Table 6.1 a - Retail Positioning Matrix - Competition Axis Ranges
Very Competitive Competitive Non-Competitive
<= 2 miles to the Greater than 2 and less >= 30 miles to the nearest competitor's than 30 miles to the nearest competitor's store nearest competitor's store store
A "NonCompetitive" store is located over 30 miles from its nearest competitor, effectively giving it no direct competition in its market area.
"Competitive" stores are not located immediately next to a competitor's store, but have direct competition in or near its market area. "Very Competitive"
91 stores are located within two miles of the nearest direct competitor, and indicate the presence of cross-firm clustering. The latter is the least advantageous frm of competition on both sides, as it would most likely result in a reduced market share for each firm. Breakpoints for the Competition Axis were chosen using natural breaks in the data, which in this case occurred at two and thirty miles.
Retail Sales Axis
The Retail Sales Axis will be utilized as a measure to determine if a store's local market area will possibly decrease, maintain, or increase its profitability. Like the Competition Axis, the Retail Sales Axis will be divided into three categories: Slow Growth, Moderate Growth, and Rapid Growth.
However, determining one single measure to indicate the future growth or decline of an area required much more analysis as compared to that of retail competition. The available data was collected from the 2007 Michigan State
Profile from Woods & Poole Economics, Inc (Woods & Poole Economics,
2007). Six columns of data for each county containing a Wa�Mart or Meijer
were selected for analysis: 2000, 2007, and 2015 Population, and 2000,
2007, and 2015 Retail Sales (Appendices A and B). The Retail Sales
numbers were then edited to reflect only the retail segments applicable to
supercenter stores: Building Materials/Hardware, General Merchandise, Food
Stores, Apparel and Accessories, Furniture/Home Furnishings, Drug Stores,
and Miscellaneous Retail Stores. Columns calculating the changes in
92 population and retail sales between time periods were then added in raw number and percentage formats.
Selecting a singular determinant for the Retail Position Matrix required the use of a statistical analysis. As the second axis is a reflection of the general demographics of an area, four variables were analyzed to determine which would best describe the future prosperity or declining of a market area:
Population Change, Population Change Percentage, Retail Sales Change, and Retail Sales Change Percentage. The figures for all Michigan counties hosting a Wal-Mart or Meijer store were compiled and analyzed utilizing
SPSS version 15, a statistical software package (SPSS, 2006). A Pearson
Multivariate correlation was performed on the four columns of data previously mentioned to determine their ... relationship to each other.
The initial results yielded a very low correlation between Population
Change and Retail Sales Change of .292 (Table 6.1 b ). Upon examining a scatterplot of the results, an outlier was found. Wayne County, which includes the City of Detroit, was determined to be well outside the general positive trend between Population Change and Retail Sales Change (Figure
6.1 a). The data table indicated a decrease in population of 92,160 and an increase in retail sales of $684 million. Afer further investigation, it appears that while Wayne County is losing population, its average household income is increasing very rapidly. As this is an anomaly in the data, Wayne County was removed from the SPSS data table for the remainder of the statistical analyses.
93 Table 6.1 b - Correlation between Changes in Population and Retail Sales including Wayne County
ChgPop Chg Retail ChgPop Pearson Correlation 1 .292(*) Sig. (2-tailed) .034 N 53 53 Chg Retail Pearson Correlation .292(*) 1 Sig. (2-tailed) .034 N 53 53 . . ** Correlation 1s s1gnif1cant at the 0.05 level (2-tailed} .
0 4OO.:
0 0 0 0 0 ;:- 20000.00 8 0 <':I 0.0 § IJ C!. -20.00 •c,, C .. -40000.00 u.t:: Wayne Count C I ... �-0 :i 0. -.0 0 a. 0 / -10.0
S.OEO 55.0:8 S1.0E3 S .5E3 52.0E3 Retail Sales Chan1e (2000-2007)
Figure 6.1 a - Population and Retail Sales Change Scatterplot with Wayne County
The results were then recalculated without Wayne County, yielding a
Pearson correlation of .808 with significance at the 0.01 level (Table 6.1 c).
This is a relatively strong correlation, and thus it can be concluded that the
Change in Population is positively correlated with the Change in Retail Sales.
In addition to this, the percentage changes in population and retail sales were entered into SPSS to determine if a similar correlation existed. The results of this were much stronger, yielding a Pearson correlation of .968 at a 0.01
94 significance level (Table 6.1d). Therefore, we can conclude that the
percentage changes in population and retail sales are also positively
correlated.
Table 6.1 c - Correlation between Changes in Population and Retail Sales without Wayne County (2000-2007)
ChgPop Chg Retail ChgPop Pearson Correlation 1 .808(**) Sig. (2-tailed) .000 N 52 52 ChgRetail Pearson Correlation .808(**) 1 Sig. (2-tailed) .000 N 52 52 ** Correlation 1s s1gnif1cant. . at the 0.01 level (2-tailed) .
Table 6.1d - Correlation between the Percentage Changes in Population and Retail Sales without Wayne County (2000-2007)
%Chg Pop %Chg Sales %Chg Pop Pearson Correlation 1 .968(**) Sig. (2-tailed) .000 N 52 52 %Chg Sales Pearson Correlation .968(**) 1 Sig. (2-tailed) .000 N 52 52 ** Correlation 1s s1gnif1cant. . at the 0.01 level (2-tailed) .
After determining that all four factors were correlated, one needed to
be chosen for use in the matrix. The choices were narrowed to the
percentage and raw number changes in retail sales, as the measures are
functions of population change. Both sets of numbers carry their advantages
and disadvantages. The figures reflecting the raw number change in retail
sales are flawed, as they do not reflect the true growth of an area and are not proportional to an area's original sales figures. Thus, larger cities may have a
95 large increase in retail sales, but could be a very slight percentage increase overall.
Conversely, utilizing the retail sales changes in percentage format has a major flaw in that the measure does not take into account economies of scale, as a 15% increase in retail sales between 2000 and 2007 could indicate very diferent raw sales numbers in any two given cities. Given these limitations, the percentage change in retil sales was chosen as the final measure for the Retail Sales axis, as the matrix is concerned with the predicted success of existing markets rather than the suitability for expansion.
As many , markets for both Wal-Mart and Meijer comprise rural areas, utlizing the percentage change in retail sales allows growth in these areas to be accounted for with parity in comparison to the urban areas.
Table 6.1 e delineates the ranges for each of the three "Retail Sales
segments, which were set one standard deviation away from the 2000-2007 sales growth mean of 14.7%. This method of categorizing was chosen as no
natural breaks exist throughout the dataset. Setting a breakpoint one standard deviation away from the mean will encompass 68% of all data in a normal distribution (McGrew and Monroe, 1993). Therefore, 16% percent of
the dataset will each represent the areas of rapid and slow sales growth. The
percentages for the 2007-2015 data will remain the same to maintain data
integrity.
96 Table 6.1 e - Retail Positioning Matrix - Retail Sales Axis Ranges
Slow Growth Moderate Growth Rapid Growth I Change in Retail Sales Change in Retail Sales Change in Retail Sales =< 9.0% > 9.0% and =< 19.0% >= 19.0%
The matrix itself is three by three, with a numerical weighted score in each cell. In the original "Attractiveness Matrix," of which this is a model, the nine cells were divided into three groups of three cells apiece; the three sets indicated positive, neutral, and negative market characteristics (Ghosh and
Mclaferty, 1987). However, to create a matrix that creates a quantitative measure, this symbology was modified to utilize numbers (Figure 6.2b). A scale of one to five was created, with one representing the worst competitive situation and a five representing the best competitive situation. This loosely follows the Ghosh and Mclafferty Attractiveness Matrix, with scores of one and two representing their "negative" part of the matrix, three for the "neutral" cells, and scores of four and five for the "positive" eels. These scores will serve as weights for the stores placed in each cell; for example, if five stores were placed in the NonCompetitive, Rapid Growth cell, the number would be multiplied by a weighted score of five, yielding a cell score of twentyfive.
Adding the scores from each cell together will result in a single numeric measure that can be compared across firms.
97 Retail Sales Slow Growth Moderate Growth Rapid Growth 1 2 3 Figure 6.1 b - Retail Positioning Matrix 6.2 Matrix Results Following the determination of the metric criteria, three Retail Positioning Matrices were calculated. One matrix was created to compare Wal-Mart and Meijer in 2000, one for Wa�Mart Supercenters and Meijer in 2007, and the last one was used to analyze all Wal-Mart and Meijer stores in Michigan. Each matrix is populated with the total number of stores for each chain that fit each of the nine criteria. The company names in the matrices are abbreviated to conserve space in each cell, and these are as follows: Wal-Mart- WM, Wa�Mart Supercenters - WMSC, and Meijer- ME. 98 As discussed previously, the results of each matrix will aid in understanding how both Wal-Mart and Meijer are faring in Michigan, and ofer a quantitative measure of their store portfolios. Wal-Mart vs. Meijer: 2000 The first matrix displays the makeup of Michigan's retailing environment just ten years after the arrival of Wa�Mart in 1990 (Figure 6.2a). At that time, Wal-Mart and Meijer were not direct competitors, as Wal-Mart had not yet opened their first Supercenter format store. However, Wal-Mart and Meijer began overlapping their operations from the beginning despite their very diferent location strategies. In 2000, 24.2% of Meijer's store portfolio was categorized as being in a "Very Competitive" environment in 2000, with the nearest Wa�Mart operating at a distance of two miles or less. In terms of overall store operations, Wa�Mart opened stores in such a fashion between 1990 and 2000 that eliminated Meijer's "non-competitive" store base. All of Meijer's sixtytwo stores in 2000 had a Wal-Mart operating within thirty miles from each outlet. Table 6.2a indicates the scores for both companies afer using the Retail Positioning Matrix. Meijer has the higher raw score due to the number of stores the company operates in Michigan. However, as will be the trend for the other two matrices, Wa�Mart has the higher score since their locations are more isolated and free from competition. In terms of strategic vulnerability in relation to the matrix, Meijer has a major disadvantage as of the year 2000. 99 Retail Sales Slow Growth Moderate Growth Rapid Growth Cl)> .:: .:: Cl) ME-0 ME-0 ME-0 Cl. E 0 WM-5 WM-8 WM-1 C 0 � � ME-9 ME-29 ME-9 Q) 0. E WM-0 WM-15 WM-3 0 (..) ME-0 ME-9 ME-6 WM-0 WM-9 WM-5 Figure 6.2a - Retail Positioning Matrix - Wal-Mart vs. Meijer (2000) Table 6.2a - Retail Positioning Matrix Scores: Wal-Mart v. Meijer (2000) Meijer Wal-Mart I Raw Score 177 142 Score per Store 2.85 3.09 Wal-Mart Supercenters vs. Meijer: 2007 The second matrix analyzes the competition between Wal-Mart Supercenters and Meijer stores in 2007. This matrix is significant in that it addresses only the direct competition between the two chains. After 100 compiling the location and sales data for both store chains, the results were compiled into the matrix (Figure 6.2b). Retail Sales Slow Growth Moderate Growth Rapid Growth a, > .:: .:: a, ME-5 ME-10 ME-1 E 0 (J WMSC-7 WMSC-4 C 0 +,J +,J ME-9 ME -41 ME-1 Cl) C. E WMSC-5 WMSC-1 0 () ME-5 ME -15 ME-2 WMSC-5 WMSC-14 WMSC-2 Figure 6.2b - Retail Positioning Matrix - Wal-Mart Supercenters vs. Meijer (2007) An interesting item to examine is the relatively small number of non competitive stores for both chains. Looking solely at the supercenter of each chain, only sixteen Meijer stores and thirteen Wa�Mart Supercenters are enjoying noncompetitive environments. A major diference between the two chains can be seen in the clustering of stores within the matrix. Wal-Mart's Supercenter stores are scattered on a relatively unifrm basis, while 41 of Meijer's stores, or 46.1% of its Michigan total, are in "Competitive" areas with 101 moderate sales growth. Meijer routinely clusters their stores around cities, where WalMart has not amassed a large Supercenter portfolio, explaining this statistic. WalMart and Meijer have also placed their supercenter stores in slow sales growth areas in equivalent numbers. Based upon the scores derived from the matrix, Meijer enjoys a large advantage over Wal-Mart, but only due to WalMart's relatively small number of Supercenters in Michigan as compared to Meijer's stores. The raw score from the matrix is indicated in Table 6.2b. The results of the matrix indicate that while Meijer has a clear advantage over Wal-Mart in terms of the raw score and the number of stores in Michigan, the two chains have a nearly equivalent score per store. This indicates relative parity in the location decisions made by both Wal-Mart and Meijer. In other words, one chain does not have a spatial and demographic advartage over another in this context. Table 6.2b - Retail Positioning Matrix Scores: Wal-Mart Supercenters v. Meijer (2007) Meijer Wal-Mart Supercenters I Raw Score 247 123 Score per Store 2.78 2.73 All WalMart Stores vs. Meijer, 2007 The third and final matrix will indicate the spatial and demographic advantage of all Wal-Mart Discount Stores and Supercenters compared to outlets operated by Meijer in the state of Michigan (Figure 6.2c). In 102 determining the current supercenter retailing environment, this matrix will act as an arbiter in determining which retail chain, if either, have a competitive advantage. When compared with the results from the second matrix in Figure 6.2b, Meijer does not fare nearly as well. While the number of Wa�Mart's stores located in "NonCompetitive" markets has decreased over time, the chain still dominates fourteen of Michigan's markets, five of which are in rapid sales growth areas. As with the matrix in Figure 6.2b, Meijer has a significantly large number of stores in "Competitive," moderate sales growth areas. In terms of statewide competition, Meijer has a major disadvantage as none of their stores are located in "NonCompetitive" markets, partially due to the fact that the company prefers to build in urban areas. Meijer's matrix score of 213 is 4.9% greater than Wal-Mart's score of 203, but is a function of their larger portfolio of stores in Michigan (Table 6.2b). Due in part to Wa�Mart's presence in several non-competitive environments, Wa�Mart attained a score of 2.57 per store in the Retail Positioning Matrix, which is ahead of Meijer's score of 2.9 per store. The encroachment of Wal-Mart into Meijer's urban territory is creating parity in the Michigan supercenter retailing scene, with Meijer's spatial advantage in retailing being decimated within a decade's time. Meijer's record of slow, conservative growth could prove to be either an advantage or a disadvantage, as the company tends to choose its locations very carefully, but may end up lacking the critical mass in a market necessary to maintain its market share 103 leads. As Wal-Mart continues to build up its Supercenter presence in urban areas, Meijer may find itself trailing in many of Michigan's largest markets for the first time. Retail Sales Slow Growth Moderate Growth Rapid Growth Q) > ; ; ME-0 ME-0 ME-0 Q) c.. E 0 (.J WM-2 WM-8 WM-4 C 0 +-' +-' ME -10 ME-39 ME-1 (l) a. E WM-9 WM-16 WM-2 0 0 ME-9 ME-27 ME-3 WM-9 WM-26 WM-3 Figure 6.2c - Retail Positioning Matrix - All WalMart Stores vs. Meijer (2007) Table 6.2c - Retail Positioning Matrix Scores: All WalMart Stores v.5. Meijer (2007) Meijer Wal-Mart I Raw Score 213 203 Score per Store 2.39 2.57 104 CHAPTER VII CONCLUSION 7.1 Summary In the world of retailing, Michigan has proven to be a unique battleground, with Wal-Mart and Meijer virtually in a state of war against each other, competitively speaking. The initial research question posed was whether Wal-Mart or Meijer have a competitive advantage in Michigan. Based upon the financial, market share, clustering, and Retail Positioning Matrix, the answer is clear. Neither Wa�Mart nor Meijer hold a significant spatial or demographic advantage in the state of Michigan. It took Wal-Mart only seventeen years from their market entry in 1990 to build a customer base to rival that of Meijer's. This is in large part due to Wal-Mart's massive pricing power due to large economies of scale. However, as quickly as Wa� Mart has acquired market share, it does not appear to be poised to dominate the market. As stated in Chapter 4. 7, Meijer maintains a significant market share lead over Wa�Mart statewide, but the gap is closing rapidly. Also, it was determined that the market share per store has equalized, making the market share equation one of market saturation. As Wal-Mart begins to add more Supercenter stores to their portfolio, many being very near a Meijer outlet, it can be assumed that Meijer's market share would decrease and Wa�Mart's would increase. These figures also indicate that there is no real brand loyalty 105 in Michigan, despite Meijer being a Grand Rapids based company. However, it would appear that in a saturated market with the firms matching each other's location with an adjacent store, Wal-Mart can create nothing more than a market deadlock. In other words, this might be one of the first market battles Wal-Mart cannot win on its own accord. In most areas of the country, Wa�Mart has a unique ofering in their Supercenter frmat. Very few companies can match the convenience of combining general merchandise and grocery store items under the same roof. However, when Wal-Mart entered Michigan, their Supercenter format stores were not unique. Wa�Mart encountered very little competitive resistance as it opened their first Supercenter stores in the Upper Peninsula and rural Lower Michigan, but would soon discover that Meijer was a very formidable competitor in the more urban areas. Chapter 5 discussed the clustering of Wal-Mart and Meijer stores, and the diminished average distance from Meijer to the nearest Wa�Mart decreased by almost two-thirds. As a result, Meijer could no longer maintain their uniqueness as a supercenter in most of their Michigan trade areas. Meijer is a grocery company that eventually sold general merchandise, and Wa�Mart started the exact opposite way. As Meijer has won several prestigious grocery retailing awards, it can be assumed that the company's grocery offerings are superior to that of Wa�Mart's. However, the battle for some time came down to price, with Meijer struggling to keep up with Wal Mart's very low prices. Meijer then laid off scores of employees in 2002 to 106 keep up with Wa�Mart on a pricing basis until their strategy evolved once again, creating a combination of the Every Day Low Prices (ELDP) and "Hi lo" strategies. This formula resulted in improved sales figures, as seen in Figures 4.6a and 4.6b. As the two stores ha\ pricing strategies that appeal to two different types of cutomers, or all customers depending on events such as large sales, it would make sense that the two supercenter operators would be competing on an equal level. The fact that Meijer has forced a stalemate with Wal-Mart, as very few companies have done to date, is a testament to the company's agility and adaptability. A question that can be brought up based on this study is whether or not the equal level competition is sustainable on a long-term basis. In other words, can Wal-Mart and Meijer truly co-exist literally side by side in competition? In other retail sectors, companies not only exist, but depend on each other in some ways for their survival. An examination of any American shopping mall illustrates this perfectly. Prior to the development of mals, individuals, such as George Dayton, operated large department stores in an inner city environment. So disconnected were these companies that they met on a regular basis to discuss strategies. As the population spread outward, indoor shopping malls were constructed, and these large department stores began competing with each other in close proximity. Stores such as Macy's, JCPenney, and Sears. have co-existed for decades in malls, and are not hurt by each other's presence. This is a situation where a cross-firm agglomeration strategy helps every company involved. 107 One department store in a mall may draw a person in, but due to the proximity of additional department stores, a customer may find themselves shopping at more than one store. For example, a shopper intending on visiting Macy's may purchase items from that store, but might find themselves at JCPenney as well, benefiting both companies. However, some type of product or service differentiation is what influences where a customer wants to shop, leaving companies to constantly find ways to upgrade their business. It appears that a similar scenario is occurring with Wa�Mart and Meijer, with Meijer out to prove that they are not Wa�Mart. Some diferences exist with this analogy, including the lack of a physical connection between the two stores, but the concept of shoppers alternating between or patronizing both stores on a week to week basis depending on sales, promotions, and product mix may become commonplace. The result, if strategies on both sides are executed appropriately, is a competitive situation that creates a healthy interdependence between the two companies. 7.2 Predictions Meijer appeared to become more motivated to innovate and expand afer Wa�Mart entered Michigan in 1990. The company constructed fify-one stores in Michigan between 1962 and 1995, and quickly expanded to eighty nine just telve years later in 2007. With their uniqueness being threatened, this was one of their only recourses of action. The future of Meijer in their battle against Wal-Mart depends on two things: the constant improvement of their business plan, and expansion. 108 Compared with Wa�Mart, a very large publicly-traded company, Meijer enjoys a distinct advantage with its nimbleness and secrecy, being a private company. Meijer has announced several initiatives and can act upon them without interference, as there are no public stakeholders to delay their actions. The company has announced two major plans for their stores, and both are crucial. Meijer has planned on renovating all of its stores older than five years of age and is planning on expanding its store portfolio to four hundred by 2020. As market saturation and store quality are two ways that Meijer can compete against Wa�Mart, it is imperative that the company follow through on this. If a company cannot compete on price, as Meijer found out, it must depend on service and multiple store locations to make up the difference. Conversely, Wa�Mart's strategy of saturation appears to be working for the company, as evidenced by substantial increases in market share in every market it has entered. However, as mentioned in Chapter 4, Wal-Mart is slowing down the construction of its supercenters and will be more selective in urban areas so as to avoid cannibalizing their own stores. This could prove to be a boon to Meijer, who could then expand in a market at its own pace without immediate penalty. A final point to make is where expansion is likely to occur next. A good measure that may help determine which areas may see increased store construction is to analyze the amount of new retail capital that is projected to flow into a market. Appendix B contains the Woods & Poole Michigan County Level Data for the years 2007 and 2015, and the measure to look at is the 109 level of increase in retail sales between the two time periods. In this case, it would be more advantageous to use the raw sales data as opposed to a percentage change in retail sales, as the size of the market is more important for a predictive study. Using Meijer's 2006 sales per store figures of $78.9 million, we can determine which counties could see a large buildup from either Meijer or Wa�Mart (Table 4.6d). For this scenario, we will assume.... that significant development is the constn..tion of five new supercenter in a county. Judging by the figures in Appendix B, Oakland and Macomb counties are projected to be the fastest growing in terms of new retail spending dollars, with an influx of over $1 billion. Both counties are in the Detoit metropolitan area. Other fast growing areas include Kent County (Grand Rapids), Washtenaw County (Ann Arbor), and Ottawa County (metropolitan Grand Rapids/Holland). These areas are concentrated around three of Michigan's largest cities, which will prove to be a retailing challenge as Wal-Mart expands its Supercenters into more urban areas. Several other areas, based on 2006 sales per store data, would also be able to support a smaller number of new stores. Since the initial data collection in April 2007, Wa�Mart has completed the conversion of a Wa�Mart Supercenter in Kalamazoo, Ml, strengthening the company's urban area store portfolio. The marketplace is becoming more complex for both Wa�Mart and Meijer, and the constant innovation required to survive in a hostile retailing environment will push both companies to continually improve itself. Meijer 110 has found itself to be matching Wal-Mart in all respects, from sales figures to location strategies. As the first supercenter chain to prevent Wal-Mart from overtaking a market, Meijer has already made history. However, to avoid becoming a page in history, the company must continue to market its strengths. Michigan is a complex market, and both firms have found what it takes to maintain a peaceful coexistence. 7.3 Limitations There are several limitations in this study, the primary one being the nature of the data being utilized. Almost every piece of data used in the thesis is based upon an estimate or projection. Given the competitiveness of the retail marketplace, even the most public of companies are unwilling to provide more than generalized data to the public. Data relating to Meijer, specifically, is especially suspect, given that they are an intensely private company. However, consultants are able to make educated guesses on more localized sales figures. Without exact numbers from the retail companies, estimates and projections are the best pieces of retail data researchers and consultants can use in a study. The demographic data utilizd in this study was of acceptable quality, but given a larger research budget, more detailed information could have been retrieved for the project. Companies such as Claritas ofer very complex and comprehensive business demographic data, but this class of data is very expensive. 111 7.4 Future Research The study of supercenter chains and their expansion is relatively new, and as a result, little academic study has been done on the topic. However, this research results in the asking of several more questions, all of which could be addressed in future studies. The status of Wal-Mart and Meijer in Michigan several years from now, competition between Wa�Mart and Meijer in other states, and Target's efect on both Wa�Mart and Meijer are all interesting topics worthy of study. It is clear that for the immediate future, Wal-Mart and Meijer will continue to compete and survive. However, as of the completion of this research, Wa�Mart Supercenters have only operated in Michigan for seven years. A similar study ten to twenty years from now would be beneficial, both to see if the findings of this research were correct, and what the strategies of both chains will become following the saturation of Michigan's largest markets. Wa�Mart has struggled lately, relatively speaking, and how the company evolves will play a large role in their future competitiveness. Research could also be done on Wa�Mart and Meijer's competition away from Meijer's home state of Michigan. Wal-Mart has been competing with Meijer for years in metropolitan areas such as Cincinnati, OH. Whereas Meijer may have somewhat of an advantage in Michigan as a local company, public perceptions of Meijer could difer once the state's boundary has been crossed. Analyzing Meijer's expansion and sucesses in adjoining states would also complement this research quite well. Additionally, Kroger, a large 112 grocery store operator, has done very well against Wal-Mart and Meijer in many areas, and examining their strategies could further reveal the disadvantages of the supercenter format. Finally, Target is slowly expanding their base of SuperTarget stores,, and some of their markets are carbon copies of Wa�Mart and Meijer's situation in Michigan. For example, Wa�Mart has not yet heavily penetrated the Chicago, IL suburbs with Supercenters, but Target stores and Meijer stores are already competing in the same market. In some cases, SuperTargets are located adjacent to Meijer stores. If and when Wa�Mart enters these markets with their Supercenter stores, an unprecedented three way supercenter battle would begin. A study on the initial competition between Meijer and Target as well as the possibility of Wa�Mart entering as a third competitor in the supercenter race would be beneficial as well. 113 REFERENCES Agaral, Pragya. 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