57-Standard Leader Expands in Tough Market and Uses Price

 

For a number of years, many of us have seen Macy’s as the prime representative of the “traditional” retail market for apparel and home goods. They may be traditional, but they are far from the market leader. Instead, market leadership resides with companies once considered price discounters. The “traditional” retailers have surrendered pride of place to far larger and more aggressive competitors. This change happened over a number of years. Here is how some of that change took place over the last 10 years.

Posted 11/3/08

Kohl’s Corporation is opening forty-six stores soon as part of a plan to gain market share as the busy holiday season starts in the U.S. Today, Kohl’s has something less than 1,000 stores open in the U.S. The company expects sales at stores open for a year or more to be down 2 to 4% during this year’s holiday season compared to last, so they are opening stores to make up for some of the sales fall-off.

But that’s not all they are doing. The company is a middle market chain competing with the likes of Penney’s and Macys. The company plans to renovate sixty existing locations in 2009, twice the number it will renovate in 2008. Probably boldest of all is their plan to use low prices to gain share.

The company expects to advertise its lower prices in its holiday marketing early in the season to be sure that customers know their spending goes further at Kohl’s. This price thrust will work only if Penney’s and Macys do not follow Kohl’s lead. (See the Symptom & Implication, “Large competitors are maintaining price levels as smaller competitors discount”, on StrategyStreet.com.) If they don’t, they are in a Leader’s Trap. A Leader’s Trap occurs when an established industry competitor maintains a price umbrella and cedes share to a discounting competitor in the mistaken belief that customers will stay loyal to the established competitor by paying a premium for its product. Over time, the company in the Leader’s Trap not only loses share, but also sees prices fall to a level near the price established by the discounting competitor. (See the Perspective, “The Leader’s Trap”, on StrategyStreet.com.)

Kohl’s is almost certain to gain market share at the expense of weaker competitors, such as Mervyn’s and some of the regional department store chains, who do not have the financial where-with-all to stay with them. But this market share is available to Penney’s and Macys, as well. If these latter two Standard Leaders don’t follow, they will be making a mistake.

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Update 2022:

Kohl’s continues to operate profitably in the United States. In 2021 it had 1162 stores. In 2020 Macy’s operated 572 Macy’s branded stores and also operated 162 Bluemercury stores.

JCPenney filed for bankruptcy in 2020. It was acquired by Simon Property group and Brookfield Asset Management, two of the country’s largest mall operators and also landlords of many JCPenney stores.

Mervyns went into chapter 7 bankruptcy in 2009 and was liquidated.

A company attempting to use a low price to gain share must assess the likelihood that competition will follow its price reduction. If competition does follow, the low price becomes meaningless and the industry simply loses margin. Whether a competitor will follow or not depends on its knowledge, capacity and will. See HERE for more.

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Update 2026

We have considered 10 competitors in 2026’s retail milieu: Kohl’s, Macy’s, Dillards, Nordstrom, Nordstrom Rack, TJX, Ross Stores, Target, Amazon and direct-to-consumer sites.

They fall into distinct Price Points. Kohl’s, Macy’s and Dillards are often seen as the traditional retail competitors. They are not. In 2026, they are clearly Performance Leader companies with relatively low market shares. Nordstrom and Nordstrom Rack fall into that category as well. Both TJX and Target are much larger than Macy’s. Ross is about the same size. These three companies represent the Standard Leader category in apparel and home goods retailing and the middle of the market. Amazon and the direct-to-consumer brand.com sites are the industry’s Next Leaders.

When considering market share changes over the last 10 years, it is clear that the traditional Performance Leader Price Point category is losing share to both the Standard Leader and Next Leader categories. The industry Standard Leader competitors offer prices 20 to 60% below the industry Performance Leader competitors on their branded apparel and home goods pricing. Amazon and the direct-to-consumer brand.com Next Leaders are the big winners. Amazon wins on all four aspects of the Customer Buying Hierarchy. They win on Function with far more product choices, on Reliability with their quality service reputation and with curated customer product ratings, on Convenience with online purchasing and prompt delivery, and on Price with low regular prices. Overall, the market has moved to the Standard Leader portion of the market, and most importantly, to online retail purchasing.

Some of this loss in Macy’s and Kohl’s market shares have been self-inflicted. Throughout the last 10 years, Macy’s has led the department store category with a 40% market share, followed at some distance by Kohl’s at 28%. Dillards holds about 12% of this category. Neither of the two leading Performance Leader companies has competed particularly well. Both have suffered from over-buying inventory and constant promotional discounting. They have taught their customers to wait for lower prices. When, after promotions, they still had excess inventory, they offloaded it to the Standard Leader companies, supporting those companies’ business models and depreciating their unique Function advantages over the Standard Leaders. The two top former Standard Leader competitors suffer from low margins and struggle to differentiate themselves sufficiently from their lower-priced Standard Leader competitors. Then there is Dillards.

Dillards stands out in this competitive environment. It has gained share compared to both Macy’s and Kohl’s, though still losing share in the broader market. It has a strong, loyal customer base in the Midwest and the South. Its returns on investment are among the very best in the industry. How have they done this? They are a family-owned business that refuses to chase growth that might be a fad. They select their products carefully, maintain very tight inventory control and rarely offer promotional pricing. In our system, they would be a Silver Competitor, a company serving a carefully defined customer base, with products tailored carefully to that customer, with costs focused solely on that customer base and pricing slightly above the industry norm.

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