MONEY Shopping

Target Is Closing Another 11 Stores

woman with shopping cart and wallet
iStock

On Tuesday, Target announced it will be closing 11 U.S. stores, making a total of 19 closures in less than 12 months.

In the aftermath of last year’s monumental data breach of customer credit card information—not to mention years of underwhelming sales at some retail locations—Target decided to close eight stores in May, including two stores in the Las Vegas area and two stores in Ohio. This week, Target announced it will be closing 11 more stores in the U.S., including two Chicago-area locations and three Targets in Michigan.

The 11 stores will be shut down by February 1, 2015. “The decision to close a Target store is only made after careful consideration of the long-term financial performance of a particular location,” a company statement accompanying the announcement explained. “In most cases, a store is closed as a result of seeing several years of decreasing profitability,” a Target spokesperson added in an email to (Minneapolis) StarTribune.

There are roughly 1,800 Target stores in the U.S., and the number of planned closures pales in comparisons to the likes of troubled chains such as RadioShack and Sears. Yet it’s worth noting that that Target’s reputation among shoppers and the retail industry as a whole has declined greatly since the pre-recession years, when the cheap-chic darling was belovedly known as “Tarjhay.”

Over the summer, Target hired a new CEO, Brian Cornell, a former CEO at PepsiCO Americas Foods, with the hopes that new leadership could help the company rebound from its troubling slump, as well as the embarrassing and costly data breach that potentially compromised the information of well over 100 million customers. More recently, Target introduced its plans for the 2014 winter holiday season, which include a special offer of free shipping with no minimum purchase required on all orders placed at target.com through December 20.

Read next: It Doesn’t Matter if Alex From Target Is Real or Fake

MONEY Tech

Why Amazon is Quietly Investing in a Massive Land Grab

Amazon.com employees work the shelves along the miles of aisles at an Amazon.com Fulfillment Center in Phoenix.
This Amazon.com Fulfillment Center in Phoenix has aisles that go on for miles. Ross D. Franklin—AP

Here's how Amazon is building its competitive advantage.

Correction: Appended, Nov. 6.

On the outskirts of almost every major city in America, Amazon.com AMAZON.COM INC. AMZN -0.4388% is building massive but inconspicuous warehouses designed to dispatch goods in an increasingly real-time fashion.

The strategy is expensive, consuming billions of dollars in capital expenditures every year, but its audacious scale and execution could consolidate Amazon’s still-incipient stranglehold over the biggest retail market in the world.

The transformation of Amazon

It’s important for investors to appreciate that the Amazon of today is nothing like the Amazon of five years ago.

In 2009, it operated 18 fulfillment centers in a smattering of second-tier states such as Washington, Indiana, Kentucky, Kansas, and Delaware. Today, more than 60 of these mammoth facilities are scattered across the country in proximity to the nation’s major population centers.

amzn-fulfillment-network_large

The expansion gives Amazon physical beachheads from which it can capture a growing share of retail sales on a city-by-city basis. Perhaps most importantly, it chips away at one of the principal deterrents to online shopping: immediacy.

Thanks to fulfillment centers built since 2012, Amazon offers same-day delivery to customers in 12 out of the 14 largest metropolitan areas, including New York City, Los Angeles, and Chicago. A full 31% of the American population can now order something from Amazon in the morning and get it delivered to their doorstep that evening.

“As we get closer and closer to customers with fulfillment, we have seen growth,” Chief Financial Officer Tom Szkutak said on a conference call last year.

The move also lays the groundwork for Amazon’s long-known desire to tap into the $600 billion-a-year grocery market, which is second only in size to the $650 billion market for general merchandise.

It’s initiated grocery delivery services in its hometown of Seattle as well as in San Francisco, Los Angeles, and New York City. And by its own admission, it is “branching out as fast as we can while being careful not to sacrifice the quality and convenience our customers expect.”

Finally, this burgeoning infrastructure will allow Amazon to capture share in the market for bulky, big-ticket items such as televisions, refrigerators, and laundry machines. In 2013, for instance, it opened facilities in Texas and Florida designed specifically to “pick, pack, and ship large items to customers, such as kayaks, televisions, and more.”

A land grab of unprecedented size

Taken together, the speed and scale at which Amazon is expanding its network of fulfillment centers represents a retail land grab unseen since Wal-Mart WAL-MART STORES INC. WMT 0.0353% exploded onto the scene in the second half of the 20th century. And the stakes this time around are even greater.

Whereas Wal-Mart disrupted mom-and-pop retailers and general merchandisers, Amazon’s ambitions are without limit. It wants to be the “everything store,” and it’s laying waste to large swaths of the existing retail landscape in its pursuit of that objective.

Moreover, whereas the vulnerabilities of Wal-Mart and other big-box retailers were exposed by the emergence of e-commerce, it’s hard to imagine another paradigm shift anytime soon that will further reduce costs while simultaneously increasing convenience.

In short, by laying siege to local marketplaces with fulfillment centers, it isn’t unreasonable to conclude that Amazon is in the process of erecting an impenetrable moat that could last for generations.

MONEY Shopping

Two Dozen Retailers Won’t Open on Thanksgiving–And They’re Shaming the Ones That Will

A slew of national retailers are making a point of the fact that they aren't going along with the trend to open—and open earlier and earlier—on Thanksgiving Day.

In one of the most noticeable trends thus far in the holiday shopping season, several mall mainstays are engaged in an aggressive game of Thanksgiving store hour one-upmanship.

The skirmishes began with Macy’s announcement it would open for “Black Friday” sales starting at 6 p.m. on Thanksgiving night, two hours earlier than last year’s 8 p.m. opening time. Kohl’s and Sears, among others, are matching Macy’s by opening the doors to shoppers at 6 p.m. on Thanksgiving, while J.C. Penney is trying to trump the competition with a 5 p.m. opening. (Just two years ago, mind you, JCP was closed on Thanksgiving, and didn’t even bother with typical Black Friday sales.)

Best Buy, Walmart, and Toys R Us have a history of opening earlier and earlier each year for Thanksgiving/Black Friday, and by the time they announce sale launch times for this year, it’s likely they’ll be welcoming deal-seeking shoppers sometime in the early afternoon of Thanksgiving, before the day’s first NFL game has even ended—and before the turkey is on the table in many American households. For that matter, many Walmarts are open 24/7 every day of the year including Thanksgiving (but not Christmas). Another contender for the title of biggest Thanksgiving Grinch is Kmart, which is opening at the depressingly early hour of 6 a.m. on Thanksgiving Day and will stay open for 42 hours in a row.

At the same time, however, there are some notable national retailers that are refusing to open on Thanksgiving. Forbes, ThinkProgress, and Mental Floss are among the resources that have rounded up two dozen or so stores that have confirmed they will remain closed on Thanksgiving. The list includes warehouse membership stores Coscto, BJ’s, and Sam’s Club, home improvement giants Home Depot and Lowe’s, department stores Dillard’s and Nordstrom, specialty retailers like GameStop, DSW, and PetCo, and discount chains such as Burlington Coat Factory, Marshall’s, and T.J. Maxx. There are a few others not cited on these lists, including Cabela’s (which is expected to be closed on Thanksgiving but is hosting special shopper events outside stores as early as 9 p.m. on Thanksgiving night, in anticipation of midnight openings), Menards, a home improvement mega-center chain based in Wisconsin, and Von Maur, an Iowa-based department store chain with 29 locations in 13 states.

Clearly, some consumers will go shopping whenever retailers say their doors will open for Black Friday sales, no matter if it’s a national holiday. A survey from Accenture indicates that 45% of consumers plan on shopping in some capacity on Thanksgiving Day or evening, nearly half of whom will physically go to stores between 6 p.m. on Thanksgiving and 5 a.m. on Black Friday. (Presumably, the majority of the rest will focus solely on online shopping.) Yet a much larger percentage of Americans aren’t fans of stores having Thanksgiving Day hours. Roughly six in ten Americans say they “hate” or “dislike” the fact that stores open on Thanksgiving, according to a recent RichRelevance consumer poll, while only a combined 12% claim they “like” or “love” the practice.

To play up to the legions of Americans who want to keep Thanksgiving as sacred and shopping-free as possible, it makes sense for retailers that aren’t opening on Thanksgiving to promote the fact that they’re staying closed on the holiday. As a side benefit, these retailers get to indirectly take pot shots at competitor stores that are opening—stealthily shaming them without overtly blaming them for “ruining Thanksgiving.”

For example, a spokesperson for TJX, which runs retail brands such as Marshall’s and T.J. Maxx, recently told ThinkProgress:

“We consider ourselves an Associate-friendly Company, and, we are pleased to give our Associates the time to enjoy the Thanksgiving holiday with family and friends.”

Read between the lines and you’ll see that any retailer forcing employees to work on Thanksgiving must be an “unfriendly” company.

Similarly, an announcement from Von Maur last year included the following statements, which strongly hint that any store opening on Thanksgiving isn’t family-oriented and perhaps is overseen by people who don’t know how to run a business:

“Some things are sacred, including spending time with family and loved ones on Thanksgiving and other holidays. We profitably run our business during the remaining 358 days of the year, so we don’t have to sacrifice tradition for the sake of sales,” said Jim von Maur, president of Von Maur. “Our family-oriented focus has been the cornerstone of our culture since 1872, and that is never going to change.”

Likewise, Menards took out a full-page newspaper ad last year explaining that it was remaining closed on Thanksgiving because the day “should be celebrated with all those we hold dear,” while a recent Costco statement described its reasons for not opening on Thanksgiving:

Our employees work especially hard during the holiday season and we simply believe that they deserve the opportunity to spend Thanksgiving with their families. Nothing more complicated than that.

The Boycott Black Thursday page, which encourages consumers to avoid retailers opening on Thanksgiving and give their holiday shopping dollars to those that stay closed, and which now has roughly 60,000 Likes, has been rounding up similar comments from DSW, GameStop, Dillard’s, Nordstrom, and others. The gist of them all is: We’re the good guys that care about keeping American holidays sacred, and we’re giving our workers Thanksgiving off to spend with their families to prove it. As for stores that are insisting on opening on Thanksgiving … you can draw your own conclusions.

Read next: J.C. Penney Tries to One-Up Rivals With Even Earlier Thanksgiving Opening

TIME Retail

J.C. Penney Tries to One-Up Rivals With Even Earlier Thanksgiving Opening

JC Penney CEO
In this April 9, 2013 file photo, customers arrive at a J.C. Penney store in New York. Mark Lennihan—AP

J.C. Penney will open its stores at 5 p.m. on Thanksgiving in search of an edge over Macy’s and Kohl’s

We all know where this is heading, right?

J.C. Penney said on Monday it would open its stores for Black Friday shopping at 5 p.m. on Thanksgiving Day, an hour earlier than its closest competitors Macy’s, Kohl’s and Sears , and three hours earlier than it did last year, in the latest upping of the ante in the holiday sales wars.

It’s easy to see why Penney would want to gain an edge on its rivals in what promises to be a bruising, super-promotional holiday season: the department store’s shares recently took a beating last month when it reported disappointing September sales and gave a tepid sales forecast for the coming years. And Customer Growth Partners forecast a “dismal” holiday season. So getting a leg up on the first major shopping occasion of the holiday season is key.

Just a few years ago, all retailers but the discount chains like Walmart and Kmart would hold their Black Friday sales on Black Friday itself. But since the recession, department stores and specialty retailers, fighting for every crumb of retail sales, have been opening earlier and earlier. Wal-Mart Stores has long been open on Thanksgiving Day, but this year doubled the number of Black Friday-like deals over the first weekend after Halloween, which has effectively become the new Black Friday.

Penney learned the hard way how dangerous it is to be closed on a big shopping day while rivals are open: ex-CEO Ron Johnson opened stores at 6 am on Black Friday in 2012, while the competitions opened at midnight, sending shoppers to other stores for six full hours and kicking off a dismal holiday season. Fast forward, and Penney in 2014 is taking no chances.

Penney’s move shows how nervous retailers are and what’s behind “Black Friday creep.” And also that at this rate, mainstream retailers might very well be open all day on Thanksgiving Day within a few years.

This article originally appeared on Fortune.com

MONEY Shopping

Retailers Are Launching Black Friday Sales the Day After Halloween

Customers shop at a Walmart store in the Porter Ranch section of Los Angeles November 26, 2013. This year, Black Friday starts earlier than ever.
Customers shopping at a Walmart store on Black Friday 2013. Kevork Djansezian—Reuters

Drop the trick-or-treat bag and commence holiday shopping. That's the scenario retailers are hoping for this season, and they're using big sales starting November 1 to make it happen.

There are plenty of Americans who hate the decision made by retailers to roll out Black Friday sales on Thanksgiving Thursday. Part of the disgust with stores like Macy’s—and more recently, Kohl’s and Staples—which are opening at 6 p.m. on Thanksgiving night, is the idea that they’re ruining what was once a blissfully shopping-free holiday.

There is a sizable portion of the population that is also turned off in general by “Christmas creep,” the relentless expansion of the most promotion-heavy, consumerism-crazed of seasons. Kmart has started airing Christmas ads within days of Labor Day weekend for the past two years, and retailers have gotten into the habit of introducing “Black Friday” sales not on the Friday after Thanksgiving, nor on Thanksgiving itself, but often a full week earlier.

For 2014, retailers are pushing Christmas creep to extraordinary new levels, now that Amazon, Walmart, and others have just announced Black Friday-like holiday sales and promotions starting the day after Halloween. Essentially, retailers are asking consumers to shift from orange-and-green spending to green-and-red spending overnight. They want us to go shopping the moment trick-or-treating is done, before there’s even a chance to pack costumes and ghoulish decorations away until next year.

Naturally, many consumers are reluctant to embrace the holiday shopping mentality so early and so abruptly. To get them on board, major retailers are launching sales that they claim are every bit as good as Black Friday’s, only they’re starting them on Saturday, November 1. Amazon, for instance, is calling November 1 “the official start of the holiday shopping season,” with sales on toys, electronics, and other gift items popping up daily beginning on Saturday and picking up the pace as each week passes. Walmart says it is introducing “Rollback” prices on 20,000 items as of November 1, including plenty of popular holiday gifts (Disney “Frozen” toys, Samsung electronics, etc.), and on Monday, November 3, walmart.com is hosting a “cyber savings event” with discounts and free shipping on select items. (Yes, it’s not just Black Friday that’s being imitated and multiplied; stores are doing it with Cyber Monday as well.)

Meanwhile, Target started offering free, no-minimum-purchase shipping for the holiday season one week ago, Office Depot begins “early Black Friday” and “Every Day is Cyber Monday” deals as early as this Sunday, and other players such as QVC promise “better than Black Friday” sales throughout November.

On the one hand, smart shoppers are aware that these early season promotions are likely ploys to get shoppers to pay more than they would have by waiting for even better prices on Black Friday, Cyber Monday, or some later day in the season. Considering that retailers overuse the term “Black Friday” to the point of meaninglessness, and that many early season promotions are underwhelming considering the 40%- or 50%-off deals shoppers have come to expect during the holidays, this is surely part of the game.

Yet there’s more to it. Retailers aren’t simply trying to sell merchandise for slightly more money than they’d charge a couple of weeks down the line. More importantly, they’re engaged in a battle to beat the competition and win the business of consumers as early as possible. After all, we’re talking about the shopping dollars of households that, more often than, are suffering from stagnant wages and are operating on limited budgets. Once the holiday gift budget is blown, that’s it for the season whether the household’s holiday shopping is done on November 2 or December 24.

Last week, Bill Martin of the store-traffic research firm ShopperTrak spoke to the Minneapolis StarTribune about why stores are increasingly feeling compelled to open on Thanksgiving, and his insights explain a lot about why retailers are hell-bent on pushing for earlier and earlier shopping in general:

“Retailers say that consumers are clamoring for them to be open on Thanksgiving, but that’s not the case,” he said. “They’re just attempting to get to the wallet before the money is gone. That’s what this holiday creep is all about.”

And that, in a nutshell, is why stores aren’t giving shoppers even a brief moment’s pause between Halloween promotions and Christmas promotions. If retailers took a break and actually allowed consumers time to digest some candy, and perhaps even allowed the weather to start feeling wintery before rolling out winter holiday deals, they run the risk of losing out on tons of sales snagged by competitors that beat them to the punch with early season sales—however absurdly early these sales may seem.

MONEY Leisure

How Daylight Saving Time Costs You Money

two women looking in shop windows at dusk
Daylight saving: energy conservation measure or Chamber of Commerce conspiracy? Betsie Van Der Meer—Getty Images

The tradeoff for later sunsets during daylight saving time is that you're more likely to be out and about, dropping cash.

At 2 a.m. on Sunday, November 2, the observation of daylight saving time will end and the clocks will “fall back” to the standard time, 1 a.m. Despite the fact that the shift grants the vast majority of Americans a much-welcomed extra hour of sleep, many would prefer to do away with the twice-annual time change.

Arizona and Hawaii already don’t bother with daylight saving time, and it looks like Utah could be next. In an online survey that collected more than 27,000 responses, two-thirds of Utahns favored staying on Mountain Standard Time year-round, like Arizona does. “Convenience really stood out” as a major reason why folks want to get rid of daylight savings, the leader of a government committee studying the topic explained to the Salt Lake Tribune. “People don’t want to move their clocks forward, backward … They just want to set them and leave them.”

OK, so doing away with daylight savings would make life simpler—but only very slightly so, since our computers and smartphones and other gadgets change their clocks automatically. More important, what’s the argument to keep daylight saving observation in place?

Daylight saving time was first embraced during World War I, when the idea was that the spring shift would help conserve coal because people would need less light and heat since they had more daylight during their waking hours. The concept that daylight saving saved on energy costs persisted for decades but has recently been declared patently false. Later sunsets during the warm months mean a higher likelihood that Americans will spend their evenings driving around and doing stuff, meaning more need for gas and air-conditioning during waking hours.

The ability for Americans to be out and about enjoying the later sunset amounts to an economic stimulus, because odds are we’re spending more money when we’re out. Michael Downing, a Tufts University professor and author of Spring Forward: The Annual Madness of Daylight Savings, explained to The Takeaway public radio program that the main beneficiaries of daylight saving include the golfing, tourism, and recreation industries—all of which attract more business when there’s more daylight after the traditional work day is done.

For that matter, all manner of shops and small businesses love what’s perceived to be a longer day, because it pushes consumers outside later into the night. “Since 1915, the principal supporter of daylight saving in the United States has been the Chamber of Commerce on behalf of small business and retailers,” said Downing. “The Chamber understood that if you give workers more sunlight at the end of the day they’ll stop and shop on their way home.”

A Tufts blog post noted that in 2005, daylight saving time was expanded from seven to eight months, including the key step of delaying the “fall back” until the first week of November—a move spurred on thanks to pressure from lobbyists supporting candy manufacturers and convenience stores. Why would they want such a change? Kids would get an extra hour of daylight for trick-or-treating, meaning more candy consumption and more candy purchases. Later sunsets for more of the year also mean more people out on the roads needing to swing by convenience stores to gas up or grab snacks.

As a result of these changes, we somewhat bizarrely now observe daylight saving for the vast majority of the year. “Today we have eight months of daylight saving and only four months of standard time,” Downing said. “Can you tell me which time is the standard?”

To some extent, the autumn return to standard time balances things out. With earlier sunsets, we’re out on the roads less, and therefore there’s less need to gas up the car. So there’s some savings there. Still, for much of the country, people wouldn’t be playing golf or having barbecues or visiting national parks anyway at that time of year because it’s just too cold.

And remember: Daylight saving is eight months of the year, versus only four months for “standard” time. Also: While daylight saving serves as an economic stimulus for two-thirds of the calendar year, standard time has its own epic consumer stimulus, in the form of Black Friday and the ever-expanding holiday shopping season.

MONEY

Why Angie’s List Keeps Getting Mixed Reviews

Even as the paid-membership review service Angie's List has announced major plans for expansion and increased hiring, investors are bailing on the company.

Last week, the stock price of Angie’s List dropped more than 5%, after a decline of as much as 20% the week prior. Overall, the price of Angie’s List stock is hovering near its 52-week low, and it has fallen nearly 60% over the past 12 months. The recent plunge stemmed largely from the release of disappointing third-quarter results. Even as the company decreased marketing expenses by 20% and increased membership revenue by 7%, a slowdown in paid memberships and the failure to meet profit revenue expectations have apparently spooked investors.

Angie’s List watchers have been on a particularly wild rollercoaster ride of late. Roughly one month ago, a report surfaced indicating that the company had hired investment bankers to explore the possibility of putting Angie’s List up for sale. Shares of the stock rose more than 20% on the news but were still down more than 50% compared to a year ago.

A couple weeks later, Angie’s List announced that it was adding 1,000 jobs and expanding its Indianapolis headquarters, leading some to believe there would be much brighter days ahead. One week after that, third-quarter results were released, leading many investors to bail—but also leading opportunistic value investors such as billionaire Ken Griffin, owner of the Citadel Investment Group, to go bullish on Angie’s List.

So what does the future have in hold for a paid membership review service such as Angie’s List? Well, to anyone under the age of 30, the idea of paying for reviews or online content of any sort is probably puzzling. But for nearly two decades, the online review service Angie’s List has built a loyal, paying membership of homeowners and renters who find real value in a network where real-life people can exchange honest, trustworthy recommendations about handymen, contractors, plumbers, electricians, clean-it crews, and other services they’ve used personally.

To these folks, the value proposition is simple: When you’re considering who to hire to do a $50,000 home renovation, forking over $20 or $40 for access to reviews on local contractors is a no-brainer. Indeed, according to the company’s second quarter 2014 results, paid memberships hit 2.8 million at the end of June, up from 2.2 million a year before and just 820,000 as recently as 2011.

So why does Angie’s List appear to be on the ropes?

An in-depth post by the Indianapolis Business Journal suggests why: Angie’s List, founded in 1995, has never turned a profit. A report released last October, for instance, showed the company had a net loss of $13.5 million for the third quarter of 2013, following a loss of $18.5 million for the same period a year prior.

Why hasn’t all its growth translated into profits? Much of it can be attributed to (presumably expensive) expansion into new markets; the service is now available in 253 areas of the country, compared with around 200 in 2012.

More to the point, Angie’s List has been forced to scale back the amount charged for each membership as Yelp, Google+ Local, TripAdvisor, and other user review sites have flourished with an open-to-everyone, completely free business model. The most recent Angie’s List report states that from 2010 onward, the average annual membership fee was just over $12, down from more than $36 a decade earlier.

And the amount members pay continues to drop. A Wall Street Journal post published a year ago detailed Angie’s List’s plans to cut membership fees in several key cities to around $10 annually. Today, it’s a cinch to head over to an online coupon site to find offers for 30% or 40% off, bringing the cost of a one-year subscription down as low as $5.39.

Meanwhile, the company recently agreed to pay a $2.8 million settlement to end a lawsuit alleging it had re-upped members without proper notice and at higher rates than subscribers were led to believe.

Perhaps an even bigger problem is that the trustworthiness of Angie’s List is increasingly being called into question. Critics point out that a growing portion of Angie’s List revenues come from service providers paying for advertising on the site—the same service providers that are supposed to be rated in non-biased fashion by members. “Almost 70 percent of the company’s revenues come from advertising purchased by the service providers being rated,” a 2013 Consumer Reports investigation explained.

CR called out in particular the practice of allowing advertisers with B or better ratings to be pushed to the top of search results as questionable at best. “We think the ability of A- and B-rated companies to buy their way to the top of the default search results skews the results… They get 12 times more profile views than companies that don’t buy ads.”

To be fair, many Angie’s List competitors also actively solicit the businesses reviewed on their sites as advertisers. Yelp is known to flood restaurants, doctors’ offices, and other small businesses with pleas to advertise on the site, to the point that one restaurant in the San Francisco area launched a bizarre “Hate Us on Yelp” campaign to undermine the user-review site. (Despite claims that it engages in what amounts to extortion, Yelp has repeatedly stated that advertising doesn’t affect a business’s ratings in any way.) Porch.com, an online network created to help homeowners find contractors and other home improvement services, launched a partnership referral system with Lowe’s this year. While businesses don’t pay to be listed, the website gives extra visibility to contractors that pay for a premium membership, such as making it easier to see their phone numbers in search results. (Full disclosure: Porch contributes articles on home improvement to Money.com.)

For the time being, Angie’s List seems to have figured out how low it must cut membership fees in order to keep subscriber numbers from falling. But the strategy hardly seems sustainable, especially if the perception that the service’s ratings aren’t trustworthy continues to spread. Convincing consumers it’s worthwhile to pay for a review-and-ratings service when there are free alternatives is tough enough. It’s borderline impossible to convince them that doing so is worth the money when there’s reason to question whether the ratings are entirely legitimate.

Correction: An earlier version of this story incorrectly described how Porch.com enhances the visibility of contractors who pay for a premium profile on their site.

Read next: Grading Twitter’s Performance One Year After Its IPO

MONEY Shopping

You’ll Never Guess Which Retailer Has the Cheapest Prices (Hint: It’s Not Walmart)

$1.00 price sticker
Gregor Schuster—Getty Images

A new study reveals that Dollar General is the lowest cost retailer in America.

Often when people think of low prices and retail, the first chain to come in mind is Wal-Mart WAL-MART STORES INC. WMT 0.0353% . Due to the sheer high volume of goods it sells, the megaretailer is a textbook case study for economy of scale. However, sometimes big can be too big and Dollar General DOLLAR GENERAL DG 0.8106% is able to beat Wal-Mart to the low price punch for some very good reasons.

The Kantar Retail Research Team

A study is performed annually by Kantar using a basket of goods across 21 categories in the edible grocery, non-edible grocery, and HBA segments. In order to arrive at the data points for each retailer, the lowest price point for each category was selected no matter what the brand. For example, if a box of Corn Flakes was on the list then the price of the generic brand (if cheaper) was selected over the name brand.

Out of the six retailers analyzed, Target TARGET CORP. TGT 0.0832% came in last while Dollar General finished first. Wal-Mart got second place with 2.5% higher overall prices. The average cost of the basket at Dollar General came out to $26.75. For Wal-Mart, it was $27.41 and for Target it was nowhere close to the other two with a total of $40.61. The $0.66 spread between Dollar General and Wal-Mart is 5.5 times higher than the $0.12 spread a year ago with the same study.

This is despite Wal-Mart’s much more massive size. For example, in the current fiscal year, analysts expect Wal-Mart to post nearly half a trillion dollars in sales compared to just $19 billion for Dollar General or more than 25 times higher. How does David Dollar General manage to beat the Goliath Wal-Mart?

The real low cost leader

Your first suspicion might be that the only reason Dollar General could possibly beat out Wal-Mart on prices is by taking a hit on profits. Wal-Mart has made a consistent 24%-25% gross profit margin for the last three years on the products it sells. Therefore it stands to reason that if somebody only has a 10% markup it could sell at cheaper prices even if it doesn’t get the volume discounts of Wal-Mart.

That’s not the case with Dollar General, however. Not only does it have cheaper prices, but it makes more profit margin on average on each of its products. For the last three years, Dollar General has averaged between 30%-31% in gross profit on its sales, which is higher than Wal-Mart’s.

How could Dollar General have lower costs?

You have to remember — the purchase price of a product from the wholesaler is only part of the ultimate cost to a retailer and the price for the consumer. A typical Wal-Mart Supercenter might have over 140,000 items for sale while a typical Dollar General has between 10,000-12,000 items.

As Megan McArdle of The Daily Beast once tagged the problem,

“A Walmart has 140,000 SKUs, which have to be tediously sorted, replaced on shelves, reordered, delivered, and so forth. People tend to radically underestimate the costs imposed by complexity, because the management problems do not simply add up; they multiply.”

Multiplied management problems equal multiplied costs baked into each average product’s cost and price.

More of less is cheaper

Dollar General, by specializing in far fewer items and brands, has fewer logistical complexities and fewer costs. The secret to low costs is the power of buying in bulk and cheap stocking costs to sell those products. It’s the simple reason a child’s lemonade stand only sells lemonade — to offer a larger variety of drinks would require a lot more effort for less average return on each.

During Dollar General’s last conference call, CEO Richard Dreiling explained it well when he said, “This foundation of limited assortment and distribution efficiencies allows us to successfully compete with much larger retailers and provide our customers with everyday low prices that they can trust.”

Foolish thoughts

Dollar General may still have plenty of potential market share it can take from Wal-Mart. Its biggest disadvantage is lack of consumer knowledge. We’ve been bombarded by the media, and Wal-Mart itself, that if you want cheap prices it’s Wal-Mart or bust and nobody can touch them. As consumers become more and more aware of the Dollar General advantage, don’t be surprised if its sales continue to creep up. It is up to 26 quarters in a row of positive same-store sales growth and may still have a long way to go.

MONEY Gas

$3 Gas, and Its Impact on What’s Under the Christmas Tree

This week, the national average for a gallon of regular should hit $3, a low that hasn't been reached since 2010. That means consumers will have more money to spend during the holidays, right?

Not so fast.

Yes, gas prices have been plummeting in the U.S., bringing much-welcome relief to household budgets. Average prices around the country reached a new low for 2014 recently, and then just kept on falling, hitting a low not seen since 2010. As of Monday, according to AAA, the national average stood at $3.04 per gallon after falling 32 days in a row, making prices at the pump 25¢ cheaper compared to the same time one year ago. With prices falling roughly 1¢ per day (the average was down to $3.03 on Tuesday), we’re on pace to reach the all-important psychological mark of $3 per gallon by the end of this week.

But let’s step back. Is the $3 mark—and cheaper gas prices in general—really all that important for the economy as a whole?

A GasBuddy post crunched some numbers, and found that Americans are collectively saving $110 million per day on gas compared to what we spent a year ago. The timing of decreasing gas prices would seem to bode well for retailers, which are hoping that some of that money that’s not being spent on gas will be spent instead on holiday purchases in the weeks ahead. Data from the research firm Deloitte indicates that retail holiday sales will rise 4% to 5% this year, or perhaps even higher considering that the average household could spend $260 less on gas for 2014 as a whole.

Retail analyst Mary Epner told CNBC recently that cheaper gas prices could wind up giving a boost to a few categories of retail in particular:

“A drop in gas prices should be great for Ross Stores, Walmart, and dollar stores (for consumers who must live paycheck to paycheck),” she said. “This also helps low-cost teen retailers, as most teens have a finite amount of money and they will usually opt to put gas in their cars before buying other things.”

Overall, however, cheaper gas prices shouldn’t necessarily be viewed as a holiday season savior for retail. As a recent Fortune post pointed out, gas prices had already begun their downward trajectory in September, but the month was basically a dud in terms of consumer spending. The effect of cheaper gas on holiday spending is expected to be minimal as well. At the higher end of the income spectrum, shoppers aren’t going to alter holiday spending based on gas prices shifting by 10% or even 20%. For middle- and low-income earners, stagnant wages, weak hiring, and higher costs for housing and health care are likely to far outweigh any “savings” that come via cheaper gas prices.

What’s more, as a Bloomberg News story noted, today’s shoppers have grown so accustomed to huge discounts that they’re programmed to ignore all but the most dramatic price slashings and promotions. Add in that over the past few years, drivers have seen gas prices retreat, rise, then retreat and rise again, so there’s an appropriate level of skepticism concerning the idea that we could be paying less for gas for the long haul.

Few people will head promptly to the mall and splurge because the price of a gallon of gas drops by a few pennies. Nor should they.

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