Discount Department Stores Industry Analysis

Abstract

In this study we examined the discount department stores industry and present our data findings. Discount department store industry is an oligopolic market and highly concentrated. Currently there are 15 publicly traded discount stores. Top 3 competitors have around 90% market share and they are dominating the industry for more than 20 years. Although these companies generate low margins, they make up it by high sales volume. Walmart is the price leader, cost leader and product differentiation of the industry with 65% market share. According to Census Data, department stores sales has been declining for 10 years, on the other hand we see that discount stores demand to department stores has been roughly doubled. Top players in discount department store industry are using local adapted global strategy and have a centrally planned organization, decision making structure. After analyzing the industry we think that industry is not attractive because of high entry barrier, high capital investment need and most importantly the industry is in decline phase of its life cycle.

Keywords: Discount department stores, Retail industry, Walmart, Oligopoly

1. Industry Background

Industry: Discount Department Stores

SIC Code: 5311 Department Stores

NAICS Code: 452112 Discount Department Stores

A department store is a retail establishment which satisfies a wide range of the consumer's personal and residential durable goods product needs; and at the same time offering the consumer a choice of multiple merchandise lines, at variable price points, in all product categories. Certain department stores are further classified as discount department stores (Solomon & Marshall, 2006).

Discount stores evolved from a series of retailing changes that began in the United States in the late nineteenth century. The Great Depression and the accompanying economic hardships set the stage for retailing change and the further emergence of discount operations. After World War II, discount merchandising grew rapidly (Baird, Meyer & Green, 2007).

Korvette, opened in 1948, is considered as the first discount store. From 1950s to the late 1980s, discount stores were more popular than the average supermarket or department store in the United States. Walmart, Kmart, and Target all opened their first locations in 1962. By the end of the 1980s, Kmart, Target, and Wal-Mart dominated the industry; and they are still keeping the top 3 place in discount stores industry in US ("Discount department stores", n.d.).

In 1998, according to a survey by WSL Strategic Retail, 90 percent of shoppers with household incomes of more than $70,000 a year shop in discount stores. It is stated that that percentage was only half as large in the early 1990s (Steinhauer, 1998).

A newsletter article in 2008 states that the discount department store industry includes about 5,000 stores with combined annual revenue of $130 billion. Major companies include Wal-Mart, Target, and Kmart. The industry is highly concentrated: the top eight companies hold 100 percent of industry sales ("The U.S. Discount Department Store Industry", 2008).

At the present time, department stores as a whole are still trailing the deep discounters. Where the department store sector is currently delivering a return on equity of 15.2% with profit margins of 2.5%, the deep discount and variety sector is giving shareholders a 20.6% return on equity with 3.3% net profit margins (Cafariello, 2014).

Continued economic recovery is forecast to aid the industry's growth in the five years to 2018. Discount department stores are expected to thrive as customers continue to shop well within their budgets out of caution ("Department Stores in the US Industry", 2013).

In a study, the department stores are categorized into two groups: discount stores and luxury chains. The discount stores demonstrated better performance than the luxury stores during the observation period that includes a recession, which supports the income elasticity of demand theory (Mhatre, Joo & Lee, 2014).

Stores with elaborate decor and fancy window displays created a new variety of entertainment for the masses. Even if people could not afford to buy the merchandise, they still come to the department store to peer in the windows to see what they might attain someday ("Department Stores", 2014).

Major products sold in discount department stores include apparel with 20 percent of sales; personal care products with 15 percent; groceries with 9 percent; and toys with 6 percent ("Discount Department Stores Industry Overview", n.d.).

2. Consumer Facts

Discount department stores industry mostly target low to middle class consumers focused on value over quality. Customers of these stores are looking for convenient shopping, with a variety of merchandise under one roof, at low prices.

When we look at the annual sales from U.S. Census Data (Table 1), we see that demand of retail sales has been increasing; but, overall demand to department stores has been declining. On the other hand, although department stores demand has been declining it is obvious that ratio of discount stores demand to department stores is roughly doubled within the last 20 years.

Table 1
Estimated Annual Sales of U.S. Retail Services ($M) (U.S. Census)

Major products that are being sold in discount stores include apparel with 20 percent of sales; personal care products with 15 percent; groceries with 9 percent; and toys with 6 percent. Apparel includes women's, men's, and children's. Personal care includes cosmetics and health and beauty products. Electronics include video and audio equipment (TVs, DVD players, stereo systems). Companies also sell kitchenware, sporting goods, towels and sheets, and footwear. Beside these, big discount department stores have in store pharmacies, photo processing services. To sum up, we can assume that discount retail stores may contain everything which is described under retail trade industry sector (Code: 45) except motor vehicles and parts stores, gas stations, food services and drinking places.

3. Production Facts

3.1. Market Structure

Discount stores evolved from a series of retailing changes that began in the United States in the late nineteenth century. The Great Depression of the 1930s and the accompanying economic hardships set the stage for retailing change and the further emergences of discount operations. After World War II (1939–1945), discount merchandising grew rapidly. There were hundreds of discount stores in operation, with their most successful period occurring during the mid-1960s in the U.S. The year 1962 marked a turning point in the history of retailing with the emergence of three retail stores that would change the course of business in years to come. By the end of the 1980s, Kmart, Target, and Wal-Mart dominated the industry; and they are still keeping the top 3 place in discount stores industry in US (Zhu, Singh & Manuszak, 2007).

Currently there are 15 publicly traded discount stores in US and these are: 99 Cents Only Stores [NDN], Big Lots, Inc. [BIG], BJ's Wholesale Club, Inc. [BJ], Bowlin Travel Centers, Inc. [BWTL.PK], Sears Holding [SHLD], Dollar General [DG], Dollar Tree, Inc. [DLTR], Duckwall-ALCO Stores, Inc. [DUCK], Family Dollar Stores, Inc. [FDO], Fred's, Inc. [FRED], Liquidation World Inc. [LIQWF.PK], PriceSmart, Inc. [PSMT], Target Corporation [TGT], Tuesday Morning Corporation [TUES], Wal-Mart Stores, Inc. [WMT]. As we stated before there are 3 major companies that dominate the industry: Walmart, Kmart and Target.

Figure 1. Discount Department Stores Market Share ("Bloomberg Industry Market Leaders")

Sales amounts of top discount retail stores and their market shares are shown in Figure 1. Values are taken from Bloomberg Data Service and reflects 2014 sales values in annual reports.

Concentration ratio of the market is calculated by dividing the total sales of the leaders of the market to total sales. Based on this equation, concentration ratio of discount department stores industry is 89%. This ratio points to oligopoly. Also when we look at Herfindahl-Hirshman Index, we see the value of 4600 which indicates oligopoly with high concentration where an HHI below 100 indicates a highly competitive index, an HHI below 1,500 indicates an unconcentrated index, an HHI between 1,500 to 2,500 indicates moderate concentration, an HHI above 2,500 indicates high concentration, and also HHI over 1,000 indicates oligopoly (“Horizontal Merger Guidelines”, 2010).

In discount department store industry, ease of market entry level is very low and competition is very important as these are the general characteristics of oligopolic markets. Whether the sellers in an oligopolistic market compete against each other by differentiating their product, dominating market share, or both, the fact that there are relatively few sellers creates a situation where each is carefully watching the other as it sets its price. Economists refer to this pricing behavior as mutual interdependence. This means that each seller is setting its price while explicitly considering the reaction by its competitors to the price that it establishes. Price leader is the firm that dares to break out of the pack without fearing the consequences. If this firm decides to raise its price, it assumes all others will follow. In oligopoly markets in the Unites States, the role of the price leader is usually assumed by the company with the largest share of the market (Keat & Young, 2009). In discount department stores, the largest market share is hold by Walmart, therefore Walmart is the price leader of the industry.

Also, since Walmart is the top company in Fortune 500 list it is obvious that it has an extreme bargaining power. Bargaining power brings the cost leadership. With the large stores and the highest store count combining with bargaining power, both cost leadership and product differentiation leadership in discount department stores belong to Walmart.

3.1.1. Industry Associations

An industry association participates in public relations activities such as advertising, education, political donations, lobbying and publishing, but its main focus is collaboration between companies, or standardization. Associations may offer other services, such as producing conferences, networking or charitable events or offering classes or educational materials. Many associations are non-profit organizations governed by by laws and directed by officers who are also members ("Trade Associations", n.d.).

Industry associations related to discount department stores industry are listed as follow: National Retail Federation (NRF), Retail Industry Leaders Association (RILA), Loss Prevention Foundation (LPF), Loss Prevention Research Council (LPRC), Mystery Shopping Providers Associations (MSPA), The National Anti-Organized Retail Crime Association (NAORCA).

 

3.2. Major Competitors

There are 3 major competitors in discount department stores industry and these companies hold almost %90 market share of the industry. Since the beginning of 1990s Walmart, Target and Sears (Kmart) have been dominating the industry.

3.2.1. Walmart

Walmart was founded by Sam Walton and first store was opened in 1962 in Rogers, Arkansas. Today, Walmart’s headquarters is in Bentonville, Arkansas and it has over 11,000 stores in 27 countries. The company was publicly listed on the New York Stock Exchange in 1972 and it is traded as “WMT” (“Walmart Corporate”, n.d.).

Wal-Mart Stores, Inc. has been a firm focused on discount merchandising and growth. The firm’s rate of growth has been phenomenal. In less than three decades of existence, Wal-Mart grew from a single small discount store in Rogers, Arkansas, to the largest retailer in the nation (Castro, 1991).

With slogan, “Every day, low prices”, Wal-Mart is trying to differentiate itself from the others by offering huge stores with consistently low prices. Walmart’s store counts can be seen on Figure 2.

Figure 2. Walmart Store Counts by Year (“Walmart Corporate”, n.d.)

3.2.2. Target

The first Target store was opened in 1962 in Roseville, Minnesota. Target grew and eventually became the largest division of Dayton Hudson Corporation, culminating in the company being renamed as Target Corporation in August 2000. Currently Target has 1790 stores across US (“Target Corporation Facts Card”, 2015).

According to the annual report, Target generated about $72.6 billion from its retail operations in 2014. Like Walmart, Target offers daily essentials and consumables at discounted prices; however, the company has carved out a niche market by focusing on selling fashionable and trendy products (“Retail Industry Report”, 2014).

3.2.3. Sears

First Kmart store was opened in 1962 in Garden City, Michigan, by S.S. Kresge Corp, which was a retail chain. Kmart purchased Sears for $11 billion in 2005, forming a new corporation under the name Sears Holdings Corporation. Its headquarters is in Hoffman Estates, Illinois and it is operating 968 discount stores in US (“Sears Holding 2014 Annual Report”, n.d.).

Sears' domestic sales have been consistently declining because its competitors have been increasingly capturing more department store market share through wider selection and steeper discounts. Since the merger of Kmart and Sears ten years ago, the company has closed more than 300 full-size stores. This consolidation resulted in fewer transactions, which led to lower sales for the company (“Retail Industry Report”, 2014). 

3.3. Financials

When we look at the financial reports of the top three competitors in discount retail store industry we see that there is a decline for all three companies. This decline also matches with the industry averages that can be seen on Census; there is a decline in annual sales of discount department stores and annual gross margin which started 10 years ago.

Table 2
Financial Ratios of Discount Department Store Industry Players

Gross profit margins, return on equities and return on assets values of the top companies in the industry and the industry average of 5 years comparison that is collected from annual reports of the companies and the US Census can be seen on Table 2. As seen on Figure 3, top 3 companies in the industry have the lowest gross profit margin ratios. Although these companies generate low margins, they make up it by high sales volume.

Figure 3. Gross Profit Margins of Discount Department Store Industry (“Ycharts Data”)

3.4. Cost and Production Conditions

Top players in discount department store industry are using local adapted global strategy and have a centrally planned organization, decision making structure. All suppliers, prices, campaigns, etc. even the music that is played in stores are determined centrally. This system provides benefits both for branding and operations; for example all stores takes the advantage of one national promotion and each store can provide the low prices by purchasing inventories from the central purchasing department at lower cost that it should pay in the local open market (Dogan, 2015).

Since these stores spread almost every city in 52 states of the US and operations are so important, each company has its own distrubition network system. For example Walmart has 158 distribution centers, and Walmart logistics has a fleet of 6,500 tractors, 55,000 trailers and more than 7,000 drivers ("Walmart Logistics", n.d.).

Optimization of supply-chain and inventory management systems are so important for the retail sector companies. Deficiencies in these areas can cause high inventory costs. While the products are stored in inventory, accumulating costs, they are probably needed on the shelves in the store. Orchestrating the system so that inventory arrives just as it is needed can lead to significant reduction in inventory costs for retailers, and also the cost of losing customers to competitors. Technological improvements help companies mananing organization and providing better experience to customers. For example, with the Walmart origined point-of-sale system, every item purchased at a store is scanned and stored in a database, which directs the store to replenish this item and to purchase more stock from the supplier. The new product is shipped to the store and on the shelf in less than 36 hours. This system also schedules preventive checks in the system. Through this system, companies receive bids from prospective suppliers online, and builds a strong relationship with them. Through their database system, suppliers are able to see when to increase or decrease production to meet the retailer’s needs. Beside this, with the large data, companies can track consumer behaviors, so they can adapt and invest through the changes (Coffman, Freire, Heaver & Soltis, 2002). 

3.5. Demand and Supply Forecasts from Industry Reports

This industry’s value added, which measures discount department stores segment's contribution to the overall economy, is expected to decline at an annualized rate of about 0.2%. Meanwhile, U.S. GDP is anticipated to rise at an annualized rate of approximately 2.0% over the same period. The recession took a toll on the Discount Department Store Retailer segment and many companies have failed to adapt to a post-recessionary environment in which consumers are easily able to compare prices and access online retailers (“Retail Industry Report”, 2014). 

4. Macroeconomic Conditions

Discount department stores sells variety kind of products under one roof, we can find apparels, personal care products, electronics, kitchenware, sporting goods, furniture, medicines etc in these stores. Therefore we can say that, inflation rate and discount department store industry are tied and inflation rate directly and strongly affects the industry.

Consumer purchasing patterns are influenced by consumers’ disposable income. Consequently, the success of operations may depend to a number of factors affecting disposable income, including general economic conditions, level of employment, salaries and wage rates, consumer confidence, consumer perception of economic conditions, interest rates and taxation (“Walmart 2014 Annual Report”, 2014). Low disposable income can cause people to spend less, leading to declining sales and forcing retailers to lower prices; on the other hand, lower levels of disposable income could also drive more people in search of a deal, which would benefit the industry ("Today's Analysis on Wal-Mart and Target", 2013).

Typically, an industry or industry segment is considered to be in a decline phase of its life cycle when growth falls below GDP. In contrast, a growth phase occurs when industry revenue outpaces GDP, while a mature phase occurs when revenue growth mirrors U.S. GDP. As we see on Table 1 (page 5), department store sales are declining where U.S. GDP has 2.2% annual growth rate according to Census data. This points that, discount department stores and also department stores in general are in a decline phase of their life cycle. 

5. Government Regulations

Retail sector has lots of regulations and laws to protect consumers and also the industry by preventing unfair competition actions. Beside the laws and regulations that matters for all kind of industry such as employment and labor, tax filing, environmental, safety & health, and privacy, we can group the related and important regulations and laws for discount department store industry in three areas. 

5.1. Advertising

Laws pertaining to marketing and advertising set in motion by the Federal Trade Commission exist to protect consumers and keep companies honest about the products. Advertisements cannot omit details such as disclosing whether a product is refurbished. Likewise, the FTC frowns upon "bait and switch" practices that promote bargains to lure customers into purchasing upgrades. Truth-in-advertising laws are made up of dozens of tidbits under three main requirements: advertising in the United States must be truthful and non-misleading; businesses need to be able to back up claims made in advertisements at any time; and advertisements must be fair to competitors and consumers ("Five Areas of Government Regulation of Business", n.d.). 

5.2. Pricing

Before saying something is "on sale," the FTC says it had to normally carry a higher price tag for a substantial time period, which is defined as within the previous three months. Raising the price temporarily in order to subsequently advertise it on sale represents deceptive pricing. "Buy One, Get One" and "gift with purchase" offers must clearly state any qualifying conditions. Promotions that include rebates must state the pre-rebate cost to let consumers comparison shop ("Government Regulations That Affect Marketing in Retail", n.d.). 

5.3. Consumer Protection

Each state across the country has consumer protection laws in place, with the goal of preventing businesses from using misleading marketing campaigns as a means to drive sales numbers. Consumers may also be able to sue companies that advertise discounted prices for products and services but refuse to honor the advertised lower sale amounts. The liability risk these lawsuits represent encourages businesses to act responsibly in using marketing techniques to increase sales revenue ("Government Regulations That Affect Marketing in Retail", n.d.). 

6. International Dimensions

Cross-border merger and acquisitions are the main vehicle through which companies undertake foreign direct investment. Nations often intervene in the flow of foreign direct investment to protect their cultural heritages, domestic companies, and jobs. They can enact laws create regulations, or construct administrative hurdles that companies from other nations must overcome if they want to invest in the nation (Wild & Wild, 2012).

Since, almost all countries impose ownership restrictions that prohibit full control of chain retail stores because it is tied with the inflation rate, discount department stores players need to involve in partial merger and acquisition activity in global market. Top rising sectors for discount department stores are Brazil, China, and other areas where middle-class populations are rising. Big companies can enjoy the advantages in purchasing, distribution and marketing in these countries and get control of the industry.

Currently, Walmart has over 11,000 stores in 28 countries; Target is operating in US, Canada and India and planning to expand to Mexico in the near future; Sears has stores in US, Canada and Mexico. 

7. Future Conditions

Although US Census discount department stores sales values and industry players annual reports’ values don’t match (ie. Census data for 2010 is 121,436 M$ where only Walmart’s sales for 2010 is 259,919 M$), when we examine the data we see that there is a 0.2% decline in the industry, also other industry reports and news confirms the decline ratio.

It is interesting that Walmart and Target is increasing their revenue values but at the same time their gross profit margins are declining. Sears has a decline both in sales and gross profit margins.

Based on this data, the forecasting made by trendline equation approach can be seen on Table 3.

Table 3
Forecast for Discount Department Store Industry

8. Key Success Factors

Stock Control: Many of the products are seasonal and according to sales data winter period till Christmas is the period that has the largest sales volume. Discount stores should have a strong stock control measures (ie. point of sale system) to ensure that popular items are re-ordered and sufficient product lines are available to maximize sales.

Ability to Extend and Shrink: In peak periods, operations need to be expanded to meet the demand (ie. Christmas season) and also operations need to be shrunk during weaker periods.

Human Resources Activities: Sales representatives must be friendly and have strong knowledge about the products to give satisfied answers to customer questions. Workforce should be trained for giving helpful, customer-centric service.

Shelf Design: Customers of discount stores are looking for convenient shopping. Good shelf management, effective layout and design and clean environment bring success for the stores.

Strong Logistic and Distribution: Since there are limited pricing options in the discount department store industry, and suppliers sell their product within the same price range, companies control costs and increase their profits by efficient and effective logistic operations. Distribution system and inventory management between the manufacturers, distribution centrals and stores should be strong. 

9. Key Drivers of Growth

Industry Competition: Strong internal competition in the discount department stores industry is the most important driver of growth. Sales of overall department stores is declining, therefore market size is shrinking, and there is a high competition. In these conditions, companies try to differentiate and attract customers by other approaches. Also, since sales are declining, companies are in a search for more effective operational cost management.

Economic Conditions: Retail sales depend heavily on the economic conditions. Spending trends are heavily influenced by the unemployment rate and general economic growth. Consumers feel more confident and spend more when there is a constant increase on disposable income.

Population: Population growth is an important component for any industry. But as the discount department stores target market is wide and directly related the with the population, if the population increases, so does the customer base. Additionally, population growth in a specific area is an important indicator of future establishment growth because the number of stores is generally related to the area's population. 

10. SWOT Analysis

10.1. Strengths

· High barriers to entry: Discount department stores industry is an oligopoly with high concentration ratio. Top 3 players in the market have almost 90% of the market share, they have stores almost every city of United States, they have a strong brand awareness and they have the power of dominating the industry. Entry to industry requires too much investment and connections.

· Experienced owners, organizations: Discount stores started to appear by the Great Depression and World War II, and almost all of the current players are in the market since 1960s. This means that the industry has seen changes in economic conditions, improvements in technology, and changes in customer taste and preferences for over 60 years.

· Low labor cost: Except the management teams, large amount of employees in the discount department store industry consist of low-level, blue collar worker. In store workers such as cashiers or shelf organizers and logistic workers mostly get the minimum wage.

· Strong financial backing: Retail industry is the backbone of the economy, therefore government and banks provides tremendeus benefits for these industry players. Also, discount department stores have large facilities, fixed assets and inventories which can be count as an assurance for loans from the banks.

10.2. Weaknesses

· Competitive market: Discount department stores industry is an oligopoly and therefore there is a high competitiveness in the market which causes a high tension all the time. Companies should constantly spend on their resources and capabilities to keep pace in the market.

· Limited pricing options: Since the discount stores industry targets low to medium income consumers, pricing options are limited. Also large players of the industry are trying to provide the lowest price with low profit margins and making it up with high sales volumes; therefore all other players should adjust their pricing according to these companies.

· Constantly changing prices in reaction to competitors: Customers of this industry are very sensitive to prices and they are chasing the lowest price possible. In any category, prices should be around the competitors pricing. If the price is higher than the rivals, it is ended by lose of the customer; if the price is lower than the rivals, this cause lesser profit than the average.

· Large facilities requirement: Discount stores provide the opportunity to find almost any kind of product under one roof. Therefore, stores needs to be as large as possible for a convenient shopping experience. Large facilities mean large fixed assets and therefore huge investments required.

10.3. Opportunities

· Expansion to e-commerce: With the ease of e-commerce, people are more likely tend to use e-commerce. So they can compare the the products, prices and read reviews. E-commerce industry is constantly growing, discount department stores can shift their operations to e-commerce. With the bargain power and no large facility requirement, they can provide lower prices and attract the customers.

· Globalization: While department stores industry in United States is in declining stage, it is in growth phase in emerging markets such as Brazil, China and Turkey. Merger and acquisition activities in these markets may bring advantage for the companies.

10.4. Threats

· Change in economic conditions: Factors of general economic conditions such as disposible income, level of employment, salaries and wage rates, interest rates and taxation affects consumer confidence and change the consumer behavior pattern. Changes either in downward or upward conditions may affect the discount department stores industry both in good way and bad way; therefore change in economic conditions is always a threat.

· Change in regulations: Regulation changes may cause damage and hurt the industry. Tax regulations, pricing regulations and advertising regulations are directly affecting the discount department stores industry and therefore any change is significant.

· Rise of e-commerce: People are less likely to spend time on visiting a store to buy something instead of ordering online. By e-commerce benefits customers can compare the products, read the reviews and get the best deal without any geographic limit. E-commerce is becoming widespread for the last years and therefore there is a risk of suppliers selling their products directly to the customer with lower prices via their own e-commerce system. 

11. Porter’s Five Forces Model Analysis 

11.1. Threat of New Entrants 

Discount department stores industry is oligopoly, therefore barriers to entry is high and concentration ratio is also high with top 3 players account for 90% of the market share. Any new player trying to get into this market face a strong competition from existing competitors. Establishing favorable supply contracts is so hard among current companies centralized buying system. Also the level of initial investment is high because of the need of large area stores and lands. In light of these, we can say that threat of new entrants is low in this industry. 

11.2. Bargaining Power of Suppliers 

Since companies are constantly watching each other and keep the prices in the same level, they are trying to reduce their power by differentiating and providing quality products. Although suppliers can not risk to lose industry’s top players and has no power against big players such as Walmart, their bargaining power is relatively higher for smaller retailers. Therefore, bargaining power of suppliers can be considered low to medium in this industry. 

11.3. Bargaining Power of Buyers 

Individually, customers have no bargaining option with a sales clerk for a better price but customer groups can demand deals and better quality products. Customers can go to any other competitor when they find a better deal without any switching cost, and take refer it to friends. Even it seems that there is no option for bargaining in front of the cashier, customer satisfaction is so important and directly affects the demand. For these reasons, we can say that bargaining power of buyers are medium to high in this industry. 

11.4. Threat of Substitute Products or Services 

Discount retails stores provides a wide range of products and customers can find any product that a store is offering also in another store. Although companies are trying to offer unique products under their own brands, it doesn’t create a significant loyalty. Threat of substitute products is high in this industry. 

11.5. Rivalry Among Competitors 

There is a 3 level competition in the discount department stores industry. While Walmart holds 65% share of the market, Target and Sears come after and compete in the second level. Then comes the other players, competing in the third level. Declining sales in overall department stores industry and ease of switching for customers cause a high competition. Therefore, rivalry among competitors is high in this industry.

12. Conclusion

In light of the data findings, discount department store industry is an oligopolic market and reflects all conditions of the oligopoly. Concentration ratio is high (89%), market is highly competitive and barriers to entry is high. There are 3 major companies dominating the industry for over 20 years. These companies are Walmart with 65% market share, Target with 17% market share, Sears with 7% market share; other companies have a total of 11% market share.

As all analysis are stated in the study, although demand to discount stores relatively increased among department stores, overall industry is declining. Experts think that this decline is because of increasing e-commerce activities.

To conclude, industry is not attractive because of high entry barrier, high capital investment need and most importantly the industry is in decline phase of its life cycle.

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Author

Burak T. Dogan
San Diego