Hypermarkets: retailing's future? Europe's big, big boon to bargain-hunters transplants to America
Garland, Texas — The line of checkout lanes stretches endlessly, like starting gates at some gigantic race track. A huge delicatessen-bakery, complete with tortilla factory, stands ready to serve an army. Wide aisles, lined with 20-foot stacks of merchandise, await shoppers who will descend like driver ants on a weekend march. This is Hypermart USA, a sprawling emporium here in Garland, a suburb of Dallas. On five acres of floor space, it combines a supermarket, discount store, pharmacy, auto service center, and mini-mall under one roof with a central row of cashiers. This ``mall without walls'' is one of a new type of store cropping up around the country: the hypermarket.
When Wal-Mart Stores Inc. and Cullum Company opened the joint venture last December, they expected to draw plenty of customers interested in one-stop shopping at rock-bottom prices. But the steady stream of 50,000 shoppers each week has exceeded all expectations, challenging the store to keep pace. The parking lot has already had to be expanded. On Saturdays, ``it's elbows and kneecaps everywhere, and the front checkouts are maxed out,'' one employee drawls.
``It's like a state fair,'' says another.
This Hypermart and two others - in Topeka, Kan., and Arlington, Texas - have enjoyed unparalleled success among hypermarkets and could serve as models for many more to come.
Toddlers to the Ball Room
What makes the store so popular? Step in and take a look.
You can tackle your list of errands in the concessions along the wall as you walk in: a full-service branch of Grand Bank, photocopier, one-hour Photomart, shoe repair service, Cost Cutters hair salon, and Fliks Video rental. Need an oil change? Drop your car off at the auto service center while you shop. Toddlers getting restless? Take them to the Ball Room, a free, supervised playroom where kids can jump, roll, and wade in a sea of plastic balls.
The shopping area is organized into four sections. The green zone on the left is an extensive food market. Check out these prices: a dozen and a half eggs for 99 cents; milk, $1.67 a gallon; two 18-ounce jars of Peter Pan peanut butter for $3. Hypermart claims that its prices are the absolute lowest for miles around. People regularly come from 30 to 35 miles away, and occasionally from as far as Oklahoma.
Though the store is set up to encourage self-service, help is close at hand if you need it. Want a special cut of meat? Just ask at the window. Can't find the paper towels? Pick up one of the red telephones or signal a clerk zipping by on roller skates. The service is prompt and howdy-ma'am gracious, an attitude management reinforces with monthly employee dinners and lots of individual compliments.
A loan and a mattress
To the right of the food, in the yellow zone, are appliances and housewares - everything from books and pet supplies to microwave ovens and refrigerators. The savings here and in the rest of the store are even greater than for groceries - 30 to 50 percent less than department store prices. Singer two-stitch sewing machines are on sale for $96.84; 89-inch sofas are $299.99; Black & Decker Dustbusters are $19.99.
If you want to buy a mattress or something too big to fit into your cart, just take the tag off and present it at the checkout. If you need a loan, the Grand Bank office in the store can arrange it on the spot.
Merchandise is stacked warehouse-style and resupplied through an electronic reorder system. Wal-Mart and Cullum warehouses ship some items, so they don't have to be counted before going on the floor. With 20 to 25 trailers' worth of stock coming in each night, every time-saver is crucial.
Hypermart executives are still learning how to deal with such large volumes of merchandise. ``Product replenishment has been a struggle, to stay in stock the way we really need to,'' says Thomas McCarthy, managing partner of the joint venture. Part of the challenge, he says, is predicting how fast a product will sell and coordinating that with the lead time needed to fill an order. ``We've had some gains. I think we've learned better ways of replenishing stock. Replenishment is really the key.''
Cathleen Mackey, a retailing analyst with Smith Barney, Harris Upham & Co., considers Hypermart's merchandising methods most significant. ``Yes, it's nice that there's this big 200,000-square-foot store, but more important to me is that the systems and the technology employed in this store are the most sophisticated in the world,'' she says. ``The manager knows on an hourly basis what sales and profits are and can make a quick response. ... Hypermart is maybe a learning experience or a test to see what [Wal-Mart] can do in the core of their business.''
48 checkout stands
Moving into the red zone, you find the apparel section stocked with enough Reebok athletic shoes (men's 5000 hightops, $45.96) and Gitano jeans (ladies' stone-washed, $14.94) to keep even brand-conscious teen-agers happy. The selection of clothes isn't large, but what's there is in big demand. Ms. Mackey feels the apparel section is merchandised ``extremely well, and it's all dominated by brands at extremely good prices.''
The blue zone features almost anything else you might find in a discount or department store: jewelry, toys, electronics, hardware, sporting goods, auto supplies, furniture, and a pharmacy. Emerson's 13-inch color TV sells for $129.99; Sony AM-FM cassette Walkmans for $29.96; four-karat diamond tennis bracelets for $1,896.99.
The range of choices varies; on any one day you might find several brands of toothpaste, but only one kind of compact-disc payer. Rather than carry a full assortment, Hypermart keeps its prices low by buying large quantities of a few best-selling brands.
At the 48 electronic scanner-equipped checkout stands, the cashier is situated on the same side as the customer to help lift heavy or bulky items. Lengthy waits in line have been common during peak times, however. Power failures and equipment problems have been partly to blame, says Don Tripp, vice-president and general manager of the Hypermarts.
Also, he says, ``it takes longer to check out a mixture of apparel, $100 of food, and some hard-line items, some of which will scan and some won't. We've found it takes a different kind of training to improve the [cashiers'] productivity. That's part of this whole learning process.''
The idea for hypermarkets comes from Europe, where giant stores that sell both groceries and general merchandise have been popular for decades. The concept has been slow to catch on here, mostly because American shoppers already have so many supermarkets and discount stores to choose from.
Bigg's of Cincinnati, a joint venture opened in 1984 by Super Valu Stores Inc. and France's Euromarch'e, couldn't make a profit until its merchandise mix was adjusted to suit Americans. Carrefour, another French firm, has had trouble attracting customers to the hypermarket it opened in Philadelphia last February. Analysts say it doesn't have the visual excitement and super-low prices that have made Hypermart USA so popular.
Undaunted, other retailers are planning hypermarkets. Kmart Corporation and Bruno's Inc. are building a joint venture in Atlanta, and France's Auchan has plans with Super Valu for a store in Houston. Wal-Mart has a fourth Hypermart in the works in Kansas City, Mo., and is also experimenting with slightly smaller versions called Super Centers.
Big costs, slim profit margins
Opening a hypermarket is no small undertaking. ``It takes 25 to 30 acres to put one in,'' Mr. Tripp says. ``The buildings are large and costly. To be in a metroplex, where the people are, the land costs are high. It's a large investment, and so prudence reigns. This is not like stamping out corner convenience stores.''
To make up for their high building costs, hypermarkets must generate gargantuan sales volumes while maintaining skinny profit margins. Operating costs must be strictly controlled to keep prices low. Regular weekly advertising such as supermarkets and discount stores run is a luxury hypermarkets can't afford.
Wal-Mart's Hypermart in Garland is reportedly approaching $2.5 million in weekly sales, though it has yet to show a profit. But its success so far has put it on the leading edge of the megamarket trend and made it the darling of retailing analysts. Walter Loeb, an analyst with Morgan Stanley & Co., says, ``I still am concerned that [retailers] are too conservative today, that they're not daring, they're not adventuresome. Many of the companies today have pulled in their horns and are no longer being as aggressive about trying new ventures. [Hypermart USA] is a major new effort on the part of a very aggressive, farsighted company, and that's why it is so successful.''
Is the hypermarket retailing's future? Predictions are mixed.
``I think a version of it is,'' says analyst Mackey. ``I think this could be the new version of strip [shopping] centers. ... It draws a lot of traffic who shop for more than one area and do not view it as one big store, they view it as a lot of different stores under one roof.''
Mark Albion, professor of marketing at Harvard Business School predicts that the excitement over hypermarkets will be short lived. ``I think the problem you have with these extremely large stores is that it's very inconvenient in terms of the time it takes you to move around. It's extremely tiring. It's good for a stock-up trip, where all you care about is low price, but when you are somewhat brand- or item-sensitive, how are you going to put up with all the stock-outs you're going to run into?''
Mr. Loeb feels hypermarkets' colossal size will pose limitations. ``I think you need too much space to do it. But the offshoot of it will be a smaller version, which can be located in many parts of the country.''