What Is a Category Killer: Definition & Example

Category killers have been around for decades, but their impact on local businesses and the retail industry as a whole has only become more apparent in recent years. These large retailers specialize in a particular product category and offer a wide selection of items within that category at competitive prices. This has made it difficult for smaller businesses to compete, as they often cannot match the prices or selection offered by these industry giants.

As a result, many local businesses have been forced to close their doors, leading to the decline of once-thriving commercial districts. Despite this trend, some small businesses have managed to survive by offering unique products and personalized service that cannot be found at larger retailers. It remains to be seen how the retail industry will continue to evolve in the face of these challenges, but one thing is certain: category killers will continue to be a major force in the marketplace. In this blog post, we will explore what a category killer is, how it works, and the advantages and disadvantages of this retail strategy.

What is a Category Killer?

A category killer is a large retail chain superstore that dominates its product category and puts less productive and highly specialized merchants out of business. The term "category killer" comes from the fact that these stores tend to acquire a large market share by selling at attractive prices, which drives a lot of smaller specialty retailers in the same category out of business, as they cannot sell products at the same prices.

Examples of Category Killers

There are many examples of category killers across different industries. Some of the most well-known ones include:

Home Depot

Home Depot is a category killer in the hardware supplies industry. They offer a wide range of products at competitive prices, making it difficult for smaller office supply stores to compete.

Best Buy

Best Buy is a category killer in the electronics industry. They offer a large selection of electronics at low prices, which has led to the closure of many smaller electronics retailers.

IKEA

Ikea is a category killer in the home goods industry. They offered a wide variety of products at affordable prices, making it difficult for smaller home goods stores to compete.

Toys R Us

Toys R Us is a category killer in the toy's industry and even credited as inventing the category killer concept. They offer a large selection of kid's toys at competitive prices, which has led to the closure of many smaller toy stores.

How Does a Category Killer Work?

Category killers typically dominate a product category by offering low prices and wide product selection. They achieve this by using a cost focus strategy, which involves becoming a price- or discount-based mass-retailer. Chains such as OfficeMax, Best Buy, Bed Bath & Beyond, and Hobby Lobby were considered category killers. They are able to sell products at lower prices due to economies of scale, which makes it difficult for smaller retailers to compete.

Advantages of Category Killers

Category killers have several advantages over smaller retailers:

Wide Product Selection

Category killers can offer a larger selection of products than smaller retailers due to their buying power and market penetration. This allows them to attract a wider customer base and to offer a more comprehensive shopping experience.

National Marketing Campaigns

Category killers have the resources to conduct national marketing campaigns, which helps to increase brand recognition and drive sales. Smaller retailers may not have the same marketing budget to compete on a national level.

Pricing Advantages due to Economies of Scale

Category killers benefit from economies of scale, which means they can source products at lower prices and pass those savings onto customers. This makes it difficult for smaller retailers to compete on price.

The History of Category Killers

The history of category killers dates back to the 1980s and 1990s when they began to proliferate across the country. Charles Lazarus, the founder of Toys "R" Us, is generally credited with inventing the concept of a category killer. However, the rise of e-commerce has led to the decline of many traditional category killers, such as Toys "R" Us, which filed for bankruptcy in 2017 and closed all of its 800 U.S. stores. Toys "R" Us has been trying to make a comeback ever since and in 2022 began opening shops inside Macy's stores.

Despite these challenges, some category killers have been able to adapt by incorporating e-commerce into their business models or by offering unique in-store experiences that cannot be replicated online. For example, some sporting goods stores have started offering indoor rock climbing walls, while others have added virtual reality experiences. These strategies have helped some stores stay relevant in an increasingly digital world.

Charles Lazarus and Toys "R" Us

Toys "R" Us was one of the first category killers and was founded by Charles Lazarus in 1948. The company revolutionized the toy industry by offering a wide selection of toys at low prices, making it difficult for smaller toy stores to compete. However, Toys "R" Us eventually fell victim to the rise of e-commerce and filed for bankruptcy in 2017.

Evolution of the Category Killer Business Model

With the rise of e-commerce, the traditional category killer business model has evolved. A new breed of online category killers has emerged, with companies such as Amazon.com dominating the market. These online category killers focus on price, convenience, and after-sales support, further threatening the survival of smaller specialty retailers.

Types of Category Killers

Category killers can be found across a wide range of industries, including:

Retail Chains

Large retail chains, such as Walmart and Target, can be considered category killers due to their extensive product offerings and low prices.

Products

Category killers are prevalent in various product categories, including books, baby gear, toys, electronics, home improvement products, linens and towels, party goods, sporting goods, and pet supplies.

The Future of Category Killers

As technology and consumer preferences continue to evolve, the future of category killers remains uncertain. While these stores were once thought to be unbeatable due to their vast selection and low prices, the rise of e-commerce has changed the game.

Today's consumers can easily compare prices online and purchase products from the comfort of their own homes, making it difficult for brick-and-mortar stores to compete. Additionally, younger generations are more interested in sustainable and socially responsible shopping, which could further impact the success of traditional category killers.

However, there is still potential for these stores to adapt and thrive in the future. Some companies are experimenting with new store formats that focus on experience and personalization, while others are exploring ways to integrate technology into the shopping experience. Only time will tell whether these efforts will be enough to ensure the survival of category killers in the years to come.

Some possible developments include:

Expansion into Online Retail

Many category killers have started expanding their presence online to compete with e-commerce giants like Amazon. This allows them to offer even more convenience to customers while still maintaining their competitive pricing advantage.

Competition from Emerging Technologies

New technologies, such as virtual reality and augmented reality, have the potential to disrupt traditional retail models. These technologies could allow consumers to virtually shop at any store, regardless of physical location, which may level the playing field for smaller retailers.

Category Killers in Retail Industry

Category killers have had a significant impact on the retail landscape, driving many smaller specialty retailers out of business while offering consumers a wide selection of products at competitive prices. However, the rise of e-commerce and new technologies have challenged the traditional category killer business model, forcing these retailers to adapt in order to remain competitive. As the retail landscape continues to evolve, it remains to be seen what role category killers will play in the future.