When a Wal-Mart comes to town, trying to compete with the big-box store by reducing prices does not help, concludes a two-year study by the Tuck School of Business at Dartmouth University in Hanover, N.H.
The study found that after a new Wal-Mart store opened, local supermarkets in seven regions of the U.S. suffered sales declines of 17%, while mass merchandisers saw sales fall 40% and drug stores saw a 6% decline in sales.
And when prices were reduced or when the assortment carried by the local store was reduced, sales dropped further, to an average of 20% to 25%.
“Trying to be similar to Wal-Mart does not help,” says Kusum Ailawadi, professor of marketing at Dartmouth, who along with her co-authors studied 90 businesses and their weekly sales data for 46 product categories and compared them to corresponding control stores in markets unaffected by Wal-Mart. “It’s much better to be different.”
She says that local retailers should generally move away from lower-tier products and expand their product assortment to different brands, such as natural or organic items.
Prof. Ailawadi also offered these tips:
1. Supermarkets should offer deeper promotions and begin selling a higher percentage of top-tier national brands and private labels.
2. Drug stores should offer frequent promotions on a wide assortment of products and increase the total variety of products they sell.
3. Mass merchandisers, though, have no choice but to reduce prices but not reduce the assortment of their products.
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