A few years ago a huge store was built near my house. It was a so-called "gigastore" (because it dwarfed other consumer electronics superstores) that would sell everything from music and movies to computers and software to appliances, home stereo, televisions, telephones, and much much more. In fact, the store was so big, it was even going to contain a fully functional McDonald's restaurant! (Even though an existing McDonald's was less than half a mile away.)
The store was called Incredible Universe. The parent company was Tandy (aka Radio Shack).
My family shopped there from time to time. The store was always packed. Just finding a parking spot could be a chore. Once inside, it was quite a frantic experience, with lots of busy shoppers crowded together and bustling from area to area. They'd look up and gaze in wonderment at the giant screen televisions and the karoke sound stage. Tired shoppers would take a break at the McDonald's for a much needed 6-piece Chicken McNugget with a medium Coke and a Happy Meal for the kids.
We'd shop there because it was close to our house and it had a lot of the consumer goods we wanted. It was convenient to find so many different types of products housed under one roof. I could pick up a piece of computer software while my wife went shopping for a cellular phone and a video for the kids.
Not long after, when the store was closing (it was to be sold to Fry's Electronics), the newspaper ran a very interesting story about the store. It said that the chain just wasn't profitable enough. According to industry analysts, it said, the cost to maintain a single store for one year was $50 million. The chain only had sales of $55 million to $65 million per store, so the "category killer" gigastore was to be killed itself. (Like five of the other 17 stores in the chain, the one we shopped at was sold to Fry's, which turned out to be a very similar store.)
The story really surprised me. $50 million (per store) just to break even? Wow! Even so, the average store did $55 million to $65 million in sales. That was a profit of $5 million to $15 million per store, wasn't it? That's not so bad, I thought. With those kinds of numbers, I certainly would have stayed in business! (NOTE: See side note below.)
I wondered just how busy a store had to be to be successful. That store was practically the most happening place in town, yet it was closed down because it only made about $5 - $15 million a year per store?
(According to USA Today, Tandy lost $90 million on the gigastore experiment. I guess that explains why they pulled the plug. Even though on average stores appeared to be profitable, I assume that things like startup costs and such are to blame. They never make it to the promise land of "break even" for the Return On Investment.)
My conclusion: Just how successful do you have to be in today's world to "make it?" That store was always crowded, often to the point of lunacy, and yet they closed down for not making enough money. It hit me real hard - As consumers in this society, just how packed like sardines are we going to get? How much is enough? Does the end always justify the means???
Welcome to the world of McDonaldization!
On April 9, 2002, I received the following anonymous email, so I'll reply to it here:
just fyi - on your intro page you mention that the gigastore had sales of $55 million and that the cost to run the store was $50 million...that doesn't equate to a $5 million profit as you state. you'd have to deduct the cost of goods sold from the sales figure to determine profit unless everything they sold they got for free. so if they had a profit margin of 20%, then the profit on $55 million is only $11 million. if the store costs $50 million and you only make $11 million, then you're taking a $39 million loss. that's why they pulled the plug.
Well, I'm not an accountant, so maybe I got this part wrong. The point I was trying to make was that the store was extremely busy, but yet still failed for not making enough money. Such is the high-stakes game that huge corporations seem to play.