COLORADO SPRINGS, Colo.--Oct. 11--In the mid-1980s, Sam and Lynn Dollar owned four office supply stores with 21 employees. But then the economy slowed and Office Depot and OfficeMax moved into town.
Today their Dollar Office Supply is down to three employees in a small storefront in a warehouse district near The Citadel mall.
'Retail was a big part of our business seven years ago when we had the four stores,' Lynn Dollar said. 'But since then we cut our expenses by two- thirds by going entirely to a commercial business and moving to this location 2 1/2 years ago.'
It took years to reorganize their company and shift to another market niche, but the Dollars have come to believe they will survive their competition. In fact, they say their business is now even more profitable.
'We are doing better now than when we had a ton of employees and all the insurance costs that went with them,' Lynn Dollar said.
Welcome to retailing in the 1990s. As if the city's 1987-91 recession was not enough, discount superstores have moved into town, forcing local store owners to transform their businesses or lose them.
Several local businesses have found they could not compete with superstores, which often are called category killers because they specialize in a narrow category of merchandise and offer selection and prices few can match. Superstore category killers have spread to everything from office supplies to pet food and toys.
'These retailers use a huge selection and low prices to overwhelm the competition,' said Tom Thomson, retailing analyst for Richmond, Va.-based First Wheat Securities Inc. 'They provide the consumer one-stop shopping for a variety of products. They are triggering a lot of consolidation in the retailing industry.'
Thomson said competition from Minneapolis-based Best Buy Co., which expanded into Colorado two years ago, and other electronic superstores is probably at least partly responsible for a planned merger of the parent companies for the Silo and Fred Schmid appliance and electronics chains. Schmid and Silo each operate two local stores.
But small, local businesses are the most frequent victims of superstores,
Thomson said. To survive, they must offer better customer service and carry specialized merchandise their larger competitors do not offer, he said. Category killers tend to focus on the most popular merchandise, like Barbie dolls and Nintendo games, he said.
'A small retailer needs to go to school on whatever category killer is in his market,' Thomson said. 'They need to study their price, service level and merchandise mix and then find their niche.''
The Dog House Inc., a downtown dog training and pet supply store, opened six months before superstore Petsmart expanded into Colorado Springs and has been successful by focusing on training, customer service and high-end dog food, co-owner Shelly Bergstraser said. Her store's prices are competitive with Petsmart on specialty items, she said.
'Our big draws are service and personality,' Bergstraser said. 'We build a relationship with each customer so they keep coming back. The superstores don't have the time to do that.'
But not all stores can find their own niche after a category killer moves into their market.
Just before Toys-R-Us opened its store here four years ago, Alan Worrell decided to close the city's oldest toy store, Levine's. He weighed the prospects of shifting the business to more upscale merchadise in a still- declining local economy and decided he probably would not survive.
'We just couldn't sell merchandise at the same prices they could and make enough to stay in business,' said Worrell, now a vice president of the Colorado Springs Chamber of Commerce.
Toys-R-Us is the prototype category killer. A little more than a year after opening its Colorado Springs store, both of its major competitors - Lionel Playworld and Children's Palace - closed their local stores after filing for bankruptcy. The company now controls one-third of the local toy market and is looking for locations for a second store, said regional manager Gary Gilliland.
'We have the space to carry manufacturers' entire lines of merchandise, so when we go buy from them we can get the best prices,' Gilliland said. 'It also allows us, for example, to devote a 188-foot-long wall just to games so customers don't have to go to two, three or four places to get what they want. We try to offer them price, selection and value.'
But not all category killers have been as successful as Toys-R-Us. The Phar-Mor chain of drug superstores closed all of its Colorado stores earlier this year after filing for bankruptcy. The chain was hobbled by an alleged embezzlement scheme involving some of its executives. And owners of the HomeBase chain of home improvement stores ousted management recently after poor financial results.
The mixed record of category killers has not deterred companies from searching for new retailing segments to exploit, Thomson said. Sporting goods and books are the latest segments to spawn category killers.
Musicland Stores Corp. plans to open a 46,000-square-foot superstore today near The Citadel. The store - as large as many supermarkets - will focus entirely on books, videocassettes, stationery, compact discs and computer games. Ironically, the store will open in the location left vacant when Phar-Mor closed earlier this year.
A Tampa, Fla.-based chain of sporting goods superstores, Sports & Recreation Inc., will expand into Colorado Springs and Denver during the next six months to challenge the Denver-based Gart Bros. Sporting Goods Co. chain. The company's 40,000-square-foot store will open in December and carry a broad array of merchandise from boats to shoes and skis.
Sports & Recreation last month paid $1.22 million to Salt Lake City-based Price Development Co. for its 11-acre site southeast of Academy Boulevard and Montebello Drive, said Rich Walker of Banc Commercial Colorado Inc., who - do Springs Sports, will employ 80 people.
'We don't go into a market to destroy anyone,' said Sports & Recreation chief executive Jim Bradke. 'We consider ourselves a value-oriented or discount retailer that offers competitive prices.'
Gart is responding to superstore competition by building its own superstores. The company announced plans in August to open five superstores in the Denver area by 1995 and remodel its existing stores to focus more on shoes and apparel. The company is no stranger to superstores: Its flagship store, near downtown Denver, covers 100,000 square feet.
'Our goal is to maintain our dominant position in the Rocky Mountain region while offering customers greater convenience, low everyday prices and enormous selection,' Gart President John Chase said.
Marty Wakelyn, owner of SportsTrader USA in Mall of Bluffs, said he plans to focus more on used sports equipment and customer service so he does not become a casualty of Sports & Recreation.
'We will try to stay on the low-cost end with our used equipment,' said Wakelyn, a former professional hockey player. 'We also believe the experience of our staff will make us unique. We have a former judo champion selling fitness equipment and an international figure skater selling skating gear. Their expertise helps make sure we provide customers the proper equipment.'
But Lynn Dollar, the local office supply store owner, is worried that most small businesses, especially in small towns, eventually will fall victim to discounters and category killers.
'Some people think Wal-Marts are the greatest,' Dollar said. 'But look at what they have done to small towns: There are no independent shoe stores, sporting good stores or anything else. They destroy everyone else.'
