Big Box Panic

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Well, Newbury Comics, for starters. “We had a huge competitive advantage knowing the local market,” Dreese now says. Today Dreese and his partner preside over a mini-chain of their own, with 27 stores in five states, while HMV, Tower, and Virgin are all distant memories in New England. As the market changed, centrally controlled operations such as the Sacramento-based Tower proved to be vulnerable to smaller, more localized competition.

As the chains floundered in the face of declining music sales, Newbury Comics nimbly altered its business model without abandoning its core constituency of indie music fans. Today, compact disc sales account for just below 50 percent of Newbury Comics’ revenue. DVDs are approximately 20 to 25 percent, and pop culture and sports tchotchkes—Boston Red Sox caps, Ozzy Osbourne action figures—cover the rest. Hiring a platoon of tattooed hipsters added an extra patina of authenticity to the shopping experience.

According to Dreese, who spent much of his youth in London hanging around the original Virgin Record Shop’s lunch counter, Newbury Comics challenged the big boxes by liberally borrowing from the big-box business model, making aggressive use of “loss leader” merchandise (pricing items below cost to entice customers into the shop), competitive pricing, and a refined distribution system that used vast online databases. It moved into the Internet early, selling merchandise through both its own website and third-party online stores such as Amazon and eBay. Dreese doesn’t worry much about downloads (iTunes, he says, has helped his business), and, as he recently told Boston magazine, his focus remains on how to “keep beating Wal-Mart.”

The inability of many big-box retailers to adapt to local tastes and their failure to anticipate technological market shifts has been their Achilles heel. When Wal-Mart was forced to shutter its German stores, a mystified company spokeswoman told a reporter, “We thought everyone around the world loved Wal-Mart.” (The International Herald Tribune quoted a baffled Wal-Mart shopper in South Korea, where the company has also abandoned operations, wondering, “Why would you buy a box of shampoo bottles?”) The chain had made the mistake of assuming that full-spectrum retail dominance is achieved by virtue of size alone, without regard to cultural and regional difference.

That error is common not just among chains but also among their critics. Market leaders do not always react nimbly to shifts in taste and technology. While big-box retailers have enormous competitive advantages—leverage with distributors and manufacturers, capital resources, political influence—they also face a distinct disadvantage in adjusting themselves to local preferences.

Just ask Starbucks CEO Howard Schultz. In 1995, community leaders in Harlem’s Hamilton Heights neighborhood, which is largely Hispanic and black, bemoaned their limited retail options and sought to attract new restaurants, markets, and shops, such as Starbucks and Ben & Jerry’s.

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