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A discount store is a departmentalized retail operation that sells at prices substantially lower than conventional retailers. To offset the lower prices, expenses are kept down by minimizing free customer services, maximizing the use of self-service, and using inexpensive fixtures, decorations, and displays. In addition, improvement of operational efficiency is continually sought to control costs. Modern discount stores typically sell a mix of hard goods (e.g., refrigerators, televisions) and soft goods (e.g., apparel) and other general merchandise.

Discount stores evolved from a series of retailing changes that began in the United States in the late nineteenth century. Following the Civil War, the development of mass-production processes and a mass-distribution system, along with population increases, paved the way for a new approach to retailing—mass merchandising. The first type of mass-merchandising operation was the department store. The second was the chain store, which included variety stores and "junior department stores." The third was the mail-order house. These patterns for mass merchandising remained relatively constant through the 1920s.

The Great Depression of the 1930s and the accompanying economic hardships set the stage for another retailing change and the beginning of discount operations. Grocery supermarkets, the fourth type of mass-merchandising operation, appeared in 1930. Supermarkets were comprehensive grocery stores that were designed for self-service and consumer accessibility. Their size and low-cost facilities enabled them to operate on low margins and sell below the competition. Their inventories were quickly expanded to include nonprescription drugs. Drugstores, in turn, added variety merchandise, and variety stores expanded their mix while keeping prices relatively low. The starting point for the fifth type of mass merchandising, discount stores, is often traced to the opening of a radio and appliance store by the Masters brothers in Manhattan in 1937.

Price competition among supermarket, drug, and variety chains in the 1930s also brought about legislative constraints in several states to protect small retailers. These resale-price-maintenance, or "fair-trade," laws provided that manufacturers could establish retail prices for products that carried their brand name, thus legally fixing prices. In 1937, these laws were strengthened by the Miller-Tydings federal legislation. Even though the laws were difficult to enforce, they would present a major challenge to discount merchandisers over the years to come.

By the early 1940s, a significant number of retail operations called discount houses had been established in several major cities. These discounters carried nationally advertised hard goods such as cameras and appliances. They targeted specific groups, such as teachers and labor unions, and sold from catalogues or samples. They were able to offer goods at exceptionally lowprices because they bought directly from manufacturers and kept expenses down through low inventories, low-cost facilities (often in office buildings), and no credit/no delivery policies.

After World War II, discount merchandising grew rapidly. This explosion in growth was fueled by consumer bargain-hunting in the face of rising prices, the pent-up demand for goods created by wartime shortages, and the establishment of homes and families by returning GIs. Discount stores sprang up across the country to satisfy the demand for consumer goods, including television sets and other newproducts. Many of these newdiscounters sold their merchandise out of other existing businesses or set up in low-cost facilities such as abandoned factories and lofts. Despite these often makeshift origins, the modern discount industry was beginning to take shape.

Sparked by increased consumer confidence in discount stores and increased availability of goods from manufacturers, discounting continued

to grow rapidly during the 1950s and became an important part of the retail landscape. New chains were drawn to the field, and established chains opened newoutlets. Variety stores, specialty retailers, traditional department stores, and supermarkets were looking into discounting and, in some cases, launching ventures.

The look of discount stores also began to change in the 1950s as leading discounters (e.g., Masters, Two Guys, Korvettes) took on a department store-like appearance by adding household goods, apparel, and other soft goods. "Mill store" discount operations further contributed to this change as they began to surface with their base of soft goods.

In addition to the national and regional chains that entered the industry in the 1950s, several others opened their doors in the early 1960s. Many of the newadditions were inexperienced and underfinanced, but among the new entries were four that would become the giants of the industry—K-Mart, Woolco, Target, and Wal-Mart. All four began their operation in 1962.

K-Mart was formed by Kresge, one of the nation's leading chain stores, in response to competition from drugstores, supermarkets, and the newdiscount stores. Kresge's newventure was

unique in two respects. First, the marketing plan was based on the idea of offering quality merchandise—predominantly national brands—at discounted prices. Second, the location strategy was to "surround" cities with their stores.

Woolco was organized by Woolworth, another longtime leader among variety stores. Faced with the same problem as Kresge, they also responded by shifting their efforts to discounting. Their strategy was built around carrying department store merchandise, auto parts and accessories, and soft goods, all at discount prices.

Target was a spin-off of the Dayton Corporation, a Minneapolis-based regional department store chain. It was conceived as a chain of regional upscale discount stores designed to attract affluent suburbanites. The product lines were higher quality and higher priced, with an emphasis on furniture and household appliances.

Wal-Mart was started from scratch by Sam Walton, the owner of a group of Ben Franklin variety stores in the south-central states. Walton's strategy was to establish stores only in small and medium-size towns so that he could capture a substantial part of the total local market. His key policy was to sell at "everyday low prices," rather than hold periodic sales.

In addition to their marketing innovations, these four industry leaders played a major role in setting the pattern for other aspects of the industry. In particular, they established large facilities with standardized layouts in or near shopping centers. Their merchandise lines included both hard and soft goods. And, once they were established, they reduced the number of leased departments to a minimum.

Many discount businesses failed in 1962 and 1963 because of the fierce competition brought on by the proliferation of newdiscounters and the experimentation of other retailers in discounting in the early 1960s. Many were marginal operators that had expanded too quickly; others were well-established chains.

In spite of the failures, the industry continued to expand in the mid-1960s, both in terms of number of stores and amount of sales. The larger chains, especially, were expanding through acquisition of closing operations as well as opening newunits. By 1966, discount stores were attracting approximately 60 percent of the nation's shoppers (1969).

By the late 1960s, Woolco had opened ninety-two stores (1968), Target had eleven (1968), and Wal-Mart had reached thirteen (1969). At this time, K-Mart had grown to more than 300 stores.

The 1970s were a decade of expansion for the successful chains. Woolco and K-Mart focused on national expansion, and by 1974 K-Mart had become the first truly national chain with stores in the forty-eight contiguous states. Wal-Mart expanded into the Southeast and Midwest. And Target established a strong presence in the Midwest. Some chains were forced into bankruptcy by the recessions of the 1970s, but their stores were bought up by the major chains and others. The decade also witnessed the end of federal "fair-trade" laws and the adoption of retailing technologies such as computerized cash registers, point-of-sale (POS) checkout scanning, and satellite communications.

Acquisitions and failures were still common at the beginning of the 1980s, reaching a high point in 1982. Most notably, Woolco closed during that year, while several others filed Chapter 11 bankruptcy and closed shortly thereafter. Other well-known chains folded in the years that followed. As in the previous decades, these failures provided the opportunity for quick expansion by survivors.

Two distinct trends were underway as the discount industry entered the 1990s. One was the bankruptcy of several remaining discounters. The other was the spectacular growth of the (now) three major players: Target, K-Mart, and Wal-Mart. Target sales more than doubled between 1987 and 1993. K-Mart sales grew by more than $8.3 billion during the period 1988-1993. Meanwhile, in 1991, Wal-Mart passed Sears to become the nation's largest retailer. Their combined sales had increased by more than $46.7 billion during the period 1988-1993. As a result of these trends, the industry fragmented into four segments: the three major chains and a group of regional operators.

Along with the departure of large numbers of discounters and the acquisition of others by stronger chains, newkinds of discounters have emerged. They include membership warehouses, specialty discounters, factory mall outlets, and specialty mail-order houses.

Based on the trends of the 1990s, continued growth and consolidation as well as new applications are safe predictions for discounting at the beginning of the twenty-first century. In addition, deep discounting promises to provide strong competition for others in the industry. And all indications are that e-commerce discount retailing will grow, rapidly changing the shape of discounting and impacting the current industry members.