"Category killer" is a phrase used to define a large retailer or product that effectively "kills" other stores or products in the same category. Small retailers and new products struggle to compete against these category killers, as they often employ size-related advantages such as economies of scale.
Here's a full definition of category killers and how they work, along with a few examples of the types of category killers you may encounter in your daily life.
What Is a Category Killer?
A category killer is defined by the virtually insurmountable level of competition that it poses to others in its category. The phrase is most commonly used to describe large retail chain stores that dominate a product category. Once one of these category killers moves into a town, it becomes difficult for smaller, local mom and pop stores in the same category to remain in business. Smaller stores lack the economic advantages employed by the category killer, such as a wide product selection, national marketing campaigns, and pricing advantages due to economies of scale.
A category killer can also refer to a product. The definition remains largely the same—it highlights the advantages and dominance of a single product over others in its category.
Charles Lazarus, the founder of Toys "R" Us, is often credited with inventing the category killer business model.
How Does a Category Killer Work?
Most category killer stores need to grow significantly before they become category killers. The more stores a chain retailer opens, the easier they can achieve market dominance through capacity, reach, and product selection.
This holds true for almost all examples of category killers. For example, in 2019, there were 1,977 Lowe's stores and 2,291 Home Depot stores in the U.S., Canada, and Mexico.
These two home improvement chains have large marketing budgets, a broader inventory selection, massive distribution centers, and a dominant logistics footprint that smaller businesses would struggle to compete against.
The financial capabilities and size of these large chains give them an edge because they purchase from manufacturers and suppliers in bulk. Buying in bulk offers advantages when it comes to negotiating prices, dating, and shipping costs. While smaller businesses can negotiate with suppliers, they can't match the purchasing power of larger chains, so the suppliers have less incentive to offer them favorable deals. This effectively allows the category killer to offer lower prices.
A local hardware and tool store would have to lower their prices to be competitive, which affects their revenues and ability to pay expenses. If the local store lowers prices to the point that it becomes competitive with the category killer, then the category killer may further lower prices, expand its product selection, or otherwise increase its competitiveness. Unless something disrupts the trajectory, the small hardware store will eventually be "killed."
The ability to afford larger retail spaces is another major advantage for category killers. Larger retail space means more space for a wider variety of items to sit on shelves. Unless a local store can afford an equally large retail space, it will be logistically constrained from offering that level of variety.
Walmart is an example of a retail store that effectively uses large spaces to achieve category-killing market dominance. Its purchasing power allows it to offer lower prices than the competition, and the size of its retail spaces allows it to compete with a wider variety of categories. A single Walmart store may have groceries, electronics, home decor, and gardening supplies. The selection in the store may not be the "best" in any of those product categories, but the consistently low prices throughout the store tend to "kill" independent competition in the area across categories.
Online Category Killers
Category killers don't have to be brick-and-mortar retailers. E-commerce giant Amazon could be considered an online category killer. Just like retail category killers offering more selection and better prices, Amazon dominates the online shopping space by offering a variety of products, better shipping times, and lower prices that would be nearly impossible for a smaller e-commerce company to match.
Though not as popular in the U.S., Alibaba is another e-commerce giant that could be considered a category killer in certain regions.
Product Category Killers
There are instances in which a product could be considered a category killer, though it may be less common than finding a category killer retail store. Some would argue that the iPhone is a category killer for smartphone, since, by some estimates, it controls nearly half of the American smartphone market.
In 2020, the iPhone's App Store came under the scrutiny of the U.S. government. Some lawmakers felt that it had become so powerful in determining which apps get distributed to users—as well as the fees and other barriers to distribution—that it could effectively kill off apps that competed with native iPhone apps or similar Apple products.
- Category killers are major companies or products that effectively "kill" the competition.
- Category killers are usually large companies that can wield their size to achieve efficiencies, prices, and selections that smaller businesses can't compete against.
- Toys "R" Us founder Charles Lazarus is generally credited with creating the category killer business model.