DISCOUNT GIANTS FACE OFF IN SMALL TOWN USA

Byline: Faye Brookman

AMSTERDAM, N.Y.--From her job at the Amsterdam Memorial Hospital here, Judith Engle used to drive five minutes on Route 30 to buy makeup at a Fay's drugstore.
But now, Fay's has been overshadowed by two new behemoths positioned directly opposite one another: a Wal-Mart and a Super Kmart, both of which stock a vast array of beauty products at sharply discounted prices. And at the Super K, Engle can purchase her weekly groceries, as well.
In this way, the mass market beauty business war is moving into tiny towns across the country like Amsterdam, located 40 miles west of Albany, where discounters are erecting huge stores that fill the department store void.
For years, these areas were considered too insignificant and were overlooked by discounters, even Wal-Mart, which is known for its dominance in the nation's smaller markets. But now the tiniest cities are seen as the next frontier.
Although Amsterdam has a population of less than 25,000, the new Wal-Mart and Super K, which opened their doors on the same day in September, are expected to pull customers from as far as 20 miles away, because in this rural area few shopping options exist. The closest department store is more than 30 minutes away.
"These stores have already become the place to go," said Engle.
With an invasion of discounters, it is often retailers like Fay's who get squeezed out. Market figures supplied by Neilsen show that discounters' sales rose 18 percent during the year ended May 14, while drugstore volume declined 6.4 percent.
Besides battling drug chains here, the new Wal-Mart and Super K are going head-to-head for beauty shoppers. In terms of sheer traffic, the Super K had the edge during a visit last Sunday. The store, open 24 hours a day, was doing brisk business in the grocery aisles, with a handful of customers rooting through the cosmetics department.
The 170,000-square-foot Super K, which replaced a 50,000-square-foot Kmart a mile away, is the first of its kind to open in New York, with plans calling for at least five more Super Ks in the Albany area in the next two years. Fifty-two are operating nationwide now. Kmart hopes to have 67 open by yearend.
The sprawling stores sell everything from motor oil to meat and vegetables to electronics under one roof, a greater array than in a traditional Kmart. The Amsterdam unit even houses a Little Caesar's Pizza restaurant.
The cosmetics area is just off the right side of the entrance, the same as in regular Kmart stores. The department is square-shaped, with a peg wall housing Cover Girl, L'Oréal, Almay, Maybelline, Maybelline's Revitalizing and Revlon. Skin care includes L'Oréal Plénitude, Naturessence, Freeman and Oil of Olay.
Within the beauty area is a new fragrance fixture for mass market scents featuring a reflective backing and large photographs to attract customers to the display.
Prominently featured at the time of the visit was Revlon's new Fire & Ice, and Kmart officials confirmed the scent is off to a strong start. Near the mass scents is a glass-cased area housing prestige fragrances such as Giorgio Beverly Hills, Paloma Picasso and Picasso's Minotaure.
While no beauty adviser was on duty during Sunday's visit to the Super K, across the street at Wal-Mart a clerk was stationed in the cosmetics area to field questions and answer telephone calls.
A caller asked if the store stocked Calvin Klein's Eternity or if the clerk thought the Super K did. In response, the adviser searched her stock for five minutes looking for Eternity, admitting she didn't know what it looked like. Eventually she concluded it was not available.
Although a tray of testers was available for customers, the adviser also could not recognize an unmarked bottle of V by Vanderbilt, despite its unusual shape. Still, while the adviser clearly needed more training, she was helpful and friendly.
Wal-Mart's beauty department is also near the front entrance. Although the chain operates its own super centers, the 96,000-square-foot store in Amsterdam is a conventional one without a grocery department.
Signs hanging from the ceiling direct customers to the beauty area. A glass case features prestige fragrances such as Ralph Lauren's Safari, Elizabeth Arden's Sunflowers and Liz Claiborne's Realities. The cosmetics peg wall includes Cover Girl, Maybelline, Almay, Physician's Formula, L'Oréal and Revlon.
The center aisles spotlight skin care. The latest skin care fixtures from several vendors have been set up, including a fixture called Plénitude Skin Care Center that brings together all Plénitude stockkeeping units.
There was also an Oil of Olay skin care fixture, but at the entrance of the cosmetics department, Wal-Mart featured a special display of its private label version of Oil of Olay.
Although in some units Wal-Mart carries upscale skin care and bath items such as Elizabeth Arden Lancôme in select stores, these brands are not present in Amsterdam.
Suppliers said this is an example of Wal-Mart's micromarketing capabilities--the typical Amsterdam-area consumer is not likely to purchase expensive skin treatment.
It is not unusual for the Wal-Mart and Kmart to lock horns like this in a battle for dominance in a small market. But at the moment, Wal-Mart has the clear market edge with 40 percent share of the U.S. discount store business, as compared to Kmart's 25 percent share.
In Amsterdam, however, Kmart might be able to top its rival. A spot check of several cosmetics items found the Super K and the Wal-Mart priced within pennies of each other, and the Super K carries items like food, which the Wal-Mart lacks.
"I don't think they can both survive," said a reporter for the Amsterdam Evening Recorder."I think the Kmart has a better established name in this market and it is easier to shop there because everything is under one roof."

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