From big boxes to small niches

Tom Stemberg

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Bob Moon: When Tom Stemberg founded the office supply giant Staples back in 1986, he helped pioneer something known as the "category killer." That's the nickname for chains like Staples, Best Buy or Home Depot that dominate specific retail segments.

Stemberg's a venture capitalist now, but he's no one-trick pony. The new venture fund he unveiled today will focus on retail start-ups that are a very long way from the type of store he pioneered. Just about the opposite, in fact. Here's Marketplace's Steve Tripoli.


Steve Tripoli: Tom Stemberg says category killers like his Staples chain aren't where retail's heading any more.

Tom Stemberg: Today, most of the categories have been killed by very efficient retailers. And the real opportunities are serving consumer niches which are too small to be served by very large stores. So I think there's lots of opportunities to serve customers better and to make a lot of money doing so.

Now Stemberg's at Highland Capital Partners near Boston. And those niche retailers — call them reverse category killers — are where Stemberg's new venture fund is placing $300 million worth of bets.

Patty Edwards is an analyst at Wentworth, Hauser & Violich in Seattle. She says the pendulum's swinging away from the retailing surge that made low prices king.

Patty Edwards: Now we're having a time period where there's a lot of wealth in the world. We've got money, and I think that money follows money. There's a lot of money to be made in retail.

And just what are those well-heeled shoppers looking for? Edwards says it's more than just products you won't find at giant retailers. And venture capitalists like Stemberg are tailoring their investments that way.

Edwards: The experience is a big deal. The small, intimate experience where you actually get help from someone who knows specifically what you're looking at is a big deal. So I think that's part of what they're playing to.

Stemberg's venture money is playing to a diverse set of prospects. There's a gift-store chain for people who want to move beyond cards, wine and flowers. And a holistic pharmacy. And no, you probably won't find a single bluelight special in any of these places.

I'm Steve Tripoli for Marketplace.

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