Big Box Panic

Americans have been afraid of chain stores for nearly a century, but independent outlets keep thriving.

On the corner of Newbury Street and Massachusetts Avenue in Boston sits one of the famed architect Frank Gehry’s least inspired creations. “360 Newbury” is a big box of a building—appropriate considering that its first three floors have long housed big-box record stores—famous only as Gehry’s sole multi-tenant office building in the U.S. But for the third time in 10 years, its retail space sits vacant. Its last tenant, the British-owned music giant Virgin Megastore, broke its lease in 2006 after four unprofitable years hawking CDs and DVDs to local college students. A company spokesman promised “to seek an alternative location in Boston.” It has yet to do so.

Virgin snapped up the space in 2002, when the failing music retailer Tower Records vacated the building ahead of its long, protracted descent into bankruptcy. Back in 1987, when Tower Records launched its single largest megastore in the Gehry building, the future of Boston’s independent record store business looked grim. Vinyl merchants and industry experts predicted that most independent retailers would feel the pinch of the big box; megastores like Tower would have more stock on hand and, it was presumed, would offer significantly discounted prices. The three-story Tower Records & Video would pose a direct challenge to small, local stores like Newbury Comics, a comic book merchant turned record shop specializing in independent music, hard-to-find imports, and 7-inch records by local bands. To make matters worse, the new Tower store would be situated on the very same block as Newbury Comics.

But it wasn’t just the specter of Tower that frightened small retailers like Newbury Comics. The music business was experiencing rapid growth in compact disc sales, and chain stores were expected to become the dominant players. Giants like Recordtown, Strawberries, Coconuts, Musicland, and Sam Goody—most of whom have now either disappeared or seen influence decline—would come to dominate the industry, The Boston Globe predicted. Among independent stores, the Globe wrote, a “panic” was precipitating Tower’s arrival. So ominous was the thought of a big box music store in Boston that The New York Times covered the store’s opening, suggesting that the independents might as well throw in the towel, since Tower “has virtually no competition in its league.”

At the time, Newbury Comics co-owner Michael Dreese told the Globe that he too was “worried,” and that when all the chains had settled in—the British giant HMV would soon open a megastore across the river in Cambridge and another in Boston’s Downtown Crossing shopping district—“there is going to be blood all over the place.” It would, presumably, be the blood of the independents. The Times spoke in the past tense, suggesting that the indies’ demise was a foregone conclusion. “On the block where a punk-rock record store, Newbury Comics, once held sway,” the Times sighed, “a new Tower Records sells that kind as well as more mundane music and a wide assortment of videotapes.” The store would stock, a spokesman said, “60,000 cassettes and close to 50,000 CDs,” versus the typical average of “12,000 CDs and 13,000 cassettes.” Who could compete with that?

Well, Newbury Comics, for starters. “We had a huge competitive advantage knowing the local market,” Dreese now says. Today Dreese and his partner, both MIT dropouts, 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 Los Angeles–based Tower proved vulnerable to smaller, more localized competition. “Virgin and Tower were exceptionally poorly managed and made poor use of technology,” he says. “Combine that with Virgin and HMV’s very British arrogance when they entered the market.”

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 tschotchkes—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—something Virgin, HMV, and Tower didn’t offer.

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 Web 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 to adapt to local tastes and the failure to anticipate technological market shifts have been the Achilles heel of many big box retailers. When Wal-Mart was forced to shutter its vast network of German stores, a mystified company spokesman 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 among their critics. Market leaders do not always react in a timely and profitable manner to shifts in taste and technology. While big-box retailers have enormous competitive advantages—sui generis leverage with distributors and manufacturers, unparalleled capital resources, immense political influence—they also face a distinct disadvantage in adjusting themselves to local preferences.

‘Its presence had a magnetic effect on the caffeine crowd.’
Just ask Starbucks CEO Howard Schultz. In 1998 community activists in Harlem bemoaned the supposed retail segregation that concentrated so many Starbucks cafés in midtown and lower Manhattan while ignoring the traditionally minority-dominated neighborhoods north of 125th Street. “In my opinion,” one local activist told The New York Times, “people in this area do deserve to get the goods and services they would get in other areas.”

Starbucks responded to critics through its “urban coffee opportunities” program, opening a store in Hamilton Heights, a majority Hispanic neighborhood with a significant black minority population. But after a few years doing lackluster business, the chain’s Seattle headquarters determined that the store wasn’t worth saving and pulled the plug on the franchise. Elsewhere in the city, upper-middle-class New Yorkers were taking aggressive action against supposed corporate usurpation, staging protests and “direct actions” against Starbucks outlets that, they said, were homogenizing their neighborhoods. In Hamilton Heights, the protests went the other way. According to The New York Times, “residents mobilized to save their Starbucks,” pressuring corporate headquarters and community leaders because the store was providing jobs and, they hoped, would ultimately boost property values.

When the shop finally shuttered, a local community leader observed that Starbucks “was not attracting the neighborhood support because of a lack of cultural affinity. Most of the people [in Hamilton Heights] don’t go to hang out in a cafe. If they hang out, they hang out on the sidewalk. And it’s mostly old men talking about the old days.” Instead, residents preferred Dominican coffee from La Flor De Broadway Café, a hole-in-the-wall coffee shop with no seats, no Bob Dylan CDs on sale, no chrome espresso machines at $300 a pop. They do, however, serve a strong 80-cent cup of coffee.

In 1998 Jon Cates faced a similar challenge from Starbucks. Located in the bustling Westport neighborhood of Kansas City, Cates’ Broadway Café, a haunt of local hipsters, students, and artists, discovered that the Seattle coffee goliath was slated to open an outlet on the same block. The café’s supporters sprung into action, papering the windows of their new neighbors with leaflets and eventually appealing to the city zoning department to stop development. When that was unsuccessful, the shop’s owners collected thousands of signatures in protest. But that too failed, and Starbucks opened for business, confident in its ability to steamroll Cates.

Three years later, Cates reluctantly conceded to a Wall Street Journal reporter that his business was thriving. Rather than defeating the outsiders with zoning regulations, they won with old-fashioned competition: “Starbucks helped our business, but I don’t want to give them any credit for it.” Eight years after Starbucks invaded Westport, Cates has actually expanded his business, opening a coffee bean roastery in the neighborhood that supplies other independent cafés in the region.

Phoenix Coffee Co. in Cleveland Heights, Ohio, an independent café who battled Starbucks for five years, also found the Seattle competition a boon for business. Phoenix’s co-owners Carl Jones and Sarah Wilson-Jones told Cleveland’s Sun Press that “While Starbucks was there”—the store has since shuttered—“our business grew by 20 percent a year. We’ve been grateful the corporate giant moved in, since its presence had a magnetic effect on the caffeine crowd.”

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  • Paul||

    Americans have been afraid of chain stores for nearly a century, but independent outlets keep thriving.

    But it's because American's don't have a choice but to shop at the chain stores. With all the smaller outfits put out of business by the unscrupulous tactics of the big box stores, we're left with nothing but big box stores. Wal-Mart creates the conditions that force us to shop there.

    Wow, this is easy. I can feel an honorary professorship coming on...

  • ||

    When it comes to grocery stores, I am grateful to the chain stores. The corner grocer has less choice, much higher prices and the stock is never as fresh as in the chains.

    However, the optimum size of a chain seems to be 30 to 50 stores. Beyond that, they lose touch with the local markets and tend to go for price instead of quality. A chain of 30 to 50 stores is still large enough to get most of the volume savings that the national chains get.

  • ||

    The article says nothing that shouldn't already be glaringly obvious.

    I grew up in the 70s and 80s five blocks from a Target and Rainbow foods. My parents bought our first color tv in 82 from Best Buy and I practically lived at the local store (which was the first ever built) during my teens. I have a Costco membership. So its safe to say I live for Big Box retailers (i also live in minneapolis home to Best Buy and Target.) But the bottom line is if a small independent offers a unique service at a great price I will shop there (and I do). Competition is a good thing. Why is this concept so hard for people to get?

    /rant

  • economist||

    Paul, please don't go populist/socialist on us. You have too much to live for, and James, Joe, MCW, and those other socialist weirdoes who choose to comment here PO me already.

  • Rhywun||

    Today's chain stores have helped alter the American landscape to a much greater degree than past chains you're trying to comparing them to. And using central Boston as an example is hardly instructive of the usual pattern in which a big box store opens up outside of town and "Main Street" either folds, or turns into 99 cent stores or boutiques if they're lucky.

  • ||

    My parents bought our first color tv in 82 from Best Buy and I practically lived at the local store (which was the first ever built) during my teens.

    Hell, I even remember when it was called Sound Of Music!

  • sv||

    shocker: competition works to improve the marketplace overall for consumers and businesspeople alike. it's natural.

  • ||

    There was a local bookstore I loved called "Either/Or"--I really miss those guys. It was just down the block from my favorite art house theater, which was practically on the beach in Hermosa. That theater went dark, but it wasn't the chains that put it out of business--it was a government requirement that they put in earthquake retrofitting. I really miss that place. Across the street from that theater there used to be a place called "Video Archives" that literally had any movie you've ever heard of, old movies, new releases, whatever, and they had the most dedicated movie nut staff. Quentin Tarantino worked there at the time... Video Archives is long gone now.

    ...but then so is the Crown book store that used to be in town--I think that chain went bankrupt. The AMC chain theater that used to be in town--it's gone too. So is the Wherehouse and Tower Records that had such a big movie rental business. If the business plan is to be the low price guy on the block, I suspect larger chains tend to put smaller chains out of business.

    How much business has Sears lost to Wal*Mart and Target?

    I've heard of tile showroom retailers who want to physically position their stores so that most of the traffic headed to Home Depot has to drive past their store/showroom. They can devote their entire business to satisfying each customer individually. They can offer products that Home Depot doesn't have, and if they can't get you what you want at wholesale + installation, they can pay retail at Home Depot just like you can.

  • R C Dean||

    the usual pattern in which a big box store opens up outside of town and "Main Street" either folds, or turns into 99 cent stores or boutiques if they're lucky.

    Gee, I'd hate to live in small town where a big box store let me buy a wide variety of goods at low prices, and I could go downtown to shop at boutique stores with specialty goods and service.

  • ||

    VICTORY for the little guy!!! A couple of weeks ago, Starbucks announced they were closing the Kansas City shop featured in the article.

  • thoreau||

    I'm surprised joe isn't here.

  • ||

    How much business has Sears lost to Wal*Mart and Target?

    Who were small when the started to take on Sears, K-Mart and Montgomery Wards. By the prevailing, bash the chains, logic so often presented, WalMart and Target didn't stand a chance against the established big chains. Since WalMart and Target would logically be overwhelmed by the established department stores, what the hell are we discussing? They don't exist having been swallowed up by the existing giant monopolies.

    Now I'll just mosey on down to Wards and get myself a Signature washerr and dryer, because they're a better value than the Kenmores. After all those are the only two retailers of appliances. All the Mom and Pop places are gone now.

    Then I'll do my grocery shopping at the A&P who have long ago driven are other food retailers into extinction.

  • Rhywun||

    Gee, I'd hate to live in small town where a big box store let me buy a wide variety of goods at low prices, and I could go downtown to shop at boutique stores with specialty goods and service.

    I only inserted the "boutiques" line as a defense against the inevitable charge "but downtown is full of boutiques now!" when in my experience downtown is almost invariably dead. I suppose that's what America "wants" but to me the suburbanization of "small-town" America is an overall loss.

  • ||

    "I only inserted the "boutiques" line as a defense against the inevitable charge "but downtown is full of boutiques now!" when in my experience downtown is almost invariably dead. I suppose that's what America "wants" but to me the suburbanization of "small-town" America is an overall loss."

    I live in LA, which might be a little different, but downtown is thriving like it hasn't since the late '70s early '80s.

    Even apart from the big downtown, LA is made up of a hundred little towns, all with little downtowns of their own, most of which seem to be doing quite well. ...with restaurants and pedestrian ways. The little downtowns is usually where they hold the weekly farmers' markets, something that shouldn't exist, what, with the chain grocery stores taking over and all.

  • ||

    The true story of independent record stores in Boston is that Newbury Comics is the devil. I've worked in several different stores in the Boston area, both big box and tiny used vinyl shops. The big box stores charge full retail prices for CD's, whereas Newbury Comics practices a loss-leader strategy. They sell CDs at or below cost, and recoup the loss with T-shirt sales. Large chain stores can't compete on price, but neither can the little stores.

    As a result, Newbury Comics has achieved an almost complete monopoly in Boston. All the used stores are being picked off, one by one. And now, CD prices at Newbury Comics have risen closer to what the large chain stores used to charge.

  • Dan Clore||

    Wal-Mart, corporate-welfare queen

    Though often cited as an example of the free market in action, Wal-Mart
    has actually received more than a billion dollars in state subsidies.

    http://groups.yahoo.com/group/smygo/message/8921

  • Rhywun||

    I live in LA, which might be a little different, but downtown is thriving like it hasn't since the late '70s early '80s.

    That's cool--I always thought otherwise. No, I'm thinking of basically every city and town in upstate NY. For example, Buffalo. It's a little strange to live in a city of 300,000 people that doesn't have a functioning downtown any more. My Mom's town, Le Roy (home of Jello!), is lucky to have the boutiques, but all the regular shopping has moved miles outside of town. But most of the towns are kind of ghettoized just like their larger cousins like Rochester and Syracuse.

  • Paul||

    Though often cited as an example of the free market in action, Wal-Mart
    has actually received more than a billion dollars in state subsidies.


    So the problem is government, then. Check.

    I suggest we fix government then. Government, that body of elected politicians.

  • ||

    "It's a little strange to live in a city of 300,000 people that doesn't have a functioning downtown any more."

    Although I've never been there, I've met a number of people from Buffalo, and I never met anybody from Buffalo that I didn't like.

    Buffalo's lost a lot of its population. It looks like it lost about 11% of its population since 2000. It looks like its lost about 20% of its population since 1990 and more than 40% of its population since 1980!

    http://en.wikipedia.org/wiki/Buffalo%2C_New_York#Demographics

    [right hand column]

    I don't know that you can blame the loss of a downtown on big boxes if you're losing population like that. You guys seriously need some immigrants. Legal, illegal, I wouldn't care! If I were the city council, mayor, whatever, I'd want to call for a, illegal immigrant safe zone in Buffalo--you guys need some warm bodies.

  • ||

    Retail development is all about demographics and concentric circles. Retailers want to know how many people live in a one mile radius, how many people live in a three mile radius and what the average income is within those circles.

    That's like 90% of it.

    Take income or people out of those circles and the retailers disappear--big box or otherwise.

  • Rhywun||

    I don't know that you can blame the loss of a downtown on big boxes if you're losing population like that.

    I don't blame chains or big boxes; in fact I rather like the big box stores in Manhattan for example. Rather, the fact that they typically refuse to enter a market like Buffalo (I mean the city, not the suburbs) is a symptom of America's not giving a shit about its historic city centers. An urban Wal-Mart might be welcomed in Buffalo with open arms, but what are the chances of Wal-Mart trying it out? Sure, Wal-Mart hasn't been welcome in places like NYC or Chicago, but those are cities with vast amounts of commerce still, not dying cities like Buffalo. But downtown shopping in Buffalo died because everyone gave up on it and started driving to suburbs, no matter how inconvenient and expensive it became. But now the city is so poor you can't even count on that any more. Meanwhile there's been a mini-renaissance in some parts of downtown. I think some big box retailers would be very successful there now, with a mix of urban "pioneers" and less wealthy customers who are fed up with the expense to driving to the suburbs.

  • ||

    "But that too failed, and Starbucks opened for business, confident in its ability to steamroll Cates."

    Hate to break this to you, but Starbucks didn't care about Cates at all, much less did they want to "steamroll" him. My guess is that Cates and Starbucks are actually catering to different populations (thus not actually competitors), and that Starbucks didn't find enough of their target market to keep the location going.

  • ||

    I've got to say fuck that Cates guy. The little bastard had no compunction at all about trying to use the power of the state to exclude his competition. That's wrong, whether it's a billion-dollar company or a mom-and-pop store trying to do it.

    Customers aren't property. Business who think they're entitled to use the government to usurp my choices can kiss my ass.

    -jcr

  • ||

    Big-box chain stores are the effect, not the cause.

    For a lot of reasons, economic activity and investment has been steered out of established urban centers and towards the suburbs.

    Most suburbs mandate sprawl-style development. Sprawl-style development is expensive, and building new is more expensive still. It only makes sense to build really big, which makes it even more expensive. This makes it almost impossible for the little guy to get into the act.

    But the disinvestment in the urban core - that is prior to the suburbs sprawling, and to Main Street emptying out. Main Street didn't lose its place as the heart of the local/regional commercial trade because of big-box stores, but because the function of downtowns in our settlement and economic patterns changed.

  • ||

    Wow, Moynihan's article is a mess. Don't any of you "senior editors" edit anything? It's full of nonsensical passages like Maryland's anti-Wal-Mart law, which mandated that the company spend at least 8 percent of its payroll on health care Um, what?

    or

    There will always be those that find Wal-Mart inauthentic, those that prefer the punk rock ethos of a Newbury Comics to the Deep South values of Wal-Mart, with its habit of censoring CD covers and song lyrics.

    It isn't "Newbury:Punk::Wal-Mart:Deep South."

    It's "Newbury:Punk::Wal-Mart:Placeless Generica."

  • Local Town||

    I live near a small town that is surrounded by big-box retailers such as Wal-Mart and Home Depot. Yet this small town manages to have a thriving downtown, supporting a paint store, a hardware store, two applicance stores, two coffee places, a running shoe store, and several good restaurants. Also nearby is a medium-sized city. Several years ago, when its downtown was beginning a slide down, a developer wanted to build a mall within the boundaries of the city. The city father and mothers stamped around and yelled until the developer finally gave up. The city's downtown is now
    a sad place, with only a few shops that no one outside the city would want to come into the city to shop at. But, there is plenty of building of new government buildings, off the tax rolls of course.

  • Shane||

    "Combine that with Virgin and HMV's very British arrogance when they entered the market."

    lol, fucking brits, too easy...

  • nfl jerseys||

    gsetr

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