By the late 1920s, politicians realized that populist rhetoric directed against chain stores was a political winner. In 1928, Sen. Smith Brookhart (R-Iowa) called on the Federal Trade Commission to investigate the “chain menace.” After a six-year investigation, the agency published its findings. While siding against the alarmists—there were no true monopolies in retail, the commission determined—the report’s complaints will sound familiar to today’s Wal-Mart critic: merchandise sold beneath cost, strong-arming manufacturers, employees paid low wages. The study also provided unintended advice for the local merchant, observing that “less service [is] given to customers by chains.”
In 1928, the Supreme Court struck down the Pennsylvania Drug Store Ownership Law, an anti-chain ordinance that required drug stores to be owned by pharmacists, not corporations. The court ruled that the law’s stipulation of who could own a business was “repugnant to the Constitution.” That year 13 states attempted to pass anti-chain legislation.
In 1938, Rep. Wright Patman (D-Texas) introduced legislation to tax any chains with over 10 outlets in a single state. Its provisions, one industry observer noted, “were drastic enough to have put many a chain out of business.” The chain tax, Chain Store Age editor Godfrey M. Lebhar calculated, would have a disastrous effect on large retailers. If Patman’s bill had passed, the Woolworth Company would owe approximately $81,000,000—in 1938 dollars—in taxes, even though the company’s net profits amounted to $28,000,000. “In the case of the A&P,” Lebhar wrote, “with approximately 12,000 stores in 40 states at that time, the tax would have totaled more than $471,000,000.” The bill never made it out of committee, but the stage was set for future legislative attacks on the chain system.
‘The retail book trade cannot live against the
competition.’
Today’s independent booksellers and
their supporters fret about an Axis of Evil consisting of Amazon,
Borders, and Barnes & Noble—and with good reason. Today,
independent bookstores account for just 15 percent of the market,
down from 80 percent in the early 1970s. The American Booksellers
Association (ABA), which represents over 3,000 independent stores,
filed suit against publishers’ “unfair” use of volume discounting
in 1995 (they settled out of court) and again in 1998 against
Barnes & Noble (the ABA settled on a $16 million payment of its
legal fees and dropped the suit).
But the ABA too could assuage their fears by looking to historical precedent, when both publishers and smaller shops attacked chain discounters with blind fury. As far back as 1872, Publishers Weekly argued that publishing houses selling directly to consumers—and often offering free shipping to boot—would sound the death knell of the local bookstore: “The retail book trade cannot live against the competition of manufacturers and either the competition or the retailers must cease to be.”
In 1900, the R.H. Macy’s department store sued the ABA for refusing large retailers the right to sell books below cost, which, the group contended, would “ruin the small bookstore.” Macy’s, which has long since left the bookselling business, used paperbacks as loss leaders—another way of enticing customers in the increasingly crowded Manhattan department store market. Fourteen years after filing suit, New York’s Supreme Court decided in favor of Macy’s, awarding the company $140,000 in damages.
But it was a pyrrhic victory for Macy’s, which would be repeatedly targeted by the ABA in decades to come. 1934 brought the National Recovery Administration’s “codes of fair competition,” including a “bookstore code” that disallowed discounting of books until six months after their release. In 1935, much to the ABA’s dismay, the U.S. Supreme Court ruled the codes unconstitutional.
Later that year, New York’s state legislature passed the Fair Trade Act, which would force Macy’s to abide by its resale price maintenance agreements with certain publishers and to cease loss-leader discounting. The New York State Supreme Court invalidated the legislation the following year, with a judge declaring, “The act attempts to give to private persons unlimited power over the property of others.” When the U.S. Supreme Court reversed the decision on appeal, finding that the state’s Fair Trade Act was indeed constitutional, Macy’s exploited a loophole in the law exempting book clubs from discounts. Thus, Macy’s Red Star Book Club was born.
During the 1930s campaign to punish stores selling below cost, a Carnegie Corporation report complained that the business of bookselling had inexorably changed—it had become a business: “The old-fashioned bookstore was a charming place, but charm alone will not solve the problem of modern book distribution.…Hard though it may be to face the fact, the bookstore of today cannot primarily be a place for those who revere books as things-in-themselves.” An ABA representative later complained to a Senate committee that “non-book-minded merchants” were killing the industry and “price-cutting, unless stopped, will ultimately eliminate the personal bookstore from the national scene and in turn will have a serious effect on the quality of our national literary production.”
This, of course, has yet to happen. Chain stores are still the undisputed kings of bookselling, but their sales figures have remained flat in recent years. Meanwhile, the ABA announced in 2004 that “independent bookstores’…sales increased, in terms of both dollars and number of units sold, capping a three-year period of sustained growth,” citing an Ipsos BookTrends study. In 2004, an ABA spokesman told The Wall Street Journal, “Even though there are fewer stores, the survivors are doing better.” As for our country’s literary production, 2005 saw 172,000 books published in America, a dramatic increase from the 39,000 released in 1975.
Today’s attempts at anti-chain legislation follow a similar pattern—and have, in most cases, met a similar fate. Maryland’s anti–Wal-Mart law, which mandated that the company spend at least 8 percent of its payroll on health care, was recently voided when a federal judge ruled that “state laws which impose employee health or welfare mandates on employers are invalid.” In 2006 the Chicago city council passed a resolution requiring stores of at least 8,300 square meters in floor space and earning at least $1 billion in revenue annually to pay a “living wage”—approximately $13 per hour—only to see the rule vetoed by Mayor Richard Daley. In California, Gov. Arnold Schwarzenegger vetoed a similar law that would have forced Wal-Mart and other big box stores to provide health care benefits for their employees, arguing that “singling out large employers and requiring them to spend an arbitrary amount” on insurance would have no appreciable effect on “the health care challenges we face.”
‘Wal-Mart’s growth formula has stopped
working.’
But if legislation has done little to
restrain the chains, the marketplace has regularly cut them down.
Contrary to many activists’ assumptions, America has not been
condemned to centuries of retail uniformity. Quite the contrary:
The 21st century consumer has greater choice and access to a wider
assortment of products than any time in American history.
In a country of such colossal wealth, price and convenience are not the only factors affecting consumer choice. Even among Starbucks executives, who single-handedly created a market for espresso drinks in the Unites States, there exists a deep fear that it won’t be an aversion to paying $5 for a cup of coffee that will inhibit the company’s growth but a backlash against the chain’s focus on standardization. In February 2007, Starbucks CEO Howard Schultz fretted in an internal email (later leaked to journalists) that “the automation that is helping to drive the company’s expansion is sucking the romance out of the Starbucks experience.” Starbucks isn’t going to disappear any time soon, but as Business Week recently pointed out, the chain “is suddenly besieged by tough competitors.”
The same is true of Wal-Mart, a dominant company showing signs of wear and overextension. In 2006 it posted a mere 1.9 percent growth in same-store sales—that is, sales in outlets that have been in operation a year or more. It was the slowest rate since the company’s inception. Writing in the Harvard Business Review, the retail analysts Darrell Rigby and Dan Haas suggested that the smaller chains “are managing to coexist and even thrive in the same forest with Wal-Mart.” Business Week recently reported that “Wal-Mart’s growth formula has stopped working,” arguing that “America’s largest corporation has steered itself into a slow-growth cul de sac from which there is no escape.” Richard Hastings, a senior analyst at the retail rating agency Bernard Sands, agreed, telling the magazine that we were seeing “the end of the age of Wal-Mart. The glory days are over.”
Maybe. But stores like Wal-Mart will always be with us, just as they were when they were called Woolworth’s or A&P. If Sam Walton’s creation disappears, it will doubtless be replaced by a more clever, more modern adaptation of the business model he popularized. It is likely true, as big-box critics contend, that stores like Wal-Mart will always dominate certain sectors, thus threatening the existence of many smaller competitors. But chain stores often create markets that didn’t previously exist, both by forging new trends (like the $10 new release CD, quickly adopted by Newbury Comics) and by provoking a backlash against the alienating experience of big-box shopping. 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.
360 Newbury, graveyard of Virgin Megastore and Tower Records, recently announced that it would be renting its first two floors to the electronics and CD retailer Best Buy. After years of doing combat with big boxes, Newbury Comics’ Dreese doesn’t betray the slightest worry about the latest competitor. “We’re the last man standing in Boston,” he says. It’s a safe bet that, sometime in the near future, he’ll be peering down the road, watching another megastore packing a moving van.
Michael C.
Moynihan is an associate editor at Reason.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
Paul|1.2.08 @ 1:38PM|#
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...
|1.2.08 @ 2:00PM|#
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.
|1.2.08 @ 2:05PM|#
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|1.2.08 @ 2:07PM|#
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|1.2.08 @ 2:07PM|#
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.
|1.2.08 @ 2:11PM|#
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|1.2.08 @ 2:29PM|#
shocker: competition works to improve the marketplace overall for consumers and businesspeople alike. it's natural.
|1.2.08 @ 2:32PM|#
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|1.2.08 @ 2:39PM|#
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.
|1.2.08 @ 3:28PM|#
VICTORY for the little guy!!! A couple of weeks ago, Starbucks announced they were closing the Kansas City shop featured in the article.
thoreau|1.2.08 @ 3:42PM|#
I'm surprised joe isn't here.
|1.2.08 @ 3:46PM|#
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|1.2.08 @ 4:11PM|#
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.
|1.2.08 @ 4:23PM|#
"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.
|1.2.08 @ 4:26PM|#
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|1.2.08 @ 4:34PM|#
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|1.2.08 @ 4:35PM|#
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|1.2.08 @ 4:38PM|#
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.
|1.2.08 @ 4:54PM|#
"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.
|1.2.08 @ 5:03PM|#
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|1.2.08 @ 5:07PM|#
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.
|1.2.08 @ 5:48PM|#
"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.
|1.2.08 @ 7:21PM|#
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
|1.2.08 @ 9:57PM|#
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.
|1.2.08 @ 10:18PM|#
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|1.3.08 @ 12:59PM|#
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|1.4.08 @ 3:54PM|#
"Combine that with Virgin and HMV's very British arrogance when they entered the market."
lol, fucking brits, too easy...
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