With the advent of Kmart, Wal-Mart, Target and other mega-retail discount chains, a new era in retailing developed. As the mega-retailers were able to discount all types of products, "one stop" shopping became the vogue aided by the more intensive use of the automobile and new highway networks.
The large mega-retail discount chains developed such strong competitive advantages that the "Main Streets" of cities and towns became threatened, and the "Mom and Pop" stores were soon part of a dying breed.
"Partnering" developed between the mega-retail discount chains and the manufacturers allowing these chains to buy "direct." In many cases they eliminated the regional wholesalers who had traditionally served the small downtown retailer as well. The new position of the powerful mega-retail chains, discounters or otherwise, was not to augment but to compete.
Powerful chains were able to secure federal, state and local funds to help defray the capital outlay and debt service cost of building the "Big Boxes," Supercenters and Power Centers. These funds should and could have aided in the rehabilitation of the dying downtown districts.
Besides the economic effects of large "behemoths," the growing downtown traffic congestion and parking problems have created a new commercial environment in both urban and rural areas, usually pulling consumers away from "Main Streets" downtown and into the Targets, Kmarts, Home Depots, Wal-Marts and other mega-retail discount stores located in adjacent areas situated on formerly zoned "industrial" areas replete with more than ample black-top parking lots. Furthermore, citizens have begun to feel the effects of social changes taking place in their cities and towns. The impact of these giant competitors begins to reduce employment on the old "Main Street." Loss of job opportunities for both young and old leads to social instability, crime, violence and creates a broad negative impact upon the "sociology" of the community.
As these "Big Boxes," or warehouse type stores, locate near the traditional business areas, commercial activities tend to drain away from the "Main Street" and transfer away from downtowns, causing the "hollowing out of the city," states Sylvia Lewis.1
Edward O. Wells reported on a study by Kenneth Stone, Professor of Economics at Iowa State University and a Wal-Mart guru, that the revenues generated by major discount chains such as Wal-Mart (or Kmart) and others, have actually been revenues lost by local merchants. His hypothesis appears based on the assumption that these areas consisted of static populations where the retail market had largely remained unchanged. When major discounters enter, therefore, sales tend to be taken from those originally destined for local stores. This is actually a shifting of market shares, and not necessarily newly generated sales through an increase in the market or its demography. In fact, between 1980 and 1990, total retail sales increased only 8% while total retail space soared by 40%.2 This re-allocating of sales from one area to another has been extreme enough to be detrimental to local economies. And sales were not the only area affected: jobs as well shifted and not even jobs with as much to offer were the result. Further concern arises as Wal-Mart and Kmart move aggressively into the food industry with their "Supercenter" facilities. Both chains have developed 100,000 - 200,000 square foot "Boxes" which sell a full line of food as well as general merchandise. Additionally, Kenneth Stone's early studies found that towns outside of Wal-Marts had lost sales on an average of 25% because of the attracting of consumers to these new centers.3
More recent data on retail square footage shows that the United States is in a condition of being "'over-stored' with 19 square feet of retail space per capita compared with just half that level a decade ago."4
The following chapters in this study are concerned as much with the "desocialization" of traditional family communities, sometime ethnic, religious, racial, blue or white collar, or socialized by national origin or with the economic impact of the mega-discount chain on the small retailer. As the retailers fail to survive, so do the neighborhoods fail, with resultant urban crime, drugs, gangs and blight.
The writer's interest in the impact of the giant retail discounters upon small retailers was aroused because of his long-time exposure as a professor teaching the values of small business entrepreneurship and as well as an expert in a number of trade associations in the dental, sweater, women's apparel and carpet retail industries' small businesses.
Further, in 1973, as Chairman of the Department of Management at the Wharton School of the University of Pennsylvania, the writer founded and became the founding Director of the Wharton Entrepreneurial Center, which became a prototype for hundreds of such centers at colleges and universities throughout the world. The writer is no longer associated with the center except as one who holds Director-Emeritus rank. The center and its teaching program in Entrepreneurial Studies were designed to explore the entrepreneurial spirit in America's youth and to instill in both undergraduate and graduate students both special skills and an intense desire to create and grow small businesses in America. The concern is not only with the establishment of small retail businesses, but also with depriving the creative entrepreneur of developing new products and getting shelf space. Further thirteen Small Business Development Centers (SBDC's) were set up in colleges and universities throughout Pennsylvania. Students and faculty assisted small entrepreneurs, many of them retailers to sharpen their skills to be more competitive. This program was funded in part by the U.S. Small Business Administration (SBA) and SBDC's became a model for other states and universities.
It was apparent in 1973, that for America's largest corporations to compete globally, they would down-size their staffs, and hence export tens of thousands of jobs to other nations. This has occurred as expected. There was and still is a need to save small business in the United States and to "grow" new businesses; retail, wholesale, service and manufacturing.
During the past 23 years, there has been substantial new job creation by small U.S. entrepreneurs. These gains have been overcome by major corporate down-sizing and the loss of jobs in the manufacturing sector. Illustrative of this has been a shift of manufacturing jobs to low labor cost areas throughout the world.
Business census data discloses the fact that the number of small businesses in the United States has increased 49% since 1982. As of 1994, there were approximately 22.1 million non-farm businesses, of which 99% are small by size standards set by the U.S. Small Business Administration (SBA). These include corporations, partnerships and sole proprietorships. Almost two-thirds of the 22.1 million businesses operate full-time, the rest part-time.5
The writer's concern about loss of jobs in retail resulting in great part on the inability of the small retailer to compete with the mega-retail discount chain might very well contribute to a reversal of the trend in which small business is compensating for the continuous loss in jobs in America's major corporations. The SBA tells us that, "Small businesses employ 53% of the private work force, contribute 47% of all sales in the country, and are responsible for 50% of the private gross domestic product. Small-business-dominated industries produced an estimated 62% of the 3.3 million new jobs created during 1994."6
SBA data prepared for the 1995 White House Conference on Small Business corroborate the writer's concern, that small business offers perhaps the only refuge for the corporate redundant employee.
As to the current employment scene, note the following SBA statement:
It is imperative that the nation save the small retailer. In a national report on "County Business Patterns" in 1993 for the United States, there were 19,777,219 workers engaged in retail activities or 21% of the entire non-agricultural work force of 94,807,076. Of the total of 19,777,219 retail employees, 6,953,455 or 35% worked for small retailers with less than 19 employees.
For small retailers with 29 to 49 employees, there were 4,825,666 retail employees. In other words 11,778,000 retail employees worked for firms with under 50 employees; or 60% of the total.
Despite the developing dominance of the mega-retail discount chains, retailers who are relatively large have a combined total retail employment of only 40% or about 8 million jobs in the category of 50 employees and greater.
To insure the dominance of "small business" in retail activities the County Dalton report of the U.S. Department of Commerce for 1993 showed a grand total of 1,551,510 retail establishments--large and small. The ultimate possible impact of more and more powerful mega-retail discount chains will be to displace tens of thousands of small business entities and make millions of retail employees "redundant," something that automation failed to accomplish. In the job category of 0-10 employees, there were 1,317,122 retail establishments or 85% of the total.
The SBA also lauded the new job creation of small businesses as follows:
In 1985, there were 19.2 million manufacturing jobs in the United States. By 1995, this had dropped to 18.2 million, a loss of one million jobs during a time in which population had grown by 22 million and the civilian work force by 18 million.9
Small manufacturers have been put out of business as the US free trade policy encouraged imports first from Japan, then later from Taiwan, Hong Kong, India, Pakistan, South Korea, China, Singapore and numerous other nations. This policy also negatively affected the American small retailers who did not have the ability to contract for mass purchases from overseas, low-labor cost areas as did major retail chains and mega-retail discount chains (as evidenced by the media's preoccupation with Kathy Lee Gifford and Michael Jordan and their association, no matter how remote, problems with child labor in manufacturing plants where products with their names on them are produced).
Small businesses appeared to be most successful in the past 22 years in creating jobs in service and retail industries, particularly in information systems, computers, health care, etc.
Now a reversal is being observed in the major metropolitan areas, such as Philadelphia, New York City, Chicago, Los Angeles, San Francisco, Miami as well as in suburban and even rural areas of the United States where small retailers are closing in downtown and "Main Street" areas unable to compete with because of the arrival of the huge mega-retail chains. These "mega-stores" now include among others, Kmart, Wal-Mart, Sears, Montgomery Ward, J.C. Penney, Dillards, Target, Home Depot and other powerful retail chains. These chains have succeeded in eroding regional wholesalers who supply the local retailers and the retail base of cities, suburbs, rural areas and small towns are suffering with job loss and urban sprawl.
Wholesalers are being eliminated rapidly as manufacturers become captive to major mega-retailers and the manufacturers are beginning to take on wholesale service functions such as interactive information systems, warehousing inventory and just-in-time delivery. Furthermore, mega-retail discount chains have their own quasi-wholesale/retail firms such as Sam's Clubs, to which some retailers must go to purchase merchandise in the growing absence of the traditional wholesalers. In fact, Wal-Mart has invested heavily in interactive systems to the point where the company only carries about two weeks' supply of stock and gets it to the stores prior to their being in an out of stock situation.10
As an academician and small business consultant, the writer became concerned in late 1993 and early 1994 about not only the economic impact of the mega-retail discount chains on jobs and joblessness in America, but also the sociological impact of these changes.
In the city, loss of retail stores creates social instability. Many of the eastern cities, historically consisted of ethnic enclaves. The ethnic and minority population had depended on the pharmacies, groceries, shoe stores, apparel stores, variety stores, bookstores, not only to meet consumer needs, but to supply jobs for teenagers and adults.
As the mega-retail discount chains such as Target, Home Depot, Kmart and Wal-Mart entered the urban and suburban areas, job opportunities in small retail establishments began to disappear as small retailers, wholesalers and service activities began to suffer and eventually closed, not being able to compete with the "giants" on a basis of price, national brands and almost 24 hours of open store service, often on a seven day basis.
As stores closed in the city enclaves, as well as in suburban and rural malls, the result has been in part to create further "ghettotization." Retail stores are boarded up, marked with graffiti and as jobs are lost in the neighborhood, even neighborhood housing also begins to decay. Welfare rolls rise, crime and violence increase and unemployed youth often turn to underground employment, drugs, crime, school truancy and eventual "drop outs" from both school and society. Traditionally, there were always jobs in the neighborhood stores; in the grocery, butcher shop, shoe store, apparel store, pharmacy, and there existed a close kinsmanship between the local store owners and the community. The store owners knew the names of the "kids," saw them "grow up" and helped them with full and part-time employment as they advanced in their school and college pursuits.
To combat the new arrival of mega-stores, communities have turned to the law (zoning, councilmanic ordinances) in hopes of deterring the proliferation of the mega-retail discount chains, who often contribute to pollution, highway congestion near public schools and who often are subsidized with tax abatements and other incentives to build and grow which are not available to small businesses. Communities have attempted to maintain their traditional social and economic cultures. Nevertheless, the force of these mega chain stores continues to influence and dominate the "Main Street" culture. The strength of these mega chains has made it difficult for local merchants and less strong competitors to confront and restrain the inevitable construction of the "Big Boxes." Restraining the rise of the mega-stores by protests or setting up opposition groups is a difficult task indeed; there have been some failures, nevertheless, there have also been considerable successes where communities and community groups have organized effectively. Opposing the giant mega-retail chains with their huge financial resources is often cost prohibitive for neighborhood groups. A desire to survive requires new marketing strategies to be formed and implemented by local and regional store owners. Many of these strategies have been selected by hundreds of respondents found in the tables and charts in Chapter III of this study.
This portrait of the "free" retail market is not a happy picture. However, one can say, "The cities of the United States are turning into ghettos, so what's the difference?" Things are expected to be better in suburbia, in rural areas and in America's small towns located in New England, the South, the Midwest and the Far West. However, urban decay, stimulated in part by the movement into "Main Street" avenues and to the suburban and rural malls, has now spread throughout America in almost every state and region and has created cemetery-like sprawls in towns and malls, once pleasant and inviting to local citizens and travelers.
Earlier entrance of the mega-discount chains into mid-town America (the small towns) struck a cheery note with promises of jobs and services by the new retail discount "giants." However soon the "Main Streets" of these towns were decimated, by repeated small store closings, unable to compete with the new American retail "giants." Moreover the effect on the remaining retailers by the "moving out" of a mega-discount store after several years, becomes particularly destructive to the survival of the remaining small retailers in malls formerly dominated by a retail "giant."
The free wheeling race between mega-retail discount chains such as Wal-Mart, Target, Kmart and others is best exemplified by Wal-Mart's planning strategy promulgated by its Chairman at the June 7, 1996 annual stockholders' meeting. In discussing Wal-Mart's future growth and expansion plans, David D. Glass, Chief Executive Officer, said: "We're going to dominate North America."11(Emphasis added.)
Obviously, conquering the retail market in North America is Wal-Mart's agenda and this is further evidenced by the strategy of placing urban stores in a manner which creates a 10 mile radius and rural stores with a 35 mile radius. In a 1993 New York Times article quoting Kenneth Stone, a noted academician who has become an expert on Wal-Mart, he said:
The writer's interest in the mega-retail discount chain project and its sociological and economic impact on America led first to Eastern Pennsylvania (including Philadelphia). Following were visits to Southern California, mainly the San Diego area, including such communities as Chula Vista, Poway, Oceanside, Mira Mesa. Then the impact of the mega-retail discount chains in suburban and rural areas in Chicago, Illinois, including Chicago, Kanakee and Des Plains were studied. Later, visits and observations were made in New York's Finger Lakes region, including the Geneva, Auburn and Syracuse areas.
In all these areas, profound changes were found both in joblessness and socialization. Where many jobs were promised by the mega-retail discount chains, they often turned out to be low paying jobs, without medical benefits and customary fringes. These new stores replaced the traditional "Main Street" retailers, eliminating thousands of jobs formerly in stores employing one to ten persons (see the typical small retailer profile in Chapter III). These were family type enterprises and usually provided family income and wages that assisted family members to continue their education by enrolling in colleges and universities and often medical and insurance benefits. In studies, such as one completed in the Lake Placid, New York area, the conclusion was reached that in exchange for 1 new part-time job in a mega-discount chain, about 1_ full-time jobs were eliminated in smaller stores.13 This was also observed by the author after interviews with surviving small retailers in areas invaded by the major chains. This was quite different from the rosy picture painted before Zoning Boards and City Councils about substantial increases in jobs to be expected in the community as a result of constructing Superstores and Power Centers.
Also observed in Philadelphia, Pennsylvania, the French retailer, Carrefour, received a five year tax abatement and opened a 260,000 square foot store. After 4 and one-half years, they left the city without paying any taxes. Furthermore, they had promised City Council that 600 - 800 new jobs were to be created when in reality, only 250 were produced. At the same time, five independent food stores and one non-food store, a number of apparel stores and various other small businesses were forced out of business during the years Carrefour was open. This occurred prior to the opening of the Franklin Mills Mall in the same area. It has also been estimated that the net effect was a loss of 1,000 jobs. Job loss in a neighborhood leads to social and economic disintegration. This has become a recurring theme of this study.
In travels and interviews, the writer also noted that the degradation and "ghettotization" of the cities and towns were gradually being transferred nationally to the suburban and rural areas of the United States, almost as infectious diseases run rampant, without community concern and medical care.
When a developer in East Aurora, Arkansas, proposed a 47.8 acre retail mall with 263,000 square feet of retail space at an industrial park a scarce mile away from the town's traditional downtown center, citizens immediately began organizing protest groups. They were ready to fight to protect their way of life from what they viewed as an invasion.
Gerry Kermouch, in a 1994 article in Brandweek Magazine, quotes Peter Pitegoff, a law professor and president of the Villagers for Responsible Planning, "We are afraid that a discounter would undermine local retailers, create traffic problems and undermine the historic character of East Aurora."14
The citizens of East Aurora, Arkansas were not the only people who voiced outrage at prospective entrance of behemoth retailers into their "Main Street" cultures. Towns throughout the nation have expressed their discord with the invasion of these "Big Boxes," the large warehouse-like structures which threaten the survival of the small retailers. Community groups have developed conferences and seminars throughout the United States on how to confront the almost daily arrival of these mega-stores. Often citizen groups, by petitioning their elected officials have prevented the major retail discount chains from beginning warehouse-like shopping sites. However, closer analysis of the retail industry, its strategies, and the trends that perpetuate the industry's growth suggest that the inevitable will occur; unless small, less leveraged retailers and "Mom-and-Pop" stores can create new strategies to survive against the new competition. Enlightened governmental leadership, both local and national should provide support and encouragement for small business leadership to execute survival strategies. The American economy will require a balance of large and small retail businesses in order to provide millions of well paid positions necessary to provide goods and services in a growing national economy.
As the history of retailing in America was studied, the writer noted that from the traditional small size retail chain there emerged the department stores. These examples of grandeur were generally found in municipalities with substantial populations, such as the large city. Later, as retail discount chains came into existence, the department store had hard sailing, and despite the development of branch stores in suburban areas, the record of the department stores suffered along with the small retailer. Employment in the department stores also became downsized as personnel costs were cut in the face of competition from the Kmarts, Wal-Marts, Targets and J.C. Penney's.
Although discount retail chains were first noticed in the 1950's, America watched one creative and fantastically managed company develop from a five-and-ten store into a company with $82 billion in sales in fiscal 1995 and fiscal 1996 sales over $93 billion and projected sales over $105 billion in fiscal 1997. (Most of these major retailers have fiscal years ending January 31st or very close to that date). Wal-Mart Stores, Inc., this formidable retail chain in one year opened 147 new Wal-Marts, and 163 Sam's Clubs in the United States alone.15 Although Wal-Mart was not the first in the market, it influenced the marketing and planning of its competitors and exercised a major impact upon the growth of the entire discount retail chain business.
According to Edward O. Welles, "From 1960 to 1985, annual sales by discount stores in the United States exploded from $2 billion to $68 billion, with Wal-Mart responsible for igniting much of that growth."16
Discount retail chain stores, such as Kmarts and Wal-Marts have recognized the need for sites which supply a variety of brands and products at a reasonable value. Wal-Mart achieved success by first providing products that "were up to 15% cheaper than those available in 'Mom-and-Pop' stores," according to the Harvard Business Review.17 Its competitors also followed with similar marketing strategies.
Large discount retail chains and similar mega-stores have continued to grow and expand in the United States. In addition, barriers of entry have developed, preventing increased competition. Their strategies and decisions have been able to influence the entire nation's economy, basically because of their strong leverage on both suppliers and customers. "When the original Wal-Mart locations could support one store, the customer population was large enough to maintain two rival discounters. Thus, once Wal-Mart established a store in a particular area and had prevailed over the small local retailers, it was seldom threatened with future local competition from other discounters, including Kmart."18 By excelling over its competitors, the growing strength of Wal-Mart caused a shifting in the market. Economies of scale were definitely in favor of operations of the growing mega-retail discount chains. The larger discount retailers developed their own "hub-and-spoke" distribution systems, which permitted them to purchase from suppliers for all their locations, thus lowering the costs of doing business substantially compared to that of the traditional stores and the regional retailers. Since price has consistently become a more significant factor for consumers, local competition would repeatedly lose the price wars and leave the market to the mega-retail discount chains.
Today, the advent of the mega-discount chain has not only undermined the survival ability of the traditional department store and the "Main Street" retailer, but also has begun to disfigure and transform former grandiose retail malls into replicas of the city ghettos. Furthermore, the jobs that are lost in "Main Street" types of small businesses do not provide the full picture of what a community loses in terms of gross domestic product. In fact, the House Committee on Small Business has published the positive impacts that a new small business entering a community can have. The data in the following quote lends considerable additional weight to the multiplier effect on wages and the sociological effects a small business can have on a community as described throughout this study:
These mega-retail discount chains, in their race for demographic and marketing supremacy in each region, after influencing the closing of small retailers in the area, then compete over the leftover consumer "bones." Ultimately, one major chain opening in an adjacent area destroys the competition, leaving the formerly successful mall appearing like a giant, desolate unkept cemetery.
Factors determining consumer buying clearly favor large retailers, since they have been able to maintain the consumers' needs for low prices and convenience by having "one-stop shopping." In addition, these giants with stronger leverage have been able to maintain lower prices because of lower costs. Price competition still remains in the industry, despite the numerous closings of the small retailer, but the large discounters among themselves continue to fight price wars. A recent example was Dallas, Texas where Wal-Mart, Kmart and Target competed head-on with energetic promotions while maintaining costs so low that products were priced so competitively that the differences were usually within pennies.20
As the price wars go on between the large and small retailer and indeed among the major discounters themselves, not only do retail jobs disappear, but also the traditional harmony of the rural and suburban areas is invaded and the results are ugly both from an economic and a sociological point of view.
One recalls a powerful Latin phrase by Plautus, which when translated is "The soldiers laid waste to the town." This is certainly an apt description of the continuing decimation of the "Main Streets" of historic towns, cities and yes, rural malls.
Were one fortunate enough to be alive in the United States, say in the year 2100, he or she and fellow survivors would wonder what caused the entrepreneurs of the late twentieth century to bequeath to subsequent generations, these rapidly developing monstrous national "cemeteries," formerly grandiose malls and attractive "Main Streets."
With present prospects facing developers these days in the United States, these destroyed and abandoned malls will be with us for many generations, since the financial challenge for their correction seems impossible to meet.
During travels on this study, the staff also visited many formerly prosperous "strip centers." These were generally the work of small developers and attracted the boutique or unique retailer, also traditionally found in the old "Main Street" stores.
Strip stores within a mile or two of a new Supercenter, constructed by a major discount chain appeared likewise to be endangered by the newest major competition. Even when a florist, indicated to our interviewers that because of her long experience, "superior knowledge" and the fact that her store purchased merchandise more frequently than did the Supercenters, that she would survive; nevertheless she evidenced concern about the vacancies on her left or right. Interviews with courageous owners of florist shops, apparel stores, pet food stores, automotive stores, pharmacies and others all ended with a typically sad statement: "No matter how effectively I can compete, if the store next door becomes vacant, traffic density diminishes, and my store will have to close as well as the one next door."21 These courageous retailers cooperate in securing new tenants for the vacant stores, but it is a sad and losing fight. In some of the huge malls visited, as much as a 33% vacancy rate within six months to one year of a new "mega box" being completed in the area was observed.
Additional business from these new chain stores has always been considered a benefit, but the chaos that developed from entering and leaving suburban areas created havoc to their economies and to the aesthetics and milieu of the former prosperous malls. Discount stores that enter towns take a wedge of land and build massive structures. The new Superstores be they Target, Kmart or Wal-Mart or other chain structures tend to be newer and ever increasing in size. And recently, the entrance of Power Centers, shopping centers with multiple "Big Box" structures and other discounters and retail space totaling at least 1 million square feet.
Notable has been the rapid and continuous expansion of the Super Kmarts, the Wal-Mart Supercenters and the Sam's Clubs. Because these stores have moved into or near towns, cities and suburbs, and have contributed to the economy with force, if they decide to leave, as many stores do, a shakeup on less stable economies causes devastation.
Examples of the losses caused by the pullouts of such giants can be aptly illustrated by Glendora, Ventura and Hesperia, California where hundreds of thousands of dollars were lost by communities in infrastructure development, land development and environmental impact reports, not to mention foregone taxes. Collectively the losses total in the millions.
Our national study of the social and economic impact of mega-retail discount chains upon areas in Pennsylvania, California, Delaware and New York included visits and interviews in each area. Visits were preceded by sending out 6,000 questionnaires to retailers in each of the four states requesting such information as their sales volume; number of employees; potential impact on sales, profits and employment by the arrival of mega-retail discount chains near their businesses. They were also asked to describe their survival strategies which would enable them to compete profitably.
Of the six thousand questionnaires sent to retailers in these four states, almost 10% were completed fully and returned with both detailed quantitative and qualitative data. The quantitative results are set forth in Chapter III with tabular and graphic charts plus a research analysis. Information provided by these store owners was computerized and the staff was able to forecast the loss of jobs, impact on store volume, employment, profitability and other significant data for each state in the study. Each questionnaire also contained subjective comments on how the small retailer visualized his/her future and what alternatives could be followed in order to save their firms. All of the subjective narrative data will be found in Chapter IV.
The data received from each of the four states could be extrapolated in order to estimate the collective impact on community employment and local and state tax revenues. However these forecasts would be based upon the expectations of the respondents as to whether they could weather the competition of the mega-discount retailer moving into their neighborhood. Would they survive or would they possibly liquidate or go into bankruptcy? Generally there was extreme pessimism expressed; rarely was there optimism conveyed by the respondents.
One of the questions posed this concern: Are wholesalers still available for retailers to buy from? The answer showed the increasing fears of retailers that wholesalers were disappearing because major suppliers were selling direct to the Kmarts, Home Depots, Targets, Wal-Marts and J.C. Penney's and had no time or inclination to sell to wholesalers or small retailers. Strange as it may seem, many small grocers, meat markets, etc. often shop at Sam's Clubs, a subsidiary of Wal-Mart in order to be able to have anything on their shelves to be sold.
As retail giants rule the marketplace, they have the buying power to negotiate the lowest prices with their suppliers. In a sense, suppliers become part of a "partnering" network in which their principal capacity is contracted for by the major retail discount chains.
"It all adds up to a power shift to a privileged circle of merchants," state Zellner and Benedict.22 Suppliers and manufacturers work diligently to secure the right to supply the large bulk retailers, in hopes that the low profit margins in the business can be countered by larger sales volumes. The retail "giants" in the discount field have been able to develop a barrier to entry for other less influential retailers, resulting in a reduction in competition. Manufacturers and suppliers to the chains, in hope of selling more, unfortunately have not realized the unceasing barrage of demands from retailers, who want everything from discounts for new-store openings to penalties for shipment errors, to an increasing volume of requests for free samples. As the retailers gain more leverage, they become more demanding in the manufacturing of specific goods, deciding on colors, and sizes, how much to ship, when to ship and where to "drop ship."
Although low prices do benefit consumers, suppliers and manufacturers are being squeezed to be leaner and more flexible with respect to chain retailers' demands. In addition, smaller suppliers are less likely to have the ability to accommodate, increasing the likelihood of being removed from the market. Chains utilize interactive information systems (EDI) in a most dominant way through "partnering" with suppliers and manufacturers. Regional wholesalers are less likely to possess sophisticated business and information systems required to meet the needs of the mega-retail discount chains, hence wholesalers are apt to disappear and harm the remaining small retailers.
While the author believes in a free market and is a devoted supporter of the free entrepreneurial system, the "free" market means different things to different people. Inasmuch as the principal method of the mega-discount retail chains in competing with the smaller retail store and the traditional department store is pricing; this pricing pressure could very well include possibilities of predatory pricing, as defined in both state and federal laws. Concern over the likelihood of predatory pricing as defined by the Robinson-Patman Act as well as various state laws will be reviewed in Chapter V.
The economic and social impact made by the mega-retail discount chains needs to be measured by a large variety of criteria. In the next decade the nation, state, cities, towns and villages will be able to see whether the promises made by the mega-discount retailers have materialized. Did the municipality make mistakes in judgement by encouraging the free entries of these giant discount retailers into the areas? Did the promised additional employment take place? How long were these jobs viable? Were there subsequent reductions in personnel in the chains? Did the new chain discounter close and move away? What was the impact on the viability of the "Main Street" stores? Was pollution increasing by the presence of the "Big Box?" Did traffic congestion increase highways abutting on public schools? Were the chains subsidized by tax abatements, right to retain sales taxes to pay off the new building and given other incentives not available to the small retailer? Did the surviving "Main Street" retailer learn new techniques in marketing, inventory control, and other modern business practices in order to survive? In the economic jungle where "survival of the fittest" can almost be analogous to economic and social viability, prey might still remain alive by developing skills that protect it from predators.
Equally important as a contributor to the lack of social and economic planning is the real estate developer. The developer, often in concert with the mega-retail discount chain, comes up with ideas for new real estate developments; malls, Power Centers and the like; and, at times is irresponsible when it comes to tying in his project to help the economic planning for both the community and the nation. The importance in maintaining economic and sociological liability is long--range planning. Real estate developers have been notorious in short-range planning, in which they plan many projects where their gains and recoveries are based upon a five-year return on investments leaving the long-term problem to the community at large. This lack of integration into good long-range planning shows it is not only the mega-retail discount chain that can be cited, but also the developers. Additional review of this problem community by community would show that when communities make their long range plans often they are susceptible to almost periodic amendments as a result of the pressures of chains and developers.
The following chapters will attempt to answer such questions: Is there a possibility of co-existence between small retailers and the mega-retail discount chains? What strategies are possible for small retailers to survive? Is the entry of the large discount retailer inevitable? Can community groups concerned with urban sprawl develop strong and effective opportunities to stop entries of the super "boxes" in given locations where traffic density, pollution, neighborhood schools, etc. are threatened? In some cases states have implemented laws to put ceilings on the amount of retail space that can be allotted to a supercenter for its commercial and parking activities.
Retailers large and small are beginning to understand that marketing has become more complex than in the past. Instead of just maintaining low costs and putting products on the shelves, both chains and local traditional retailers need to strategically look at themselves versus all other competitors in the area. Image remains important, as well as the unique products that are marketed. Retailers now need to consider other new forms of shopping. Besides discount stores, outlet and direct mail shopping have also become popular.
As "Main Street" stores realize the threat they face in competing against mega-stores, buying groups, "co-ops" and coalitions might be formed. These groups need not be designed to prevent the entry of competitors, but to coordinate organized marketing strategies for the "Main Street" area of shopping. According to Erica Price, "Defining and implementing annual work programs, producing print pieces, such as business directories and maps to promote the business district; providing design assistance to downtown business and property owners; hiring a full-time downtown director to manage an economic enhancement effort,"23 are all coordinated efforts in the right direction. Business communities can also coordinate activities to open stores at hours convenient to the busy consumer. Since Americans appear to have less time; since many hold two jobs, often evenings are allocated to taking care of errands.
Besides the need to prepare for possible entry of large competitors, "Main Street" cities, counties and towns should prepare for the possible moving out of these enormous influences of business. By understanding the implications that such a move might have on a local economy, agreements could be made with businesses entering the community. As previously mentioned, the French firm, Carrefour, after building a major "box" of over 260,000 square feet in the Northeast community of Philadelphia moved out four and one half years later, leaving an unsightly "box" which demoralized the adjacent business community. A few years later a mega-outlet Mall, Franklin Mill s was built on an adjacent property. Moreover, the City of Philadelphia had mistakenly provided 5 years of tax abatements. During this time all Philadelphia municipal services were available at no cost. When approving the construction of a "Big Box," economic plans should also be included, well before the actual moving out happens. Various estimates indicate that the loss to the City was over $5 million, this aside from the cost to the State of Pennsylvania for road construction, etc. The vacated mega-retail discount firm should retain a continuing financial responsibility for specific plans such as converting the newly vacated warehouse-like stores into another more acceptable form of shopping area. Plans should be made by the urban authority ahead of time on the disposing or recycling of the vacated structures.
Kenneth Stone, previously mentioned, a specialist in retail trade and Wal-Mart activities, has realized that "the only hope small merchants had [is] to niche around them."24 By specializing in unique products, local merchants can separate themselves from the usual discount products sold in retail chains. Local merchants need to prevent themselves from entering in a perfectly competitive situation, competing solely on price and marginal cost. The low pricing strategies must be left to the mega-discount retail chains. The small retailers, to survive, must create their own image and differentiate themselves as unique, rather than "me-too." There is a very slim chance that unique boutique type retailers, not depending on price rivalry but on service and product differentiation might survive in the presence of the major discount "Big Box."
With unique, individualistic strategies and by maintaining less inventory, the surviving smaller retailers must take advantage of flexibility in rapidly changing inventories; an advantage not generally available to the large corporate retailers with more complicated supplier-retailer distribution methods.
In later chapters, this study will attempt to balance and explore the experiences of the many communities who battled the entry of the mega-retail discount chains as compared to those states and communities who offered tax abatements, building subsidies, reduction of sales taxes to defray costs of capital outlay and debt service and various types of what recently has been described as state and federal "Corporate Welfare."
One state that has refused to accept the large "mega-boxes" has been Vermont. The state has maintained a "keep Vermont green" force which has kept Wal-Mart and other major chains from easy entry. The state has made enough noise that the anti-sprawl National Trust for Historic Preservation placed the entire state on its June 1993 "America's 11 Most Endangered Historic Places" List which is prepared annually.25 More recently, Vermont has modified its anti-Wal-Mart position by permitting their entrance by capping the size of the building.
The National Trust for Historic Preservation has led the fight to prevent "Superstore Sprawl." In a major book released in May, 1994 the Trust launched an attack on the latest phase in America's retail race. The Trust does not appear to oppose job creation. It is against job forecasts that do not materialize and is against negative impacts on the environment; increased traffic congestion and the sapping of the viability of traditional businesses which lead to weakening civic vitality. The following statement is taken from the "Preface" of the recent Trust publication entitled, How Superstore Sprawl Can Harm Communities........26
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