In 1973, as Chairman of the Department of Management at the Wharton School, I envisaged a teaching program in Entrepreneurship and a research center to stimulate interest both in internal corporate entrepreneurship and the creation of small businesses. The Center was the first of its kind in the world. Ultimately the Wharton Entrepreneurial Center became known as the Sol C. Snider Entrepreneurial Center, and the writer, who retired in 1986, holds the title of Director-Emeritus. My experiences at Wharton with small enterprise and my work with several trade associations, consisting of small enterprises, gave me a special zest to study the impact of mega-retail discount chains on small enterprises.
With the problems besetting cities and the rise of retail chains, and later the mega-retail discount chains, bad times have fallen on the traditional retailer. Will this affect the social stability of the neighborhood? As the residents begin to shop along the highways, little by little the neighborhood stores are closing.
Similarly, have the small towns in the United States been adversely affected as the giant mega-retail discount chains moved into the Midwest, the West, the Northeast and the South, or have they affected communities positively? Today, the rivalry of these giants has negatively impacted traditional retailing. Why are the downtown "Main Streets," which were the dynamic centers of the small cities and towns, dying and portraying a ghetto-like appearance? Moreover, are Redevelopment Agencies (RDAs) within cities ameliorating the problem of blighted downtowns or are RDA's, in fact, exacerbating the situation by providing corporate welfare giants to the mega-retail discount chain rather than to the small struggling retailers? I feel confident this study will help answer some of these provocative questions.
Furthermore, not only is "Main Street" America becoming a ghetto but evidence shows additionally that traditional retail malls and strip centers in the cities, suburbs and rural areas have also begun to declinewhen a mega-retail discount chain with 40,000 square feet moves out because a "big-box" competitor withover 150,000 square feet opens a half a mile away.
Soon the traffic density is reduced and possibly one of every three stores goes out of business, leaving the mall to appear to be boarded up, graffiti laden, and replete with vacancies and discouraged survivors.
As the mega-retail discount chains have grown in power, they have been able to buy in massive quantities directly from manufacturers. In fact regional wholesalers that traditionally sold to small retailers aredisappearing as they are bypassed by massive direct purchases from manufacturers and in some cases from national wholesalers. The price available to the mega-retail discount chain are certainly denied even to smallretailers who somehow struggle to remain in business.
This may be creating an interesting phenomenon when a retailer's wholesale resources disappear, and he often is reduced to buying from a Sam's Club, et al. As a proponent in understanding the plight of small business which traditionally represents an overwhelming proportion of national economic activity and currently as one who observes the trend in corporate downsizing where more and more jobs are vanishing at an alarming rate, I decided to undertake a study of what impact the mega-discount retail chains are having on communities, both economically and sociologically.
In the Spring of 1994, I began to raise funds for a national survey of this problem, concentrating in the states of California, Illinois, New York and Pennsylvania. I needed funds for clerical help, computerization, travel, printing and research assistance. In addition to the use of a considerable amount of my own financial resources, I was aided by my family (my wife, Mrs. Shirley R. Shils and my sister, Mrs.Charles Marshak of Atlantic City, New Jersey); by the United Food and Commercial Workers; by the Knitted Outerwear Manufacturers' Association of Pennsylvania and the Fashion Apparel Manufacturers' Association of Pennsylvania and other individuals.
The study was launched in the Spring of 1994, when 6,000 questionnaires were sent to retailers in four states: California; Pennsylvania, Illinois and New York. There was a 9% return, with these returns providing both quantitative data (see Chapter III) and qualitative narrative data (see Chapter IV). Also, I traveled frequently to the four states and interviewed surviving retailers on the "Main Street," and in the suburban or rural malls and the strip centers.
My recommendations, in part, apply to city, state and the federal governments with respect to their present practice of providing "public funds" or "corporate welfare" to help finance capital outlays and debt service for the infrastructure construction of "Big Boxes" currently being erected throughout the United States. Many of the development packages provide that a new "Big Box" will be able to retain all sales taxes collected for a given number of years in order to help finance the construction and debt costs of the new facility. When this happens the local government and the school districts which depend on sales and realestate tax revenues find themselves in desperate financial condition since the small retailers which have been displaced are not providing revenues through and sales tax to the schools and property and real estate taxes to the community.
Congress should not only review the "corporate welfare" benefits not so broadly understood and in addition should review whether or not a more rigorous enforcement of the Sherman, Clayton, Robinson-Patman and Federal Trade Commission Acts would or would not be applicable with respect to determine the existence of possible predatory behavior on the part of the mega-retail discount chains and other overwhelming retail conglomerates.
The study and interviews with small and medium sized retailers confirms the fact that intense price competition has closed and is closing hundreds, if not thousands of small retailers? Ironically, it is now affecting the large discount chains themselves? Bradlees, Ames, Jamesway, Hills, Caldor and Boston Storesare in or near bankruptcy. Kmart reeled from a string of quarterly losses. Wal-Mart, the behemoth of retail recently reported for the first time, a decline in earnings. Charming Shoppes has been in serious financialdifficulty. Where will it all end?
Finally, Congress and state governments need to examine the effect mega-discount chains have onsmall business. A comparative analysis needs to be explored concerning those cities which acquire the new"Big Boxes" and the economic fallout which occurs to the losing city. What happens to the consumer in a town or medium sized city, which lost all of its "Main Street" retailers upon the arrival of a neighboring "Big Box," when the mega-retail discount chain decides to close because of the now weakened buying power of the community. When jobs disappear it must sooner or later have a definite impact on the ability to purchasefrom a traditional retailer or discount chain.
Moreover, what are the social and economic dynamics that occur when two cities are competing for the same revenue dollars? Competition between cities can affect each community, possibly through revenue loss to schools, putting police and fire protection in jeopardy while a multi-billion dollar corporation sits on the sideline and takes the best deal. Free enterprise, yes, but what are the long term ramifications? Is small business being priced out of the marketplace due to massive buying power of the "Big Boxes"? Are these trends isolated to retail or will the future determine only the biggest will survive in their particular niche? It is the writer's hope that this study will help shed some needed light upon these questions.
Congress and state governments should also be concerned with the preservation of the environment; physical, economic, aesthetic and sociological. The writer has presented a picture of rapidly increasing ghettoization and blight as the mega-retail discount chains continue their free-wheeling from city to city, town to town and county to county, leaving behind, in many cases, urban, suburban and rural sprawl.
My description of this blight parallels that of Constance Beaumont in her book, How Superstore Sprawl Can Harm Communities.... and What Citizens Can Do About It, published by the National Trust for Historic Preservation. Not only must we look at this issue from an architectural preservation standpoint but also from an economic and social preservation point of view. Certainly we must all change and be open to change; however, we must question if these changes/effects attributed to the "Big Box" phenomena are healthy for this country's welfare and are not at the economic and sociological expense of its people and what has made America a world power.
Edward B. Shils
February 7, 1997
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