Retailing Industry

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RETAILING INDUSTRY

RETAILING INDUSTRY. The modern U.S. retail industry is dominated by huge retail giants owning thousands of stores in the United States and in other countries. According to the 1997 business census, retail sales in this country totaled nearly $2.5 trillion. This is fifty times the $48 billion of the 1929 business census. The size of individual stores has also grown enormously and there are actually fewer stores today than in 1929.

The roots of the industry in the United States go back to itinerant peddlers, small shopkeepers, and merchant importers that began in the early days of Boston, New York, and Philadelphia. Thousands of men walked the countryside selling the goods they could carry on their back. When profits permitted, they purchased horses and carts and expanded their assortments of goods. Henry W. Carter maintained five teams on the road and became known as the "Merchant Prince." Called "Yankee peddlers," many of the first merchants came from New England. Jewish immigrants became the most numerous peddlers in the nineteenth century. The development of the railroads, waterways, roads, and towns engendered stores that replaced the peddlers. Storekeepers even lobbied cities to pass laws outlawing peddlers.

Trading posts, established to trade furs with the Indians, became an important part of the frontier. The Hudson's Bay Company, founded in 1670 and headquartered in Canada, operated an extensive network in the western part of North America. The company still operates as The Bay department stores. Trading posts in the West lasted well into the twentieth century. The Hubbell Trading Post, on Arizona's Navajo Reservation, is owned by the National Park Service and operated by a nonprofit organization (see Trading Posts, Frontier).

In cities, stores often featured the products of craftsmen who sold their wares in spaces below their living quarters. They included tailors, apothecaries, stationers, importers, furniture makers, and tobacco merchants. Major cities also established markets where a large number of merchants would display their merchandise, starting with Boston in 1658. Smaller towns had general stores that attempted to carry everything customers wanted. The factories and artisans of England provided most of the consumer goods for America.

New Forms of Retailing

Three new forms of retailing that would dominate sales for the next century began in the second half of the nineteenth century: the modern department store, the chain store, and the mail-order business. Department stores evolved from dry goods and clothing stores as the owners expanded their operations by adding new classifications of merchandise. Dry goods merchants sold fabrics, sewing supplies (notions), blouses, and millinery (hats), mostly to women. Clothing stores specialized in ready-made clothing for men and boys that was manufactured in factories that made army uniforms during the Civil War. Marshall Field, who started his fancy dry goods business in Chicago in 1865, built a thriving wholesale business and the largest department store in the world in 1910. John Wanamaker of Philadelphia started in the wholesale men's clothing business before expanding his operation into a complete department store in 1877.

Growing cities provided large markets for the department stores. Mass circulation newspapers contributed an effective advertising medium. The invention of cast iron allowed for multi-floor buildings. Electricity powered the elevators, which moved customers to upper floors, and illuminated the far reaches of the large stores. The invention and local manufacture of plate glass provided show windows to entice customers into the store. Railroads brought people to the city and lowered transportation costs. Streetcars brought people to the stores and let them carry more merchandise home. In this industrial landscape, factories manufactured goods in larger quantities, allowing merchandise to be sold for lower prices to workers with more disposable income. The new American financial capital business provided needed funding for the larger operations.

These changes also enabled chain stores to develop. Described as a group of decentralized stores that handle similar lines of merchandise under one management, chain stores started slowly during the last forty years of the nineteenth century but built a base for phenomenal growth in the twentieth. The guiding principles of chain stores included mass purchasing and low operating costs. In 1859, tea sold at retail for $1 per pound. George Huntington Hartford and George Gilman decided to import tea directly and sell it for thirty cents. Their Great Atlantic & Pacific Tea Company developed into a grocery store (A&P) and became the first major chain-store organization. They had 200 stores by 1900. Frank W. Woolworth capitalized on the abundance of cheap merchandise to start his five-cent stores in 1879 (see Dime Stores).

Montgomery Ward and Richard W. Sears founded mail-order companies that greatly impacted the nation's marketplace (see Mail-Order Houses). An employee of Marshall Field, Ward saw the opportunity to sell merchandise to farmers and started Montgomery Ward & Co. in 1872. A railway agent, Sears started his mail-order company by selling watches to other agents in 1886. While department stores attempted to build mail-order businesses with urban customers, Ward and Sears targeted the rural customer who did not have access to chain stores and department stores. Both made extravagant advertising claims, produced massive catalogs, and penetrated the rural market with great success (see Sears Roebuck Catalog).

During the first thirty years of the twentieth century merchant and consumer groups attempted unsuccessfully to limit the growth of department stores, chain stores, and mail-order houses by enacting laws and mounting public relations campaigns. Despite their efforts, the large companies prospered. The growth of the women's ready-to-wear business, increased consumer disposable income, and the desire to beautify the home attracted more and more customers to the department stores, who responded by erecting larger stores. Mass transit brought customers to downtowns that now featured several major department stores, variety stores, specialty stores, movie theaters, and restaurants.

The chain-store movement saw the advent of many new chains in the first decade of the twentieth century. Among them were Lane Bryant (apparel), J. C. Penney (apparel), W. T. Grant (variety), Walgreen Company (drugs), and Louis K. Ligget (drugs). Opening stores in both small and large towns, the twenty leading chains totaled nearly 10,000 stores by 1920 and added another 25,000 in the next ten years. J. C. Penney, which started in 1902, had 676 apparel stores by 1930. That same year the F. W. Woolworth Company boasted 1,420 stores and A&P operated 14,034 stores. Four other food chains each had more than a thousand stores. The first business census in 1929 showed that chain stores controlled 22.2 percent of total sales.

Sears, Roebuck and Montgomery Ward continued to grow their catalog business and, recognizing changes brought about by the automobile and suburbanization, started their own retail stores. Ironically, mail-order sales reached their peak in 1926, although the two companies maintained their catalog operations for another sixty years.

Retail sales did decline from 1929 to 1934. However, none of the major department stores or chains closed during the Great Depression. Stores pressured suppliers for lower prices, and with the help of National Recovery Act regulations, many operations actually increased their profit margins during the 1930s.

The 1930s witnessed the movement to self-service food supermarkets. The first self-service stores started in 1911, but Clarence Saunders, who started Piggly Wiggly in 1916, is credited with innovations such as shopping baskets, open shelving, no clerks, and store layouts that led to the first self-service stores. A manager of a Kroger store, Michael Cullen, wrote a letter to the president in 1930 laying out the concept of a self-service supermarket. He never received an answer and instead opened the first supermarket, King Kullen, that year in Jamaica, New York. Sylvan Goldman, a grocery store operator in Oklahoma City, helped change the industry by inventing the shopping cart in 1937, enabling customers to carry more merchandise. The large chains such as A&P, Kroger, and Safeway had so many stores they did not want to embrace the supermarket concept. But they eventually relented and replaced smaller neighborhood stores with large units on major arteries.

Malls and Discount Stores

The 1950s ushered in two major changes in retailing: sub-urban shopping malls and discount stores. Favorable tax laws in the 1950s, together with the burgeoning suburbs and the start of the interstate highway program, encouraged the beginnings of suburban shopping malls. Mall developers gave low-rent terms to large, local department stores to anchor their malls and rented to smaller stores at high rents.

Proximity to affluent customers, ample parking, and night shopping hours quickly made malls the favored place for non-food shopping. Most cities did little to help their downtowns, which soon became retail wastelands with no department stores and many empty storefronts. Shopping centers grew larger and larger, with regional malls housing four to six anchor department stores and numerous specialty stores. The Mall of America in Bloomington, Minnesota, has more than 520 stores.

In 1953, Martin Chase converted the defunct New England Anne and Hope fabric mill into a huge self-service store with a wide assortment of off-price merchandise. Discount stores developed into the country's most successful retail outlets by the 1990s. Eugene Ferkauf expanded his New York City discount luggage store (E. J. Korvette) into a chain of full-line stores in the 1950s.

Many others started discount operations, but three stores that started in 1962 survived as the dominant chains. Sam Walton, a franchise operator of Ben Franklin dime stores, opened his first Wal-Mart in Rogers, Arkansas. Another dime store operator, S. S. Kresge, conceived K-Mart, and the Dayton Company of Minneapolis started Target. By 2000, Wal-Mart had become the largest retailer in the world (and the world's largest private employer) with annual sales of $200 million, the same amount as total retail sales in the United States in 1958.

Many downtown apparel specialty stores did not want to take the risk of opening in the new malls, leaving mall developers to look elsewhere for tenants. National chains such as Casual Corner, The Limited, Lane Bryant, and Lerner's began opening hundreds of stores to take advantage of mall traffic. Les Wexner opened his first Limited in Columbus, Ohio, in 1963. His company had 5,168 stores in 2001, including the Victoria's Secret lingerie chain. Donald and Doris Fisher opened a store in 1969 near San Francisco State University selling records and Levi's jeans. Their Gap Inc., operating under the names of Gap, Old Navy, and Banana Republic, had 4,024 stores in 2001.

Big-box stores started to dominate some of the retail sectors. Also known as "category killers," these retailers built very large stores to carry only a few lines of merchandise in great depth. In 1976, Bernard Marcus started Home Depot home improvement and lumber stores. By 2000, Home Depot had 1,127 stores, each averaging annual sales of more than $40 million. Big-box retailers such as Best Buy and Circuit City dominated the electronics business. Charles Tandy proved the exception—his Radio Shack chain had 7,200 small neighborhood electronic stores by 2002. The large retailers Staples and Office Depot dominated the office-supply business. Developers started grouping these stores in non-enclosed shopping centers known as power malls, often near the regional shopping centers.

Membership warehouse stores were another form of big-box store. Sol Price opened membership discount stores in San Diego in 1954. After selling his Fed-Mart chain in 1976, he developed the Price Club warehouse concept that carried bulk packaged food and non-food products. Consumer-goods manufacturers also began to compete with their retail customers and opened chains of retail outlets. After hiding these stores in remote factories, they soon began to group together in factory outlet malls on the outskirts of major cities. Some predicted that merchandise sales over the Internet would put stores out of business. However, E-commerce sales in 2000 accounted for only 2 percent of total sales.

The last twenty years have seen an acceleration of mergers between large operations. In 2001, Kroger had 3,660 supermarkets under sixteen different names and sales of $49 billion. Walgreens, the largest drugstore chain, operated 3,520 stores with $24.6 billion in sales. Federated Department Stores had 404 department stores (including Bloomingdale's and Macy's) and $18 million in sales. Industry analysts predict that the giant operations will continue to grow.