Warehouse and discount stores - Business in United States of America
Definition: Retail stores that stock wide varieties of goods, some at unusually low prices
Significance: The rise of discount and warehouse stores fundamentally changed the economic landscape for American consumers by offering a large variety of products in a single location at relatively low price markups. These stores used bulk purchasing to undersell mom-and-pop neighborhood stores and drive them out of business.
Discount stores differ from traditional department stores by stocking a large selection of self-service goods, often including food, and containing checkout stands at a single place rather than having service counters in each department. They also may include such convenient features as photo-processing centers and pharmacies. They represent their prices as lower than those of more conventional retailers. Often, they will sell an extremely popular item at a loss to bring customers into the stores, but other items may be sold at the same prices as at traditional stores.
Warehouse stores are an evolution from discount stores. They usually stock goods in massive, floor-to ceiling displays and have roving employees rather than clerks stationed at any one service point. They require the consumer to purchase most products in bulk, at presumably commensurate savings. They may also require payment of an annual membership fee.
An Evolutionary Process
These discount and warehouse chains gradually evolved from the department stores that arose in the latter part of the nineteenth century, their growth being facilitated by the development of mass marketing techniques. Macy’s; Sears, Roebuck; and Montgomery Ward were among the earliest and best-known department stores, and the Sears mail order catalog, a fixture in almost every rural home, became legendary. From these roots, so-called variety stores also arose and became popular.
Smaller versions of full-service department stores, sometimes known as five-and-tens or five and-dimes, sprang up. The most famous was the Woolworth chain found in almost every small town; its discount subsidiary was Woolco. Another popular and ubiquitous chain store was Kresge, which ultimately begat Kmart. Unable to compete with larger-scale operations, the last remaining Woolworth stores finally went out of business during the late 1990’s. Their modern-day successors are low price chains such as the 99 Cent Stores.
With the spread of the Great Depression during the 1930’s, discount pricing grew more prevalent. Grocery supermarkets became an increasing factor, often replacing small mom-and-pop businesses entirely or causing them to combine into supermarkets. One of the very first discount stores was a radio and appliance store opened in Manhattan around 1937.
The further burgeoning of discount stores as a major factor in the economic lives of ordinary American families came during the late 1940’s. It coincided with the return of millions of veterans who had served during World War II and with the baby boom that followed. In general, the late 1940’s and the 1950’s were a time of strong economic growth and high demand for goods and services. Growing families came to rely on the competitive pricing that discount stores could offer as a result of their bulk purchasing power and streamlined distribution networks. For the chance to buy more cheaply priced goods, customers were willing to give up some of the personal attention they had perhaps been accustomed to from small, individually owned businesses.
By the mid-1960’s, an estimated 60 percent of consumers were shopping at discount stores. The Consumer Goods Pricing Act of 1975 also affected the ability of individually owned businesses to compete with the big chains. It effectively reversed the fair trade legislation of the 1930’s that was meant to protect small businesses by regulating pricing.
One of the earliest successful discount chains is considered to have been Two Guys, originally known as Two Guys From Harrison, named after the New Jersey town where it was established. It eventually grew to include hundreds of stores. E. J. Korvette’s was another discount pioneer that began during the early 1950’s. Other major discount chains included Adray’s, Zayre’s, White Front, and TG&Y, as well as GEM and Fedco, which were both established to serve government employees and those in the military.
Many of these smaller chains expanded too quickly and began going out of business a scant dozen years later when the major discount chains began to undercut them. Kmart, Target (established by the Dayton Corporation that operated department stores), and Wal-Mart all were founded in 1962. They soon began their dominance of the discount market. Volume sales enabled these chains to make money while operating on low profit margins per item. By 1974, Kmart was the first of the major chains to have expanded into all forty-eight contiguous American states.
Shoppers wend their way through a Costco in Chicago in 2008. Warehouse stores tend to do well during downturns in the economy. (AP/Wide World Photos)
Wal-Mart and Warehouses
Of the discount powerhouses, the only one that was not the product of an already existing chain was Wal-Mart. Sam Walton founded the first Wal-Mart in Arkansas, and the company gradually expanded into a giant, sometimes controversial behemoth. A later arrival, resembling the more traditional department store but offering almost continuous price-saving “sales,” was Kohl’s. Factory-outlet stores, mainly operated by companies to divest their retail stores of discontinued items, were another price saving innovation. Mail-order houses such as L. L. Bean also became popular for certain types of specialty goods such as clothing.
About twenty years after the major successful discount chains were established, huge warehouse stores began to appear. Founded in 1983, Costco, one of the major warehouse chains, has a presence in hundreds of locations. It carries a wide variety of mostly brand-name products and often purveys food, prescription drugs, and gasoline as well. It caters somewhat to the slightly more well-off consumer and has expanded its reach into Europe and Asia. Sam’s Club, the warehouse spinoff of Wal-Mart, is also found in numerous cities. Such warehouse chains as Home Depot, aimed at the do-it-yourself trade, are more limited in product scope.
Bosworth, Brandon. “Making Paradise Affordable: Life Would Be Harder for Many Americans Without Discount Stores.” The American Enterprise 17, no. 5 (2006): 34-37. Examines the effect that the growth of discount stores has had on the average American family and finds them to be a positive development.
Johnson, Walter E. “Warehouse Chains Roll into Secondary Markets: Are You Ready for Them?” Do-It-Yourself Retailing 160, no. 4 (1991): 47-54. Looks at how the expansion of warehouse chains into smaller communities will affect the economies of those areas.
Parker, Philip M. 2007-2012 World Outlook for Discount Stores. San Diego, Calif.: Icon Group International, 2006. Assesses the outlook over a five-year period for discount stores in about two hundred countries, including their prospects for profitability. Enables quick comparisons among countries.
Van Housen, Caty. “The ‘Big Box’ War to Begin with Mom ’n’ Pops in the Middle.” San Diego Business Journal 14, no. 31 (1993): 6-7. Argues that the inevitable result of the arrival of warehouse stores is that small stores cannot compete on price and range of products and are forced out of business.
Vedder, Richard K., and Wendell Cox. The Wal-Mart Revolution: How Big-Box Stores Benefit Consumers, Workers, and the Economy. Washington, D.C.: AEI Press, 2006. Although Wal-Mart has often been demonized for ruthless business practices, the authors have looked at communities before and after its stores are established. They maintain that, overall, the company has been a force for good.
See also: Catalog shopping; Retail trade industry; Sears, Roebuck and Company; shipping industry; Thrift stores.