Big box panic: Americans have been afraid of chain stores for nearly a century, but independent outlets keep thriving

Reason, Jan, 2008 by Michael C. Moynihan

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 Is 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.