The Nature of Postwar Retail Competition

Author(s): Victor Lebow

Source: Journal of Marketing, Vol. 9, No. 1 (Jul., 1944), pp. 11-18
Published by: American Marketing Association
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THE NATURE OF POSTWAR

RETAIL COMPETITION
VICTOR LEBOW

Chester H. Roth Co., Inc.

EDITOR'S NOTE: As with the preceding article,
goalthis
will

have profound effects on the

but even

contribution by the Sales Manager of Chester H. Roth Co.

should provoke discussion and, perhaps, dissenting nature
opinion of retail competition,
to which the Notes and Communications section will
be
its complete
realization will not

open.

diminish
the degree of retail competition.

Change breeds change in the field of

GREAT CHANGES took place in retaildistribution.
The technique, forms, and
T ing in the decade I93I to I941; new

relations in retailing are alareas of competitive conflict were competitive

develways
subject
to the influence of new deoped. The war has both intensified and
velopments. When drug stores added
in some cases distorted these trends.
Their projection into the years ahead will soda fountains and candy cases to their

help us discern the nature of postwarequipment, for example, the confec-

tionery stores and ice cream parlors deretail competition.

No one who sets down his thinking ofclined in importance. There are more rethe times to follow the war can do so tail food stores than any other type of
without making some basic assumptions.retail establishment-well over half a
For the purposes of this article, the au-million-yet in ten years the supermarthor has assumed: (i) that American ket, a new type of outlet, so altered the
business will come through the war with pattern of food distribution that a few
its vitality still "bunyanesque," with its thousand self-service "supers" today are
capacity for enterprise and venturing un- doing 25% of the nation's food business.'
diminished; (2) that American business But the changes and trends which inleaders are still capable of learning, and fluence retailing are not always generated
that they have drawn sharp lessons from within the pattern of distribution. The

the events of the last twenty years; (3)commodities produced and the people
that the goal of industry will be fullwho buy have obvious effects on disproduction for an expanding markettribution, which serves to bring them
provided by a people on a rising living together. Therefore it is necessary to
standard.
take a look at some of the relevant facThe third assumption is of particulartors in production and consumption;
these will set the frame, so to speak, for
import to retailing. The degree to which
this goal is realized may determine, forthe picture of postwar retail competition.

example, how desperate must be the

PRODUCTION
struggle for existence on the part of
smaller independent retailers. For re- The demonstration of America's pro-

tailers in general, the more nearly we ductive capacity which the war effort
has unveiled is a lesson the American
approach a state of full productivity and
full employment, the higher will be the
consumer cannot forget; by such an
rewards for success in the competitive
struggle and the less grave will be the 1 M. M. Zimmerman, "Supers as Mass Outlet for
Drugs and Cosmetics," Supermarket Merchandising,
penalties for failure. Realization of that
November, I943, p. 41.
11

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12

THE O70URNaL OF MARKETING

12THE~ 7ORA OF MARKETING-~

achievement American
industry
has
more leisure and
security than ever bedertaken an obligation
which
it
fore. There are likely
to be changes,
for can
never henceforth example,
deny.
in the character and number of
Even assuming a
postwar
national
in
retail
units through which
this doubled
or trebled
production or
of consumers'
come of i 50o billion
dollars
more, ho

ever, the economy

faces
a developments
vast complex
goods
will flow, and
in the
contradictions. The
fact
the
extent
to which is
large that
manufacturers
par- con

centration of economic
has be
ticipate directly in power
distribution.
hastened by the war. In the words of t
CONSUMPTION
Senate Education and Labor Committee: "America, a land of giant corpora-What will be the ability of the contions before the war, will emerge from
sumers to absorb the increased producthis war with a larger share of its vastly
tion? The answer to this question de-

expanded economy controlled by a

smaller number of firms."2 This concen-

pends in large part on the distribution of

postwar income.
tration has been accompanied, not only Even if we assume that employment,
by a huge addition to the national plant, together with income, will be maintained
but also by the introduction of newer at wartime peaks, it must be rememand much more efficient labor-saving bered that the present prosperity is iland automatic machines; new materials lusory for a large part of the population.
superseding old materials that called for The OPA study, "Civilian Spending and
greater expenditure of labor, as for ex- Saving, I94I and I942," shows that
ample, plastics and laminated plywood; 6i.8% of the families in the country
and new processes, like centrifugal cast- lived in I942 on an income of less than
ing, which are as economical in man- $50 a week, and this was a year of high
hours. Thus we have a network of forces prices.3 The new high records of departwhich tend toward reduced employment ment store sales reflected the heavy
coupled with the national determination spending of the four out of every ten
to achieve "full employment."
families who had an income of over
Without a huge multiplication of com- $2,500. The OPA tells us further that
modities and an income distribution
over 88% of the savings by individuals
which will permit the consumption ofin I942 were made by people in the inthis output, we shall face crises darker
come level above $2,500, savings of 22.4
than even I930-1933. On the part of thebillion dollars out of a total of 25.4
billions.4
giant industries, such as aluminum, electrical equipment, glass, and perhaps An uneven distribution of income is,
steel, a number of totally new decisions
of course, not a new factor to be reckwill be called for: relaxation of patentoned with; we have always had it. The
monopolies, licensing of additional propoint is that it is still with us; that the
ducers, and especially the renunciationdoubled or trebled income we now enjoy
of superprofits and planned restriction
has not changed it, except in degree.
of production. Of immediate concern, In I935-I936, according to the Nahowever, is the effect upon retailing of ational Resources Committee, 87% of the
nation on a rising living standard with
families in the country lived on an in2 Quoted by Vice-President Henry A. Wallace, "We 8 O.P.A. Division of Research, Civilian Spending and
Must Save Free Enterprise," Saturday Evening Post,
Saving, I94r and I942, p. I6.
October 23, 1943.
4Ibid., p. 17.

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THE 70URNAL OF MARKETING

13

ANALYSIS OF RETAIL COMPETITION

come of less than $2,500 a year.5 Obvi-

ously, the reduction of this group to

With this appraisal of production and

consumption in mind, it should be easier
tremendous rise in the national standard
to understand the forces which will shape
of living. We have seen such a rise; de- the nature of postwar retail competition.
spite a higher price level, more of our
For purposes of analysis, the competipopulation have had enough to eat and tive situation can be broken down into a
wear in I943 than ever before. But it is series of "relationships of active opposi-

around 6o% of the population means a

also clear that even now more than half

of the people are living below what is

generally considered a minimum standard of living for Americans.
The families and single individuals in
the income classes below $2,500 a year
in the years I935 and I936 made up

tion":

(I) The independent merchant vs. the

chain store.

(2) The smaller independent vs. the larger

store.

(3) The general department store vs. the

limited-price variety store.
(4) The new unorthodox channels for a

roughly 89% of the population. They

bought 67% of the clothing, 68% of the

given commodity vs. the traditional

outlets for the same commodity.
(5) The drive for higher net profits and

furnishings, 72% of the housing, and

79% of the food.6 It is probable that the

percentage of commodities bought by

the acceptance of higher expense

those now in the income classes below

ratios vs. the trend toward lower

markups.

$2,500 will continue in about the same

ratio to the percentage of the population (6) Brands, name, and product monopolies vs. lower cost distribution.
they represent. Therefore, if in 1935 and

I936 the 89% of the population in the

income brackets below $2,500 bought In the sections of the discussion devoted to the first three of these "relation67% of the clothing, the 60o% of the
ships" the trends in retail competition
population now probably in that cate-

are assessed for their effect on different

gory can be expected to buy about 44%
types and sizes of outlets. The developof the clothing, and similarly with the
ments
cited in these sections will serve
other items. In other words, even if into
suggest
and point up the more funcome is maintained at wartime heights,
damental nature of the trends as they
close to two-thirds of our families will
provide a restricted market for commodi- are analyzed in the discussion of the
last three "relationships."
ties.
The independent merchant vs. the chain
The trends in consumption will have
store. The I939 Census of Business rea determining effect on the price ranges
of the goods to be sold at retail, the types
vealed that in the decade following I929
the number of independent stores inof stores through which the greatest
creased both relatively and absolutely.
volume of commodities will flow, and also
On the other hand, the number of chain
the area of the most intense competition.
store units declined from I48,000 in I929
5 National Resources Committee, Consumer Incomes
to I23,000 in 1939, or from 9.8% to 7.0%
in the United States-Their Distribution in 1935-1936.
(Washington, United States Government Printing

Office, I938), p. i8.

6 Idem, Consumer Expenditures in the United States-

Estimates for 1935-1936. (Washington, United States

Government Printing Office, 1939), pp. 83, 90.

of all stores.7 The share of the total retail

business taken by the chains shows only

7 Census of Business, Volume I, Retail Trade: 1939,

P. 9.

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THE JOURNAL OF MARKETING

14

14 THE 7OURNAL OF MARKETING~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

a moderate upward trend, while the independents lost some ground.

The figures of dynamic significance are

to be found, however, in the trend of

"sales per store." Contrast the rise in

volume of sales for each chain store unit

to the steep decline in sales for each independent store:8
Sales per store
'939

Independent $I9,333

Chain 73,484

1935

1929

$i6,738
$27,614
58,231
65,68I

This improvement in the quality of

each chain store unit's performance can

be compared with the increase of output
per man-hour resulting from rationaliza-

tion in industry. The most spectacular

of the policies leading to this rise in sales
per store has been, of course, the closing
up of chain grocery neighborhood stores

by the thousands and their replacement

by supermarkets in a relationship of from
five to fifteen stores closed for each

cation of the volume of commodities,

then an increase in the number of chain

store units must be a direct consequence.
Judging from the history of independent
store openings, we shall probably witness
a far larger number of new independent
and partially integrated or dealer stores,

while the chains continue to open rela-

tively fewer but larger units.

The smaller independent vs. the larger

store. While the intensity of chain store

operation has been increasing, the independents have tended toward lower sales
per store, more services, greater expense

ratios, and ever-increasing variety of

merchandise.

It is true that during the war the small

merchant has been forced-often to his

profit-into changes contrary to his

policy. He has had to cut out many of

his services. He had been able to obtain

neither so much merchandise as he
wanted nor so great a variety. Here, as a
matter of fact, his ability to use odd lots

supermarket opened. Throughout the

and small quantities from a wide range
chain store field in general, similar reof sources has in many instances given
sults have been achieved by the closing
him an advantage over the chains; this
of less profitable stores, the remodeling
situation explains in large part why indeand modernization of good stores, the
pendents in the grocery field have reimprovement of locations, and the growth
versed the trend and for the first time
of the "super" or "A" stores.
have increased their share of the total
It should be pointed out however, that

the chains reduced the number of their

units and concentrated on improving the

food business at the expense of the

chains.

With the possible exception of in-

quality of their operation during a deccreased cash reserves, most of the advanade marked by a drastic decline in national income. Their decision, not neces-tages won by the independent during the

war will probably not be permanent. The

sarily to distribute more goods but to sell
one conclusion justified by the evidence
the goods more efficiently and profitably,
is that the independent is not being rencorresponds to the policies of large manudered extinct by the chain. Rather, he is

facturing corporations during the same

being confined to a narrower and less
period. But if we are going to witness
fertile area, where he has to dig harder
a postwar rise in income and a multiplifor lesser profits.

8 United States Department of Commerce, Bureau of There has developed in distribution,

the Census. Sixteenth Census of the United States: 1940. as in production, a sort of caste system.
Census of Business Volume I. Retail Trade: 1939. Part I.

(Washington, United States Government Printing This does not deny to the man who is ex-

Office: 1943.) Based on data from Table 3F, p. 69.

ceptionally aggressive and intelligent the

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THE YOURNAL OF MARKETING

TH

JORA

FMREIG1

15

lower cost and less desirable locations,

opport
and serve a smaller or poorer traffic.
chant
Thus the basic conflict in
retailing
as
a
cla
actually ent
resolves itself into a struggle
of
in mathematical terms. The number of
between the chains and the large independents for the profitable business, and
stores doing below $30,000 a year ina struggle among the smaller independents
creased from 1,098,910 in 1929 to 1,481,089 in I939. At the other end of the scalefor the unprofitable or less profitable busithe larger stores doing above $300,000ness.
a year, representing less than i% of all In the years between I900 and I939
some I6 million enterprises opened their
stores, had declined in number by I939
but still did close to one-quarter of alldoors, and about 14 million closed up.
the retail business.9
Much can be done to give small business
Of special significance is the fact that
both long-term credit and management
the chains are doing a diminishing portion
guidance to raise its efficiency and
of their total business in their smaller
longevity. Undoubtedly the developoutlets and an increasing percentage inment of the dealer-agency relationship
their larger stores, and the degree of of the type of Western Auto Supply
change is striking. Among the indeCompany, Firestone Tire and Rubber
pendents, on the other hand, the larger Company, The Gamble Stores, and
stores are increasing their share of total others, and the wholesaler-dealer tie-up
independent business only slightly, while in the Butler Brothers plan, will reduce
the stores doing under $Ioo,ooo a year the mortality rate of small retailers. But
in volume show a slightly lower per- since the small independent is the marcentage. These movements are sumginal distributor, so to speak, passing on

marized as follows:10
Chain Units

Over $ioo,ooo
Under $Ioo,000
Totals

maximum distribution costs which he

1935

cannot reduce, it would take incredible

planning and effort on the part of the

37.4

48.2

government to reverse the trends affect-

IOO.0

100.0

1939

62.6%

51.8%

Independents

Over $ioo,ooo

Under $ioo,000

ing small stores. Birth control, volun-

tarily imposed, may be even more impor36.4

63.6

34.5

65.5

tant than guidance and credits to reduce

small business mortality.

The trend toward decentralization,

as exemplified by department store
The large independent stores appear
branches, the entry of Firestone into the

Totals

100.0

100I .0

to be able to meet the chains on an equal

department store field, the appearance of
basis, although the competition of the
Chicago Mail Order House, and now
two groups is made less direct by the
Spiegel's, on the retail horizon, promise
fact that the independents in part serve
to keep most independent retailers Lillia different and higher income group. The
putian in size.
small independent enterprises apparThe general department store vs. the
ently go where the chains do not wish
limited-price variety store. The departto follow; they fill in the less profitable
ment stores have in the past catered to
areas of the distribution map, rent the
the middle and upper middle class, a
relatively small fraction of the popula9 Idem, Volume I, part 2, p. 8.
10 Ibid., p. 9.
tion. The Department of Labor studies

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16

THE yOURNAL OF MARKETING

on Family Expenditures in Selected

the population. It seems clear that the

Cities, give the prices paid by consumers department store, the "popular-price"
at different income levels in 1935 and department store particularly, will be
i936.11 It is noteworthy that the prices forced to institute drastic changes in its
paid by groups below the $2,000 a-year methods, to reduce its costs of operation,
income are generally either at the lowest lower its mark-ups, and so compete at
price in a department store or below the the price levels sought by the lower indepartment store prices. Consumers in come groups.
these low-income groups have formed the
The new unorthodox channels for a given
habit of patronizing the limited-price commodity vs. the traditional outlets for
variety chains and other low-cost dis- the same commodity. The channels of distributors for many of their household tribution have become fluid. The necesand clothing purchases.
sity for increasing sales volume in stores
The chains, in developing their larger with high fixed expenses led the cigar
stores to do a greater volume, have been and drug chains into new fields, particuadding lines and expanding their selec- larly in the years between I930 and
tions. By I939 the term "limited-price 1940. The supermarkets, when they first
variety" less accurately described the appeared, carried "soft goods"; in the
larger units of syndicate store chains Southwest and on the Pacific Coast
than it did in I929. This multiplication many of them have built a steady busiof lines and varieties is also to be obness on men's and women's apparel
served in supermarkets, auto accessory
items. And now, during the war, supermarkets have added hundreds of housestores, apparel and furnishings chains,
cigar store chains and drug chains. These
hold, drug, and toilet articles, glassware,
outlets challenge the department stores
books and even hosiery. The impact of
even more strongly than in the past. war economy also forced the huge auto
At the same time, the middle classaccessory
is
chains into apparel, household
tending to shrink in size and influence.
equipment, and other lines.
The huge industrial employment ac-At the same time there has been a
companying high peacetime commodity
heavy mortality of independent stores
production will change not only the
and wholesalers in many lines. During
occupational trends but even the social
I94I-1943, for example, in radio and
composition of the American population.
electrical supplies 30% of the dealers
The mechanization of office work will

have gone out of business, largely be-

further deflate the middle class. It

cause of inability to obtain adequate
seems clear that these factors, in comsupplies of merchandise; in clothing the
bination with the pressure to distribute
figure is somewhere around 5%.12 Since
merchandise at lower costs in order to
these dealers have not been replaced by
increase the flow of commodities, will re-new ones, their place in the community
strict the typical department store, with is largely being taken by an auto supply,
its high fixed expenses and costly serv-drug, food, or cigar store. Thus, certain
ices, to a steadily shrinking segment ofoutlets have taken advantage of a temporary opportunity to broaden their
11 Department of Labor, Bureau of Labor Statistics,

in cooperation with Works Progress Administration. lines,

have shown that they can dis-

Family Expenditures in Selected Cities, I935-I936.

(Washington, United States Government Printing 12 T. G. MacGowan, "A Pattern for Postwar MarketOffice, I94I.) For example, see Volume III, Clothing
ing." A speech delivered before Midwestern Sales Con-

and Personal Care, p. 37.

ference, Chicago, November, I943.

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17
THE
7OURNAL
THE
JOURN,L
OF MARKETING OF MARKETING 17

tribute economically
the
new
com
mins and other drug
items in
superties which they
have
taken
on, an
markets,
with paints
in auto supply
stores, and with
books at newsstands.
probably continue
into
peace m
their marketingTheinnovations.
competition is thus developed be- In th
various
channels
of distribution
ing is the plan tween
of
the
oil
compan
sell at roadside over
filling
stations
the same items-with the point of art
general use. And
food
conflictaset huge
by their differing
minimum pro
who has been making
equipment f
mark-up requirements.
armed forces is reported
preparing
A scale of competition
is likely to be
larger, however, supplies
than a scramble for a th
household electrical

grocery stores.

score or so of selected items. It may take

No longer are commodities bound to the form of a struggle between chains of

travel foreordained paths. Rather, one different structure, based upon their
type of distributor now reaches out and differing costs of operation. There will
appropriates the fastest moving items income into collision on a national scale
the lines carried by others. So, vitaminsthe chains against organized streamlined
and drugs and glassware go into super- smaller independents; the "super" stores
markets; hosiery, and other apparel of the chains battling each other as well
items into cigar and drug chains as well as the larger independents; A & P vs.
as "hard goods" stores; and ladies'
Kroger, Safeway, and the others; Wool"man-tailored" suits into men's clothingworth vs. Kresge, Kress, Newberry;
stores.
Sears Roebuck & Company vs. MontThe drive for higher net profits and the
gomery Ward, Firestone, Western Auto,
acceptance of higher expense ratios vs. the
Gamble's; and J. C. Penney Co. against
most of the field.
trend toward lower mark-ups. This tend-

ency for unrelated channels of distri- Clearly one of the solutions these
bution to add to their lines the fastest
chains will consider (and not necessarily

moving items from other fields naturally

the correct one in all cases) is their entry
affects the net profits of the traditional
into the manufacturing of many of the

distributor of the items thus selected.

articles they sell. Many will be forced in
Women's full-fashioned hosiery prothat direction by the lowered mark-ups

vides approximately 3% of the sales

they are and will be taking, especially on

volume of a department store but protheir fastest moving and most competiduces over 7% of the net profits.13 This
tive items. It is no secret that a number
fast turnover item may become attracof them are already engaged either in
tive to a drug store for the additional
manufacturing or assembling commodivolume it can furnish. But a drug store
ties they sell.
requires approximately the same mark-'
Brands, name and product monopolies
up as a department store. Let cigar store
vs. lower cost distribution. A few years ago
chains or supermarkets take such a fastthe Twentieth Century Fund in its study
moving item and apply their traditional
Does Distribution Cost Too Much? arlower mark-ups to it, and a revolution
rived at the conclusion that of the con-

is affected in the distribution of the artisumer's dollar, 59 cents goes for the costs

cle. This is today happening with vitaof distribution and only 41 cents for

production. In November of 1943 the

13 Controllers Congress of the National Retail Dry
Trade Commission published a
Goods Association, 1941 Report, p. 15. Also 1942 Federal
Re-

port, p. 47.

summary of its study on the costs of dis-

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1818

THE

JOURNAL

tribution of important
which were included
follow:14

OF
THE MARKETING
JOURNAL OF MARKETING

channels as Sears Roebuck & Comfood such

products
in
pany-certainly an occurrence that would

the data which

deflate the prewar automobile agency or-

Period Expenses

Processors

CPoerwedg per $i of

CovYeare Net Sales

Cane Sugar Refiners

Meat Packers
Chain Store Bakeries
Wholesale Bakeries
Biscuit & Cracker Mfrs.

Packaged Cereal Mfrs.

Year 1939 4.53

Year I939 6.72

Sept. I194I 2. I8
Sept. 194I 26.86
Year 1939 34.66
Year 1939 34.93

Wholesalers

Cooperative Wholesale
Grocers

Old Line Wholesale Grocers

Year I939 5.87

Year 1939 9.65

Retailers

Retail Cooperative Grocers Year 1939 I9.50

Year 1939 20.62

Retail Grocery Chains

Independent Retail Grocers Year I939 22.58

House-to-House Bakeries

Sept. I94I 37.5

ganizations with their expensive and

wasteful duplication.
The effect of these changes will also
fall upon the use of brands. It is surely
more then coincidence that prices
charged for products distinguished by a
brand or name monopoly are typically
higher than for unbranded products.
Why can not standardization and grade
labeling become important aids to lowcost marketing? In this brief article no
attempt can be made to answer that
question explicitly. But perhaps an hypothesis, like the following, will serve to

make the point:

Picture a conveniently located self-service

It is clear that at each of the three levels,
supermarket in which all the products offered
manufacture, wholesale, and retail, there
will be under one brand name, their quality
are cases of excessive distribution costsdetermined by independent testing laboraexcessive from the standpoint of success- tories and authenticated by seals nationally
ful marketing of the maximum produc- recognized and fully accepted by the consumer. Since all articles are under one brand,
tion of commodities.
High distribution costs attract lower there will be variety, but it will be reduced
cost producers and distributors who are to a minimum; there will be no duplication
such as is required when competing brands

faced with declining mark-ups and inare stocked. All prices will reflect the absence
tensified competition; I have called this
of promotional costs such as are needed to
process "marketing arbitrage." We shall build up national brand preference, and the
see both manufacturers and distributors lower warehousing costs of the chain or cogo into new fields or take on new com- operative warehouse as against the greater
modities precisely because the tradiexpense of manufacturers' outlets or the old
tional selling costs or mark-ups of the line wholesaler.
"oldtimers" are higher than those of the
We shall not see such an institution
newcomers. An example, not too visionin the postwar period, but this is the
ary, might be the entry of the Kaiser
theoretical limit of efficiency in distrishipbuilding or the Boeing aircraft inbution
toward which retailing will now
terests into the manufacture of inexhave to move. The compulsion to appensive motor cars, distributed through
proach nearer and nearer this limit will
in fact be the essence of postwar retail
14 Federal Trade Commission, Methods and Costs of
competition.
Distribution, Part one, November i I, 1943, p. 3.

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