Economy & Business

The War on Big Retail Is Nothing New

Amazon fulfillment center in Robbinsville, N.J., November 27, 2017. (Lucas Jackson/Reuters)
Whether they know it or not, Amazon’s critics are part of a lineage that stretches back more than a century.

Big Retail must be stopped before it drives most “mom-and-pop” retailers out of business. Big Retail is a threat not only to established retailers, but also to their suppliers, their customers, their workers, and the American way of life.

Sound familiar? It should. These same arguments, now favored by critics of Amazon, were made against big-box stores like Wal-Mart in the 1980s and 1990s, against chain stores like A&P and Woolworth in the 1920s and 1930s, and against mail-order catalog companies like Sears in the 1900s. Then as now, opposition by incumbent retailers to new business models based on technological innovations was dressed up in melodramatic terms as a battle of noble Davids versus evil Goliaths.

A century ago, railroads made it possible for national corporations to compete in what had been local markets. Following the establishment by the U.S. Postal Service of free rural delivery in 1896 and parcel post service in 1913, many family farmers found alternatives to price-gouging local merchants in the form of mail-order companies. Sears, Roebuck — the Amazon.com of its day — was the most important.

Mail-order catalogs meant more choice and lower prices for consumers — and fewer sales and lower profits for general stores, which lost their local monopolies. To restore their privileges, the owners of small stores lobbied state legislatures to discriminate against “foreign” or out-of-state corporations. Fortunately for working-class consumers, the federal courts struck down most of the resulting attempts at state-level protectionism, which would have preserved local stores’ profits at the expense of Balkanizing the national economy.

Local retailers were threatened again between World War I and World War II by the rise of chain stores like A&P, Woolworth, and J.C. Penney. Grocery chains in particular improved and diversified American diets by carrying refrigerated meat and dairy products and preserved foods. By enabling self-service, they made shopping less time-consuming. And in urban areas, they often provided an alternative for African-Americans victimized by the discrimination of local retailers.

Once again, however, those retailers appealed to public opinion to protect their position against competition. In the 1920s and 1930s, A&P, the nation’s largest retail chain, was demonized by local elites and populists in the same way that Walmart and other “big box” stores were demonized in the late twentieth century and Amazon is demonized today. Former Louisiana governor Huey Long, then a U.S. senator but still the dominant political force in the state, declared, “I would rather have thieves and gangsters than chain stores in Louisiana.” Pundits and the media warned of wholesale destruction of small retailers, with the New York Times opining that “Big Business Now Sweeps Retail Trade,” in a 1928 editorial.

Small retailers used that tail wind of support to enlist the power of the state in warding off the big chains. Many state governments passed a variety of measures designed to kill off chain stores, including “fair-trade laws” that prohibited volume discounts to retailers and crippling taxes applied just to chains.

The anti-chain store crusade at the federal level was led by Congressman Wright Patman, a populist Democrat from Texas. While a federal tax on chain stores that he introduced failed to gain momentum, Congress did succumb to the anti-chain hysteria by enacting “fair trade” laws like the Robinson–Patman Act of 1936, which is still on the books but rarely enforced. The like-minded Miller–Tydings Act of 1937, which discouraged large-volume discounts by disallowing contracts to prescribe minimum prices for the resale of products sold in interstate commerce, was finally repealed in 1976.

The real enemy of Amazon’s critics is not Amazon, but the new model for retail that Amazon represents. It is not a question of Amazon versus Main Street, but of New Retail versus Obsolete Retail.

To middle-class, automobile driving, suburban Americans after World War II, arguments that the grocery and apparel and drugstore mom-and-pops made their lives more convenient seemed quaint. But in the late twentieth century, old-timey rhetoric about the evils of Big Retail was dusted off and deployed again, this time, against “big box” stores like Wal-Mart and Sam’s Club. Like the chain stores and mail-order houses of earlier generations, the big-box stores were guilty of threatening the profit margins of less efficient retailers by offering more choices at lower prices.

Today, thanks to technological innovation, yesterday’s designated populist villain, Big Box, once seen as insurmountable, is under threat. Having started by combining Internet purchasing with home delivery for books, Amazon has applied that transformative model to a vast array of retail goods. Like Sears and A&P, Amazon is being treated as a bogeyman by its smaller commercial rivals.

So let’s be clear: The real enemy of Amazon’s critics is not Amazon, but the new model for retail that Amazon represents. It is not a question of Amazon versus Main Street, but of New Retail versus Obsolete Retail.

Among those threatened by innovation in retail are former winners like Sears, J.C. Penney, and Wal-Mart. But the newest wave of creative destruction in retail is creating winners as well as losers. Jobs for retail-store clerks are declining, but employment in fulfilment warehouses is expanding rapidly — and fulfilment-center jobs pay 26 percent better than the average retail job, just as wages in “big retail” are significantly higher than wages in mom-and-pop retail.

The fact is that every retail innovation in American history — from the mail-order catalog to chain stores to Internet-based home delivery — has been denounced by incumbent businesses as a threat to the American way of life, when in fact it was only a threat to their outmoded corporate models. History suggests there is no reason to fear that Amazon will establish a permanent monopoly, any more than Sears, A&P, or Walmart did. On the contrary, technological change and the economic innovation it permits are likely to ensure that today’s ascendant retail champion is tomorrow’s obsolete and embattled incumbent.

One thing, however, remains constant: The determination of small businesses in the retail sector and elsewhere to use the power of government to protect themselves against competition by enshrining their outmoded models in law. Threatened with cost-saving innovation, small, incumbent retailers today, as in the past, are trying to sell us all a bill of goods, one for which we will ultimately pay the price.

— Robert D. Atkinson and Michael Lind are the authors of Big is Beautiful: Debunking the Myth of Small Business.

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