WHARTON STUDY: SMALL STORES NEED FEDERAL HELP

Byline: Jennifer Owens

WASHINGTON — Wal-Mart, Target and other discount retail chains have become such Goliaths that the Davids, or independent merchants, now need the government’s help to survive, says a new study released this week by a longtime professor of management at the Wharton School.
“Action is necessary,” said Edward B. Shils, director emeritus of the Wharton Entrepreneurial Center, which he founded. “I think the federal government has got to stop saying ‘We have Small Business committees’ and not worrying about it.”
Shils talked about his study at a press conference Monday at the National Press Club here.
Declaring that smaller merchants often find it too difficult to keep big boxes out of their communities, Shils said he plans to send his report to both federal and state government officials. He said he’s hoping his study will prompt congressional hearings and possibly new legislation to curtail big box retail power.
Shils specifically criticized the Federal Trade Commission. “They seem to be more interested in mergers than with growth [of individual powerful companies],” he said. “But what about these cases of overwhelming power?”
FTC officials declined to comment on Shils’ report, saying they had not read it yet.
At the International Mass Retail Association, Morrison Cain, vice president of legal and public affairs, similarly declined to comment, saying he had not seen the report.
Discount mega-retailers, according to Shils, now hold what he calls “overwhelming power” to dominate markets through their ability both to negotiate the lowest prices from their suppliers and to offer one-stop shopping where profits in one category can cover losses in another.
To prove his point, Shils spent four years working on the study, which he and his family funded with help from Knitted Outerwear Manufacturers’ Association of Pennsylvania, Fashion Apparel Manufacturers’ Association of Pennsylvania and the United Food and Commercial Workers union.
Shils said that while discounters’ overall annual sales have exploded — he cited one set of figures showing their volume growing from $2 billion in 1960 to $68 billion in 1985 — jobs have been lost and the gross domestic product depleted. A regional study cited in Shils’ report, for example, stated that “1 1/2 jobs are lost for every new job created by a superstore.” Shils estimated that, replicated nationwide, this equation has meant at least a $10 billion loss in the gross domestic product.
Meanwhile, the rise of mega-retailers has shifted employment patterns: Payrolls at smaller women’s stores sank 12 percent between 1983 and 1993, while retailers with sales of more than $100 million saw employment in those departments rise 16 percent. Likewise, men’s and boys’ apparel has seen similar trends, with smaller merchants losing 9 percent of their employees, and the big retailers gaining 35 percent.
From his survey of 600 small business owners in four states, Shils said, many of them live in fear of the mega-retailers that have moved into their communities: Of the 80 percent of respondents who employed 20 people or less, 50 percent saw “a serious reduction in their work force as inevitable,” while 80 percent anticipated a decline in sales and profitability.
To Shils, such fears are not unfounded. “The ultimate possible impact of more and more powerful mega-retail discount chains will be to displace tens of thousands of small business entities and make millions of retail employees ‘redundant,’ something that automation failed to accomplish,” he wrote in his report.
Shils said that while retail remains price driven, he doesn’t believe consumers realize the full cost of discount shopping in terms of small businesses lost. He forecast that discounters and superstores will wipe out regional malls as well as Main Street America.
“I think consumerism is important as long as there’s a level playing field,” he said. “But I can look ahead 10 to 20 years and see that throughout the country there are going to be cemeteries — empty malls full of graffiti.”
Mega-retail growth is a trend that won’t stop anytime soon, Shils said, pointing to the current closing of the Woolworth’s stores and Montgomery Ward’s bankruptcy filing.
“The contagion has gone from small stores to fellow discount retail stores,” he said. “One day we may have just one retail store, and we’ll be standing in line like in Russia….And who’s to say that prices won’t rise?”

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