Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-13T10:48:02.209Z Has data issue: false hasContentIssue false
  • English
  • Français

“The Only Way Is Up”: Overoptimism and the Demise of the American Five-and-Dime Store, 1914–1941

Published online by Cambridge University Press:  10 May 2017

Peter Scott  and
James T. Walker
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine a classic “wheel of retailing” episode: the abandonment of the five-and-dime pricing formula by American variety chains. The variety chains switched from a conventional product lifecycle, focusing on cost reduction through standardization, to a reverse path up the “service cost–unit value” continuum. We show that, rather than reflecting deteriorating managerial acumen, this shift was a response to the continued imperative for growth following retail format saturation. Firm-specific (rather than format-specific) competitive advantages were too weak for any chain to be confident it could win a within-format price war, making interformat competition through raising price points more attractive.

Type
Research Article
Information
Business History Review , Volume 91 , Issue 1 , Spring 2017 , pp. 71 - 103
Copyright
Copyright © The President and Fellows of Harvard College 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 McNair, M. P., “Trends in Large-Scale Retailing,” Harvard Business Review 10 (1931): 30–39 Google Scholar; McNair, M. P., “Significant Trends and Developments in the Postwar Period,” in Competitive Distribution in a Free, High-Level Economy and Its Implications for the University, ed. Smith, A. B. (Pittsburgh, 1958), 17–18 Google Scholar.

2 Brown, Stephen, “The Wheel of Retailing: Past and Future,” Journal of Retailing 66, no. 2 (1990): 144–46Google Scholar.

3 For a brief review of this literature, see Brown, Stephen, “Variations on a Marketing Enigma: The Wheel of Retailing Theory,” Journal of Marketing Management 7, no. 2 (1991): 134Google Scholar. See also Massad, Victor J., Nein, Mary Beth, and Tucker, Joanne M., “The Wheel of Retailing Revisited: Toward a ‘Wheel of e-Tailing?’” Journal of Management and Marketing Research 8 (Sept. 2011): 1–11 Google Scholar.

4 Hollander, Stanley C., “The Wheel of Retailing,” Journal of Marketing 25, no. 1 (1960): 38Google Scholar; McNair, “Trends in Large-Scale Retailing,” 39.

5 Brown, “Variations on a Marketing Enigma,” 144.

6 Davidson, William R., Bates, Albert D., and Bass, Stephen J., “The Retail Lifecycle,” Harvard Business Review, 54 (1976): 89–96 Google Scholar.

7 Brown, “Variations on a Marketing Enigma,” 137.

8 Savitt, Ronald, “Innovation in American Retailing, 1919–39: Improving Inventory Management,” International Review of Retail, Distribution, and Consumer Research 9, no. 3 (1999): 311Google Scholar; Howard, Vicki, From Main Street to Mall: The Rise and Fall of the American Department Store (Philadelphia, 2015), 5–6 Google Scholar.

9 Darby, W. D., Story of the Chain Store (New York, 1928), 129Google Scholar.

10 John D. Nichols, “Milestones of Woolworth,” typescript, 1948, part 1, pp. 3–7, Earle P. Charlton family papers, Claire T. Carney Library Archives, University of Massachusetts Dartmouth (hereafter, Charlton Papers).

11 F. W. Woolworth, memorandum to officers, office managers, buyers, inspectors, and store managers of F. W. Woolworth Co. on history of 5 and 10c stores, 27 Feb. 1912, pp. 4–5, business box 8, Woolworths Archive, National Building Museum, Washington, D.C. (hereafter Woolworths Archive).

12 Ibid., 5.

13 Dixon, Mark G., “Stephenson, William Laurence (1880–1963), Chain Store Chairman,” in Dictionary of Business Biography, vol. 5, ed. Jeremy, David (London, 1986), 303Google Scholar.

14 Phillips, Charles F., “A History of the F. W. Woolworth Company,” Harvard Business Review 13 (1935): 235Google Scholar.

15 Teele, S. F., “Expenses and Profits of Limited Price Variety Chains in 1937,” Harvard Bureau of Business Research Bulletin, no. 107 (1938): 9Google Scholar.

16 Raucher, Alan R., “Dime Store Chains: The Making of Organization Men, 1880–1940,” Business History Review 65, no. 1 (1991): 136–37Google Scholar.

17 Kresge, Stanley S. and Spilos, Steve, The S. S. Kresge Story (Racine, Wisc., 1979), 52–53 Google Scholar.

18 “Kresge's Golden Anniversary Year 1899–1949,” privately published booklet, 1949, roll 1, pp. 101–4, S. S. Kresge papers, Bentley Historical Library, University of Michigan, [hereafter Kresge papers]; “Kresge Achievement 1899–1949,” Chain Store Age, June 1949, 7–8; Kresge and Spilos, The S. S. Kresge Story, 3–5.

19 Woolworth, F. W., quoted in Winkler, John K., Five and Ten: The Fabulous Life of F. W. Woolworth (New York, 1940), 109–10Google Scholar.

20 Winkler, Five and Ten, 124.

21 Nichols, “Milestones of Woolworth,” part 15, 2–4.

22 Raucher, “Dime Store Chains,” 140.

23 Nichols, “Milestones of Woolworth,” part 3, 23.

24 Winkler, Five and Ten, 213.

25 Raucher, “Dime Store Chains,” 131.

26 Ibid., 139–44.

27 Nichols, “Milestones of Woolworth,” part 15, 1–2.

28 Raucher, “Dime Store Chains,” 139.

29 Ibid., 144.

30 For a discussion of these costs, see Tedlow, Richard S., New and Improved: The Story of Mass Marketing in America (Oxford, 1990), 209–13Google Scholar.

31 Teele, S. F., “Expenses and Profits of Limited Price Variety Chains in 1935,” Harvard Bureau of Business Research Bulletin, no. 103 (1936): 6Google Scholar.

32 Phillips, “History of the F. W. Woolworth Company,” 235.

33 Raucher, “Dime Store Chains,” 133–34; “Record of the 5 and 10 Stores' Growth,” unsigned statistical sheets, Jan. 1949, roll 1, pp. 110–33, Kresge papers.

34 Raucher, “Dime Store Chains,” 134; undated worksheet, variety chain study, Arch E75.A15, case 2, 1934 file, Harvard Bureau of Business Research, Bureau of Business Research Records, Baker Library Historical Collections, Harvard Business School; Thomas, B. L., America's 5 & 10 Cent Stores: The Kress Legacy (New York, 1997), 5Google Scholar.

35 Nichols, “Milestones of Woolworth,” part 2, 36; Woolworth, memorandum, 27 Feb. 1912, 2, Woolworths Archive.

36 Phillips, “History of the F. W. Woolworth Company,” 233.

37 Ibid., 233–34.

38 Pigeon, Mary Elizabeth, “Women in 5- and 10-Cent Stores and Limited-Price Chain Department Stores,” Bulletin of the Women's Bureau, no. 76 (1930): 2Google Scholar.

39 Hayward, W. S. and White, P., Chain Stores: Their Management and Operation, 3rd ed. (New York, 1928), 530Google Scholar.

40 Kresge, S., “What Kept Our Business Growing through 1921,” System 41, no. 4 (1922), 55Google Scholar, copy, roll 2, p. 22, Kresge papers; Anderson-Morrell Associates, “The Variety Chains Store Group,” industry review and forecast, 12 May 1937, roll 2, 54–71, Kresge papers.

41 Howard, From Main Street to Mall, 73–77.

42 Savitt, “Innovation in American Retailing,” 307–20; Howard, From Main Street to Mall, 94.

43 Nichols, “Milestones of Woolworth,” part 2, 33–34.

44 Thomas, America's 5 & 10 Cent Stores, 4–5.

45 Ibid., 7.

46 Nichols, “Milestones of Woolworth,” part 11, 1.

47 A. M. Michener, “The Chain Store Enters the Grocery Field,” Commerce Monthly 10 (Dec. 1928), cited in Tedlow, New and Improved, 236.

48 Phillips, “History of the F. W. Woolworth Company,” 232.

49 Ibid., 225; Robert C. Kirkwood, The Woolworth Story at Home and Abroad (New York, 1960), 10.

50 Burnham, E. A., “Expenses and Profits of Limited Price Variety Chains in 1939,” Harvard Bureau of Business Research Bulletin, no. 112 (1940): 6Google Scholar.

51 McNair, M. P., “Expenses and Profits of Variety Chains in 1932,” Harvard Bureau of Business Research Bulletin, no. 93 (1934): 14–18 Google Scholar.

52 See Curry, Mary Elizabeth, Creating an American Institution: The Merchandising Genius of J. C. Penney (New York, 1993)Google Scholar.

53 Raucher, “Dime Store Chains,” 147.

54 R. G. Forshee to all stores, “Non-Prospects,” letter, 22 Oct. 1935, roll 6, 1935 Letters, p. 122, Kresge papers.

55 Raucher, “Dime Store Chains,” 131.

56 Ibid., 161; Perkins, John and Freedman, Craig, “Organisational Form and Retailing Development: The Department and the Chain Store, 1860–1940,” Service Industries Journal 19, no. 4 (1999): 135Google Scholar.

57 Woolworths U.K., executive committee minutes, 1926–1939 (held by the Shop Direct Group at the time of this research). These minutes are now available at AD1/2/1-4, F. W. Woolworth & Co. Archive, University or Reading Museums and Special Collections Service, Reading,

58 Richard A. Hawkins, “The Influence of American Retailing Innovation in Britain: A Case Study of F. W. Woolworth & Co., 1909–82,” CHARM (2009): 124; Pitrone, Jean Maddern, F. W. Woolworth and the American Five and Dime: A Social History (Jefferson, N.C., 2003), 93Google Scholar.

59 Teele, S. F., “Expenses and Profits of Limited Price Variety Chains in 1938,” Harvard Bureau of Business Research Bulletin, no. 110 (1939)Google Scholar: 5, 8; Burnham, E. A., “Expenses and Profits of Limited Price Variety Chains in 1942,” Harvard Bureau of Business Research Bulletin, no. 118 (1943): 32–33 Google Scholar. Net operating profit is calculated before income from real estate operations, interest on net worth, and other nontrading revenue.

60 Raucher, “Dime Store Chains,” 148.

61 Ibid., 147; Merrill Lynch & Co., Chain Store Statistics, June 1939, 17–18.

62 McNair, M. P., “Expenses and Profits of Limited Price Variety Chains in 1936,” Harvard Bureau of Business Research Bulletin, no. 105 (1937): 24Google Scholar.

63 Wolf, Gillian, “Kmart Corporation,” in International Directory of Company Histories, vol. 5, ed. Hast, Adele (Detroit, 1992), 110Google Scholar.

64 Anderson-Morrell Associates, “Variety Chains Store Group,” roll 2, 55, Kresge papers.

65 Togyer, Jason, For the Love of Murphy's: The Behind-the-Counter Story of a Great American Retailer (University Park, Penn., 2008), 29–33 Google Scholar.

66 Wolf, “Kmart Corporation,” 110.

67 “Kresge's Golden Anniversary Year 1899–1949” roll 1, 101–4, Kresge papers; “Kresge Achievement 1899–1949,” Chain Store Age, 9–10.

68 H. I. Burch, “Salesmanship: Needed to Sell Higher Priced Merchandise,” note to 25c to $1.00 stores, 29 Feb. 1932, roll 6, pp. 77, Kresge papers (emphasis in original).

69 Ibid.

70 Darby, Story of the Chain Store, 23–24; McNair, M. P. and May, E. G., “The American Department Store, 1920–1960: A Performance Analysis Based on the Harvard Reports,” Harvard Bureau of Business Research Bulletin, 166 (1963), 8Google Scholar.

71 Scott, Peter and Walker, James, “Sales and Advertising Expenditure for Interwar American Department Stores,” Journal of Economic History 71, no. 1 (2011): 50–51 CrossRefGoogle Scholar; Scott, Peter and Walker, James, “The British ‘Failure’ That Never Was? The Anglo-American ‘Productivity Gap’ in Large-Scale Interwar Retailing—Evidence from the Department Store Sector,” Economic History Review 65, no. 1 (2012): 294Google Scholar.

72 McNair, “Expenses and Profits in 1932,” 1–7.

73 Savitt, “Innovation in American Retailing,” 311.

74 Teele, “Expenses and Profits in 1937,” 9–10.

75 John Guernsey, Retailing Tomorrow (New York, 1929), 56.

76 On department stores' use of personal selling see S. P. Benson, Counter Cultures: Saleswomen, Managers, and Customers in American Department Stores, 1890–1940 (Urbana, Ill., 1988), 286–87; Elvins, Sarah, Sales and Celebrations: Retailing and Regional Identity in Western New York State, 1920–1940 (Athens, Ohio, 2004), 25–26 Google Scholar.

77 C. E. Holzworth, report of superintendents' convention, Chicago District Office, 28–29 Mar. 1932, roll 6, p. 239, Kresge papers.

78 R. G. Forshee, “Increases by Suggestive Selling,” note to managers, 12 Sept. 1935, roll 6, p. 106, Kresge papers.

79 R. G. Forshee to all ten cent stores, “Knowing the Fashions,” letter, 4 June 1936, roll 6, 1936 Letters, p. 63, Kresge papers.

80 W. F. Johnson, “Increase Sales by Suggestion,” note to all stores, n.d. [ca. Sept. 1935], roll 6, p. 112, Kresge papers.

81 G.C. Murphy Co., Suggestive Selling, booklet (1929), cited in Togyer, For the Love of Murphy's, 68. See also Togyer, For the Love of Murphy's, 54–55.

82 W.T. Grant Co., Manual for Saleswomen (1934), 11.

83 C. E. Holzworth to all stores, “Whispering Campaign,” general letter, 20 Oct. 1936, roll 6, 1936 Letters, p. 154, Kresge papers.

84 J. L. Pickering to all 5–10–25 cent stores, “Sales Resistance,” general letter, 21 May 1935, roll 6, pp. 49–50, Kresge papers.

85 Raucher, “Dime Store Chains,” 150.

86 McNair, “Expenses and Profits in 1936,” 5.

87 Ibid. 5.

88 Winkler, Five and Ten, 240.

89 See Klepper, Steven, “Entry, Exit, Growth, and Innovation over the Product Life Cycle,” American Economic Review 86, no. 3 (1996): 562–83Google Scholar.

90 Farjoun, Moshe, “Beyond Dualism: Stability and Change as a Duality,” Academy of Management Review 35, no. 2 (2010): 202–22Google Scholar; Klarner, Patricia and Raisch, Sebastian, “Move to the Beat: Rhythms of Change and Firm Performance,” Academy of Management Journal 56, no. 1 (2013): 160–84Google Scholar.

91 Dierickx, Ingemar and Cool, Karel, “Asset Stock Accumulation and Sustainability of Competitive Advantage,” Management Science 35, no. 12 (1989): 1504–11CrossRefGoogle Scholar; Penrose, Edith T., The Theory of the Growth of the Firm (New York, 1959)Google Scholar.

92 Leonard-Barton, Dorothy, “Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development,” Strategic Management Journal 13, no. S1 (1992): 111–25CrossRefGoogle Scholar; Teece, David J., Pisano, Gary, and Shuen, Amy, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18, no. 7 (1997): 509–33Google Scholar.

93 Porter, Michael E., The Competitive Advantage of Nations (New York, 1985)Google Scholar.

94 Hashai, Niron, “Within-Industry Diversification and Firm Performance: An S-shaped Hypothesis,” Strategic Management Journal 36, no. 9 (2015): 1378–400Google Scholar; Rawley, Evan, “Diversification, Coordination Costs, and Organizational Rigidity: Evidence from Microdata,” Strategic Management Journal 31, no. 8 (2010): 873–91Google Scholar; Cottrell, Tom and Nault, Barrie R., “Product Variety and Firm Survival in the Microcomputer Software Industry,” Strategic Management Journal 25, no. 10 (2004): 1005–25Google Scholar; Sorenson, Olav, “Letting the Market Work for You: An Evolutionary Perspective on Product Strategy,” Strategic Management Journal 21, no. 5 (2000): 577–92Google Scholar; Zhou, Yue M., “Synergy, Coordination Costs and Diversification Choices,” Strategic Management Journal 32, no. 6 (2011): 624–39Google Scholar; Eggers, J. P., “All Experience Is Not Created Equal: Learning, Adapting, and Focusing in Product Portfolio Management,” Strategic Management Journal 33, no. 3 (2012): 315–35Google Scholar.

95 McNair, “Expenses and Profits in 1932,” 2–6; Burnham, “Expenses and Profits in 1939,” 13; McNair, “Expenses and Profits in 1936,” 1.

96 McNair, “Expenses and Profits in 1936,” 6.

97 Teele, “Expenses and Profits in 1935,” 5.

98 Teele, S. F., “Expenses and Profits of Limited Price Variety Chains in 1934,” Harvard Bureau of Business Research Bulletin, no. 98 (1935): 7Google Scholar.

99 Ibid., 28.

100 This was partly offset by lower tenancy costs, reflecting the limited purchasing power of small communities. Where properties were owned by the chain, the rental element of tenancy costs was based on an estimated market rental. Burnham, E. A., “Expenses and Profits of Limited Price Variety Chains in 1940,” Harvard Bureau of Business Research Bulletin, no. 114 (June 1941): 10Google Scholar; Teele, “Expenses and Profits in 1938,” 15–16, 25.

101 Teele, “Expenses and Profits in 1935,” 15. The surveys' definition of gross margin involved subtracting cash and other discounts from merchandise costs—thus increasing the gross margin by the amount of the discounts. Meanwhile, inward transportation costs were added to the net cost of merchandise sold (thus reducing gross margins by at least 2.5 percentage points). This procedure ensured comparability with the HBBR surveys for other types of retailers. Teele, “Expenses and Profits in 1934,” 9.

102 McNair, M. P., “Expenses and Profits of Variety Chains in 1933,” Harvard Bureau of Business Research Bulletin, no. 95 (1934): 7Google Scholar.

103 Teele, “Expenses and Profits in 1938,” 16; Burnham, E. A., “Expenses and Profits of Limited Price Variety Chains in 1940,” Harvard Bureau of Business Research Bulletin, no. 114 (June 1941): 19Google Scholar.

104 Dollar stores' performance was much better when measured using net gain as a proportion of net worth (invested capital). However, this was noted to be a problematic indicator, substantially influenced by the proportion of stores the firm owned, rather than rented. Burnham, “Expenses and Profits in 1940,” 33–34. Meanwhile net gain/sales ratios corroborated the findings for net margins: that low price ceilings produced higher profit rates.

105 Net incomes to sales ratios over 1929–1938 averaged 3.76 percent for Grant, 3.89 percent for McLellan (available only for 1919–1931 and 1935–1938, owing to receivership), 5.84 percent for Murphy, 6.92 percent for Kresge, and 6.99 percent for Kress. Merrill Lynch & Co., Chain Store Statistics, 9, 11, 13–14, 17–18, 21, 23–25. Data for Woolworths are more problematic, owing to the presence of foreign subsidiaries, though an estimate for 1932–1936 gives an average ratio of 10.52 percent over these years. Anderson-Morrell Associates, “Variety Chain Store Group,” roll 2, 68–70, Kresge papers.

106 These include a full set of fixed effects, which may also indirectly capture firm- and store-level factors and other unobservable elements. We also include year effects to capture economy-wide exogenous impacts specific to any given year.

107 Based on annual report data on sales from 1908 (or the earliest available year thereafter) to 1940. “Record of the 5 and 10 Stores' Growth,” 110–33, Kresge papers.

108 McNair, “Trends in Large-Scale Retailing,” 30–39; McNair, “Significant Trends and Developments,” 17–18.

109 Tedlow, New and Improved, 236–46.

110 For discussions of the importance of aggregate sales growth as a key goal for chain stores, see Darby, Story of the Chain Store, 125; and G.C. Murphy Co., Merchandising: The G. C. Murphy Company's Policies and Practices (1929), 47.