Is Big-Box Retail bad for the economy and free-market capitalism?


Over the past 25 years America has seen a transformation of our retail infrastructure go from mom-and-pop stores to big box stores.

Speaking for myself, I love the convenience of big box. And certainly the retail evolution that has led us to the big box model is understandable.

But that may not be the point, but instead, possibly, that the big box retail infrastructure represents:

  • a condensation of wealth that is prohibitive of a healthy economy where wealth is distributed to millions of moms and pops,
  • a destruction of a competitive labor pool, where good workers can bargain with their employers for better wages, or else go work for their employer’s competitor,
  • a destruction of a competitive goods and services environment where vendors and manufacturers are plentiful, each competing to access retailers supply chains.

———————————————————-
To illustrate these problems, imagine a small town with hardware stores. Back in the old days, there were probably 10 hardware stores, each with a different owner.

EXAMPLE 1 – imagine one of these hardware stores, such as Mayberry Hardware. The owner wants to sell wrenches. If there are thousands of different hardware stores around the country, then each owner will probably have slightly different wishes for what kind of wrenches they want to sell, and thus there will inevitably be dozens and dozens of wrench manufacturers around the country developing slight variations of the common wrench.

But if there is only one hardware company in the country (with thousands of stores), and that one hardware company chooses AmeriWrenches as its brand to sell at all of its stores, then the dozens and dozens of other wrench manufacturers will be unable to survive, and will go out of business. And all of its employees will have no choice but to go work at AmeriWrenches.


EXAMPLE 2 – imagine a worker, Little Joe, working at Bubba’s Hardware Store. Imagine that Little Joe is an amazing worker: he knows all the tools, all the construction projects around town, all the customers, all the vendors in the industry, all the tool manufacturers in the industry. But Bubba hasn’t given him a raise in 2 years. Little Joe requests a raise. Bubba refuses. But if there are lots of other hardware stores, Little Joe can go to one of them, such as Steve’s Hardware, and say, “Listen, Mr. Steve, I am great; if it weren’t for me, Bubba would go out of business; but he doesn’t pay me enough … hire me and I can bring my expertise to benefit your store.” In this scenario, we see that employees are in a natural, free market environment, using the principles of ‘competition’ to improve their own value.

However, if there is only one hardware store company in town that owns 10 individual stores around town, then Little Joe is not able to bargain on his own for better wages.

———————————————————-
It should be noted that these same problems occur when one national bank swallows up thousands of local banks, or when one large insurance company swallows up thousands of local insurance companies.




………………………………………………………………………………………………………………
………………………………………………………………………………………………………………

Advertisements

2 responses

  1. Large retail stores existing in locations where people must travel a long way by car are unsustainable. What are everyone going to do when oil runs out or becomes too expensive for travel to such locations? The large retail chains such as Tesco and Sainsbury in UK are building small stores in the community, they have woken up to the problem that large stores will suffer in the future.

  2. Additional comment. A large retail chain can saturate a community with a large number of outlets, but they will all be the same clone of the other. The competitor only has to differential themselves in their branding and service and can easily out-compete a large retail chain which is limited by its own inflexibility.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s