Cheap (8 page)

The supermarket model of self-service was not new in 1960. What was new was how rapidly the discount format proliferated and dominated the general merchandise sector. Almost overnight discounters reversed the venerable retailing practice of offering customers precisely what they wanted. Rather, discounters offered customers what was available at the lowest possible price and positioned these goods in such a way—both physically and psychologically—as to convince customers they were getting the very best deal. The focus switched from the object to the deal: If the deal was good, the object under consideration became less critical to the transaction. Nearly half a century earlier, Frank W. Woolworth had set the stage for this parlor trick when he scoured the globe for almost anything cheap: hair ribbons, buttons, and poorly made wood-backed thermometers. Fifty years later the country had changed dramatically. Far fewer Americans lived on farms, and the great exodus from cities to suburbs was well under way. Advertising had transformed citizens into consumers, persuading them that wants were needs. But the discounting formula remained the same: Sell it cheap, buy it cheaper, and convince consumers that low price trumps all. A full-page 1960 advertisement placed by the long-defunct Des Moines Shoppers World Discount Department Store promotes its 36-inch dolls at $8.97, its transistor radios at $9.88, its bulky Orlon sweaters at $3.67, and 2-pound fruit cakes at 88 cents, but offers not a clue to the brand or provenance of these items. This motley assortment of merchandise seems almost flea market random, and it may well have been. The one constant is low price. As two business scholars of the time wrote, “Merchandising emphasis was predominantly on items that could be bought under exceptionally favorable circumstances, rather than upon planned assortments.”

Planned assortments tailored toward the needs and desires of a particular clientele were a luxury that discounters could not afford. They could not have merchandise on the shelf that didn’t turn over quickly, and they could not afford to buy small lots from wholesalers. Retailing theorists agree that 5 to 8 percent of items in any given product line generate about 90 percent of sales. The remaining 92 to 95 percent of the items are essentially specialty goods, there for some customers but not for all. These specialty goods sell far less quickly, yet item for item they take up as much shelf space as fast sellers and also tie up capital for much longer periods of time. Slow sellers can languish, go stale, out of season, or out of style. Discount chains eliminated as many as possible of these slow performers and stocked what amounted to the lowest common denominator of products—essentially what most people sought or could be persuaded to buy most of the time. As one observer put it, “Instead of the traditional department store motto of ‘Thick on the best, thin on the rest,’ the discount operator says, ‘Thick on the best, to hell with the rest.’ ”

What this means to customers even today is that a trip to a discount store often begins with high hopes, moves on to a frustrated search, and ends happily in a surprising number of unanticipated purchases. The paradoxical coupling of frustrated customers and expanded profit is perhaps unique to the discount model, but the logic behind it is not complex. While almost all customers require commodities such as soap, socks, and laundry detergent—making those things consistent sellers—most shoppers also require one or another of tens of thousands of other items that other shoppers do not need or want. Take sporting goods: Many people participate in sports but not necessarily any particular sport. So the market for sporting goods is fragmented; some people want soft-balls, others need fishing gear, while still others want ice skates or surf-boards. Different sports enthusiasts prefer different brands. Stocking any one of these items, and certainly any particular brand of one of these items, is risky, because not everyone needs or wants it. Therefore, large discount department stores are far less likely to carry any particular brand of football or softball or tennis ball than they are to carry store brands, off brands, or the low end of a national brand line. But this lack of variety does not necessarily interfere with a discounter’s sales volume. Customers tend not to window-shop their way through discount stores as they do in traditional department stores. They go to buy. If they can’t find what they are looking for, they’ll pick up what is available—if not tennis balls for themselves, then maybe a jump rope and football for their kids. And while they are at it, maybe some diapers, laundry detergent, and a couple of cans of motor oil.

 

 

 

HALF A
CENTURY
AGO when gas cost $4 a tankful, discount stores were seen through unjaded eyes as 65,000 to 120,000 square feet of possibility within a 50-cent Saturday morning drive. Discount customers liked not having to cope with a daunting array of high-end merchandise and stuck-up salesclerks. And there was comfort in the idea that shopping no longer required a wardrobe. Those who can remember the sixties may recall getting dressed up to go downtown; some older women even wore hats and gloves. Discount customers could—and did—wear anything they chose. On Friday night Dad could come straight from work, no matter his work clothes, and Mom could bring her toddlers dressed for bed in their feet pajamas. This working family could afford to buy more and with confidence because the choice—based on price—had already been made for them. Adding to these advantages was that the discount mall offered a glimmer of novelty, even a carnival atmosphere with maybe a balloon stand or a hot dog vendor. Sometimes there were raffles, and occasionally there were even bigger surprises: When Consumer Mart of America opened a 132,000-square-foot store in Phoenix, Arizona, it staged a personal appearance by sex goddess Jayne Mansfield. “The discount store’s growth is not so much due to its prices,” speculated an industrial designer of the time, “as to its fireworks.” There was a grain of truth to this, but only a grain. Pyrotechnics might draw customers initially, but the low prices kept them coming.

The impact of the low-price juggernaut in the post-Sputnik era is difficult to overstate. Discounters shuffled the American demographic, abetting the further decline of already troubled city centers by luring still more customers to the suburbs and beyond. Department stores had for some time felt the pinch of urban flight, but many could at least rely on their suburban branches to sputter some revenue back into their city locations. Typically, these suburban stores were expensively constructed and carried merchandise priced at least as high as downtown stores. Discounters undercut prices at both the urban and suburban locations, and choked off the money flow. And discounters were promiscuous, carrying anything that could be bought cheap and sold in large lots. Increasingly these things were made outside the country’s borders.

Discounters leaped at every opportunity to buy from foreign suppliers, particularly in Asia. In 1965 the United States ran its first postwar trade deficit with Japan. The deficit was small, only $334 million, and largely traceable to the importation of cheap goods, primarily low-quality steel targeted at the bottom tier of the American steel market. The remaining imports were also on the low end of the quality spectrum: transistor radios, portable black-and-white televisions, fabrics, toys, clothing, and glass products—things that customers might trip over in those flea market collections at Shoppers World in Des Moines. While some domestic producers complained of unfair competition, there was no overriding concern that these imports posed a real and sustained threat to American business interests or job security. Rather, these flimsy, cheap imports were considered a validation of the widely held view that Japan was far behind the United States in manufacturing sophistication and business savvy. Labor unions were surprisingly sanguine. Confident of the superiority of American products, United Steelworkers Union president David McDonald actually approved of the importation of steel from Japan. Years earlier he had testified before Congress, saying, “If I had the slightest feeling that increased trade, particularly imports, would be injurious to the American working man, I wouldn’t be supporting a policy of trade liberalization.” McDonald could not imagine that Japanese imports might pose a threat to his constituency.

But even a tinny-sounding radio is a radio, after all, and American teenagers were happy to put up with static for the opportunity to enjoy the Beatles in private rather than huddle with their parents around a bulky American-made vacuum tube set. Gradually, America grew accustomed to the compromises embedded in low price and showed a growing willingness to trade cost for quality. This trend toward “value” (often a thinly disguised euphemism for cheap) gave discounters of the 1960s a substantial edge over traditional stores, where product quality and service were integral to the business model. And it gave low-wage manufacturers a huge edge over high-wage manufacturers unprepared to compete on price. But this was not—as it is often portrayed—a sudden titanic clash of first- and third-world manufacturers, with workers getting crushed in between. American corporations were by then deeply invested abroad and had factories scattered throughout the developing world and Europe. The line between American-made and other goods was already smudged. Essentially, many American firms were already multinational, and so-called Buy American appeals, some bordering on the jingoistic, were more often than not an attempt to blur this inescapable reality. Speaking at a meeting of the AFL-CIO in 1961, United Textile Workers Union President George Baldanzi worried about what this trend would mean to American workers. “When there are all these corporate interests . . . investing billions of dollars in the Common Market of Europe that are establishing plants that are more modern than our own today, unless we get some safeguard against wholesale importation into this country, there is no guarantee that in five years from now these same automated factories that are being built by American capital in many parts of the world that are using slave labor, that they will not curtail operations in this country and dump all the cheap goods right back here in the United States.” Baldanzi’s concern was well founded; five years later, in 1966, U.S-based corporations employed nearly one-third of their workforce overseas, many of them in low-wage industries that pumped out low-grade products—Orlon sweaters! eighty-eight-cent fruitcakes!—for the discount trade.

In 1962,
Fortune
magazine ran a four-part series entitled “The Distribution Upheaval,” describing in some detail the growing dominance of the discount sector and its overwhelming and potentially disturbing influence on American life. More than three thousand discounters—both individual stores and chains—were in operation at the time, totaling 40 million square feet of floor space and with combined sales topping $6 billion, accounting for more than a third of all department store sales. The larger discounters were now competing not just with full-price department stores but with one another. Kmart, Wal-Mart, Zayre, and Target feverishly grew their assortment of merchandise and achieved unheard-of economies of scale, enhanced by “lean retailing” techniques that were soon to become a hallmark of the discount trade and, eventually, of most American business. Successful merchants have always been known to tailor their offerings to their most loyal customers, but lean retailers refined and enlarged this concept, making all their stores consistently responsive across a diverse range of products. Such precision required a fluid adjustment of inventory to the ebb and flow of consumer demand. Since discount chains had little personal knowledge of their customer base, they relied heavily on technology—optical scanning devices and computers—to track products from factory to warehouse to distribution center to individual store and every stop along the way. Accomplishing this required a precision operation bordering on the militaristic. Typically on Sunday evenings, information was gathered from each store on desired products—ncluding size, style, model, and color—and reorders transmitted to the appropriate supplier. The supplier sent out the items the next day in containers tagged for scanning at the buyer’s distribution center where it was unloaded and routed to a truck for delivery to the designated store. To maintain efficiencies across their supply chains, discounters required that suppliers tag their products at the factory or warehouse, thereby pulling manufacturers and wholesalers—some kicking and screaming—into the stark new computer age. This just-in-time model reduced the problem of languishing inventory. It also meant that manufacturers had to play by the retailers’ rules, limiting their production to items that discounters could sell at low prices and in vast volumes. Options for both manufacturers and consumers narrowed: Manufacturers had much less discretion in what they could produce or how they could produce it, and consumers, although treated to what seemed like an ever-expanding variety of merchandise, were in fact being offered less variety and more variations on a theme.

 

 

 

THE AMERICAN clothing market reflected those changes then as it does today. Peter Doeringer, a professor of economics at Boston University and an expert on global textile and garment markets, said that the culture of mass consumption sharply influenced the variety and quality of goods. “Ninety percent of Americans buy clothing from a limited array of mass marketers, and spend a smaller percentage of their income on clothing than consumers in most other developed countries,” he said. “They tend to buy more clothes at lower prices. If your marketing strategy is low price, standardization is key.” Which means, Doeringer said, that selection is narrowly limited to styles that can be produced quickly and easily. Technically, the quality of the clothing is high: Patterns match, the seams are tight, and there is little color variation from lot to lot. What is sacrificed is drape, feel, and design. “Mass manufacturers tend to stick with durable fabrics, simple patterns, and much less style,” he said. “Advertisers created an image that people accepted: a less stylish image that leant itself to standardization. Consumers were actually marketed away from style and induced and seduced with low price.”