The Impact of the Retailing Revolution on Poverty

The survival of the fittest has always been a characteristic feature of retail trade, but it has already begun to gradually diminish. In the earlier decades, department stores used to drive small private shops out of business just to fall victim to big shopping malls and discount houses later. However, it was the emergence of the so-called category killers, i.e. big-box retail chains focused on selling of a limited number of merchandize categories, that sounded the death knell for many retail businesses. The rise of retail giants, such as Barnes & Noble, PetSmart, Circuit City and Wal-Mart, impregnated the retail interests with a feeling that the industry was drifting rudderless. These behemoths have had a profound, if not deleterious, effect on the consumer behavior in America. They changed economic and cultural landscape of the Occidental civilization in the first place, and then altered shopping patterns beyond recognition. In this context, it is not a rarity that opinions of some critics vibrate with indignation over the rise of the so-called mega-retailers, which make cities susceptible to urban blight and decimate competition in the industry. Nonetheless, it is patently obvious that these companies have liberalized the access of the consumers to an ever-growing catalog of commodities. Moreover, the advent of the Internet in the US has leveled the playing field for smaller retailers that do not have the wherewithal for the maintenance of the brick-and-mortar facilities. All in all, the benefits from the retail revolution have been recited so often that they have already taken on the aura of conventional wisdom. This paper traces the genesis of the retail revolution starting with the burgeoning of mail order firms, such as Sears, Roebuck & Company, in rural areas, and stretching to the era of online retailing, represented by such giants as eBay and Amazon.

 

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The retail revolution started in the late 19^th century, when Richard Sears, a telegraph operator, sold a batch of golden watches, thereby conducting the first distant commercial operation. Shortly after, Sears hired a watchmaker Hoosier Roebuck and the two started selling watches, jewelries and sewing machines (Emmet & Jeuck, 1950). When the first edition of the Sears catalog was released more than a century ago, it broke the stranglehold of local monopolists, improved the quality of goods, and contributed to the decrease in prices. This catalog helped thousands of small manufacturers and purveyors to modify their goods and get them onto the national market. The catalog delivered consumer commodities to the homes of those Americans who lived in the secluded and tucked-away provinces of the country. In the maelstrom of the World War I, the company delivered comestibles and other goods of first priority to the military hospitals in the hope of boosting the morale of the wounded infantrymen and demonstrating the boons of capitalism (Emmet & Jeuck, 1950). 

In 1893, Sears and Roebuck decided to step up their business activities in order to begin to sell a host of new items. The list of goods distributed by the company ran the gamut from shoes, clothes, ovens, pharmaceuticals, Stradivarius violins, furniture and agricultural equipment to beekeeping paraphernalia and piscatorial tackle. The volume of business constituted $388,000 that year and increased more than twofold from 1893 to 1896 (Emmet & Jeuck, 1950). By this time, the Sears catalog had grown to 558 pages, becoming an indispensable element of the American society (Emmet & Jeuck, 1950). Hordes of pubescent boys with a prurient interest in girls pored over those pages of the catalog that featured scantily clad women advertising dishabille. Moreover, old catalogs were used as lavatory paper. This all shows that the Sears catalog had both direct and indirect impact on the American culture and lifestyles.

In the late 19^th century, the majority of rural towns had only one general store. This was exactly the reason why shopkeepers overpriced the goods, even if they were of low quality. Initially, local residents frowned upon this practice, but bought the overpriced goods with tacit acquiescence anyway. However, people began to voice their discontent eventually, and this spawned numerous consumer movements. It was at this time that the National Grange of the Order of Patrons of Husbandry, an 800,000-strong agricultural advocacy group, sprang into existence (Ascoli, 2006). Its members remonstrated against the unseemly conduct of the mammonish shopkeepers and hailed the Sears catalog as a viable alternative to local shops. Sears and Roebuck purchased merchandise in great quantity, always driving a hard bargain both with the manufacturers and suppliers of goods. In 1895, Sears, Roebuck & Company declared a war against the nefarious schemers, trusts and associations that overpriced goods. It is interesting that a former Governor of Georgia Eugene Talmadge, prompted by desire to marshal public support and realize the growing influence of Sears, Roebuck & Company on the local farmers, claimed that “poor dirt farmers in Georgia had only three friends: God Almighty, Sears Roebuck, and Gene Talmadge” (Sullivan, 2010).

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Local retailers tried to countervail the influence of Sears, Roebuck & Company. To this end, they boycotted those newspapers that cooperated with the company and circulated ludicrous anti-Semitic canards about its owners. Shopkeepers in the provincial towns made a bonfire of the Sears catalogs in a forlorn effort to expel Sear and Roebuck from business (Ascoli, 2006). Nevertheless, the groundswell of support was in favor of the company. Moreover, after Julius Rosenwald had taken control of the company in 1895, he built up a loyal satisfied clientele for it. He took into account the influx of immigrants from abroad and tailored the catalog according to their needs by translating it into several languages (Ascoli, 2006). He revolutionized the company by linking its storehouses through an assembly line, thereby increasing the company’s productivity tenfold. In 1925, after Henry Ford had inundated the country with cars, Rosenwald began to open brick-and-mortar retail outlets, broadening the choices of the consumers. Sears, Roebuck & Company dominated the retail market in America for many years until the competition unhinged its financial situation in the 1970s (Ascoli, 2006).

One of the main events that provoked the destabilization of Sears, Roebuck & Company was the appearance of Wal-Mart on the national market. When Sam Walton opened the first retail shop under the name of Wal-Mart in Arkansas in 1962, this event meant a root-and-branch makeover of the retail industry. As of 2013, this American-based company had roughly 11,000 outlets and employed more than $2,2 million people around the world (Massengill, 2013). With its business indices surpassing those of ExxonMobil, General Electrics and General Motors, Wal-Mart Stores is one of the largest firms on the planet. It offers consumers a cornucopia of goods necessary for a comfortable daily life and enjoys an unparalleled leadership in the American retail sector. Its main competitor the Home Depot sells four times less than Wal-Mart.

Sam Walton revolutionized the retail industry in the way that he enabled an easier access of goods to the country’s remotest towns. Similarly, the expansion of the Wal-Mart chain entailed the creation of new jobs, thereby limiting the dependence of many people on precarious employment. Walton aspired to sell goods at a low price, but in big quantities. What is more important, the resounding success of Wal-Mart influenced the pricing polices of its competitors, as they needed to initiate radical reforms to vie with this retail giant. By the same token, the Walton family emphasized the importance of innovations as a means of reducing the price of the goods. In the 1990s, the company developed a large and very efficient logistics system and started employing iconoclastic methods of predicting consumer demand (Massengill, 2013). According to an independent study by McKinsey & Company, “Wal-Mart’s efficiency gains were the source of 25% of the entire U.S. economy’s productivity improvement from 1995 to 1999” (Blattberg & Allenby, 2010). All in all, the second half of the 20^th century held a great promise for the retail industry and the Walton family managed to husband this occasion as well as they could.

According to Lichtenstein (2013), “The Wal-Mart management both exercised control over the shop floor and enforced its will on employees who might protest”. The implementation of stringent control measures draws the ire of the employees, but it has been one of the reasons behind the company’s success. Similarly, Wal-Mart does not tolerate delays and demands that goods should be delivered to its outlets in strict conformity with a carefully planned schedule. Listening to customers has also been a traditional part of the company’s marketing mantra. However, its moderate pricing policy, described by the firm’s competitors as predatory policy, best explains Wal-Mart’s triumphant history. The company manages to keep its prices so low due to the fact that it transacts directly with manufacturers and pays comparatively low wages to its employees. According to the data promulgated by the AFL-CIO, less than half of Wal-Mart’s employees are insured under the company plan (Turman, 2006). In order to avoid a compulsory provision of medical insurances to the employees, Wal-Mart exploited a loophole in the law, which stipulates that the employees working less than 32 hours a week are not eligible for such an insurance package. As a result, a 200-person Wal-Mart store could require roughly $420,000 in tax dollars for employee assistance a year (Thomas, 2010). Judging by the highest standards, this strategy is something of a curate’s egg, with many of Wal-Mart’s auspicious innovations being belittled by the untoward effects of the firm’s policies. The alacrity with which Wal-Mart resorts to the chicaneries of the law has taken its toll on the American economy, but it has also conduced to the overall process of revolutionizing its retail industry.

Historically, the majority of unskilled Americans could occupy low-paid jobs and climb the ladder of success as they gained experience. The incomes of these workers increased and they gained access to better positions in the social pecking order. In the 1970s, this tendency started receding into the past, as compared to the previous decade. In the 1980s, the situation deteriorated even further because of the globalization processes, which caused the hemorrhage of industrial jobs in the US. Moreover, a series of technological breakthroughs that happened at this time enabled employers to augment labor productivity without increasing wages. Many clung to a diaphanous hope that the unprecedented growth of the American economy would help to revitalize this process (Massengill, 2013). However, notwithstanding the fact that the overwhelming majority of Americans started earning more and the number of educated people grew, the concept of the American dream failed. The so-called phenomenon of Wal-Martization, i.e. the homogenization of the retail sector because of Wal-Mart’s policies, is widely considered to be one of the main reasons behind this. According to Appelbaum, Bernhardt and Murnane (2006), “new technologies have allowed large retail chains such as Wal-Mart to reduce costs dramatically, thus driving out of business smaller retailers that provided relatively better jobs for high school educated workers”. They further argued that Wal-Martization had obliterated the middle class, despite the fact that it led to lower prices for consumer goods (Appelbaum, Bernhardt & Murnane, 2006).

In the 1980s, Wal-Mart exhorted its clients to buy commodities produced in the US, but took a sharp turn on this policy in a decade. Today, Wal-Mart sells 10% of all American exports from the People’s Republic of China (Massengill, 2013). The ever-growing presence of the Chinese goods in the American retail chains has a baleful impact on the domestic manufacturers and on the future of the retail industry in the country. Time and time again, the expansionist policies of Wal-Mart have been blamed for the spread of poverty (Massengill, 2013). There are fears in some quarters that the percentage of people applying for food stamps in those counties where Wal-Mart has its outlets is twice as much again as that in the counties free from Wal-Mart. It is a matter of fact that the appearance of Wal-Mart in a new area wreaks havoc on the competition there. Furthermore, it has a crippling effect on the representatives of other professions in this area, including accountants, jurists and transporters, who attend local retailers. John Dicker (2005) maintains that “Wal-Mart has become a global despot” capable of changing the rules of the game, altering shopping patterns, and even determining the fate of economies. On the whole, although Wal-Mart has been praised for revolutionizing the retail industry, its negative implications will reverberate through the economy for many years to come. For justice’s sake, it should be mentioned that Wal-Mart is constantly trying to keep abreast of the latest developments in the industry. It has been trying to further revolutionize the retail industry by employing radio frequency identification systems. Although this innovation is not as stupendous as the previous ones, it certainly shows that the company is to be reckoned with.

Meanwhile, the Internet has metamorphosed into a veritable hive of commercial activity. The fact that jewelries worth $2,1 billion are sold online every year assuages the fears of those people who are not still sure whether online trade is safe (Dubofsky, 2013). Indeed, the third wave of the retail revolution has turned online shopping into an everyday reality. It is interesting that online retail harks back to the early 1960s, when the American Airlines and IBM streamlined airplane ticket reservation procedures (Dubofsky, 2013). However, it was not until the 1990s that the electronic commerce truly came into play. Jeff Bezos’ Amazon was the first serious attempt to sell products via the Internet, and it reached fruition in 1995. Since that time, the number of online retail shops has been growing at an exponential rate. However, online retailers had also encountered another perplexing conundrum to which they had to find a way in order to facilitate the acceptance of electronic payment for online transactions. As a result, a number of e-commerce payment systems have been developed. In October 1999, Amazon became one of the most frequently visited websites on the Internet with 1,9 million log-ins every day and its client base increase to over one million customers (Cohen, 2009). As a result, Time magazine named Bezos a person of the year in 1999. Furthermore, when the so-called dot-com bubble exploded on the cusp of the 21st century, destroying many Internet-based companies in the process, Amazon managed to withstand the pressure and lingered on as one of the largest players in the market. The contribution of Jeff Bezos to the development of the online retail sector was as important as that of Tim Berners-Lee, who revolutionized electronic communication by inventing the World Wide Web.

Internet-based companies like Amazon and eBay have conquered a significant niche in the market because they offer goods at a moderate price and enable customers to save time. What is more important, with increasing ubiquity of the Internet, more and more people can try to emulate the example of Jeff Bezos. It does not take a lot of time or money to launch an online shop. Statistical agencies constantly report about the growing indices of the Internet-based business activity. The companies’ money turnover increases commensurately to the increase in the number of participants in the online retail market. Curiously enough, Amazon registered 158 orders per second in 2009 (Cohen, 2009). America’s online retail boom is a viable option due to the favorable conjunction of numerous factors, with the high rate of computer literacy among people being the most important for them.

The rise in online retail has been an overriding tendency of the retail industry for at least a decade. In 2002, Amazon sold only a $4 billion worth merchandize, while in 2011 this figure reached $48 billion, thereby increasing the share of online retailers in the country’s retail market to 10% (Dubofsky, 2013). Furthermore, Amazon’s revenues are bound to cross a 100-billion threshold in a few years. The invention of smartphones and trade applications as well as the unflagging popularity of social networks gave a powerful fillip to the development of online retail. However, of all the factors responsible for this boom, the possibility of browsing around the Internet, comparing prices on the different portals, stands out as the most important. The experience of Groupon, a deal-of-the-day website, featuring gift certificates that can be used at both local and national centers, has clearly showed that a low price is a cornerstone of success for retailers seeking to beckon customers (Dubofsky, 2013). Moreover, the enthusiasm of those making dubiety out of the feasibility of selling certain categories of goods, such as foodstuffs and apparel, online has broken against the recent developments in the sphere.