Corporate Research E-Letter No. 54, July-August 2005
FIGHTING CHAIN STORES PAST AND PRESENT:
THE ROOTS OF THE CAMPAIGN AGAINST WAL-MART
By Philip Mattera
Over the past year, there has been an extraordinary mobilization of energy and resources devoted to challenging the economic and political muscle of a single company: Wal-Mart Stores, the retailing behemoth that now reigns as the largest corporation in the world. Not one but several campaigns are now working exclusively on this target.
Wal-Mart Watch was launched in April 2005 to serve as “a catalyst for coordinated action and a unifying voice to counter Wal-Mart’s multi-million dollar media and public relations blitz.” Wake Up Wal-Mart calls itself “a vehicle through which millions of Americans can join together, from neighborhoods all across our nation, to harness the power of our consumer behavior and use it to reform…America’s largest corporation.” Just recently, the Wal-Mart Alliance for Reform Now was created as “a coalition of individuals, community organizations, labor unions, neighborhood associations, immigrant alliances, civil rights groups, women’s organizations, environmental groups, and consumer groups [that] provides the voice for citizens to force Wal-Mart to be accountable to community standards and values.” Other organizations such as the AFL-CIO have also launched special Wal-Mart initiatives.
While it may be unprecedented to have so much focus on reforming a single company, the mounting of a challenge to large-scale corporate retailing has been seen before in U.S. history. In fact, it was exactly 75 years ago that an eruption of protest against Wal-Mart’s forerunners reached its zenith. Looking back at the anti-chain store movement of the late 1920s and 1930s provides some remarkable historical parallels and may prove valuable to today’s campaigners.
“MASS DISTRIBUTION FOR MASS PRODUCTION”
Chain stores date back to the 19th Century. George Huntington Hartford opened the first outlet of the Great Atlantic & Pacific Tea Company (or A&P) in Manhattan in 1859. He soon widened his offerings to coffee and spices and later a full line of groceries. Frank Woolworth began his string of variety stores selling items priced at five or ten cents in the 1870s. Yet it was not until the early 20th Century that these and other chains reached a significant size. After World War I they began growing more rapidly, and during the 1920s they multiplied as never before.
At the start of that decade, the 20 leading chains had fewer than 10,000 stores. By the end of the decade, they had more than 37,000. A&P, the leader in the grocery segment, jumped from about 4,500 to more than 15,000. In apparel, J.C. Penney went from about 300 to more than 1,400. And in the drugstore sector, Walgreen’s leaped from 23 to 440. The impact in market share terms was most dramatic in groceries. By 1929, A&P and competitors such as Kroger and Safeway had captured nearly 40 percent of the market.
In rhetoric echoed today by Wal-Mart and its defenders, the chains argued that they were efficient providers of low-priced goods for the masses, thus helping to generate unprecedented prosperity. Likening themselves to the big manufacturers such as Ford Motor, they promoted the theme “mass distribution for mass production.” The large retailers created a trade group, the National Chain Store Association, to be their advocate, and a magazine called Chain Store Age (still published today) was founded to chronicle their achievements.
Not everyone, however, was celebrating the chain takeover of retailing. Local merchants, of course, were threatened by the trend, and many of them spoke out. Echoing the protests that had accompanied the rise of the big mail-order houses—Sears, Roebuck and Montgomery Ward—several decades earlier, independent retailers charged that the chains were undermining the tradition of Main Street American life. Using predatory pricing, they said, the chains were destroying smaller businesses that were integral to the local community.
INDEPENDENTS PLAY HARDBALL
Independents didn’t limit their campaign to emotional appeals. Their trade associations, especially the National Association of Retail Grocers and the National Association of Retail Druggists, played hardball, arguing that the chains defrauded consumers with short weights and shoddy merchandise. They also charged that the big retailers used bait-and-switch tactics and raised prices after capturing a local market. Just as Wal-Mart is today accused of draining revenues from local communities, the chains of the 1920s were denounced for transferring profits to distant headquarters and for enriching big Eastern banks in the process.
The independent retailers soon found themselves supported by a hodgepodge of organizations and prominent individuals similarly concerned about the growing power of the chains. These sympathizers included both farmers and labor unions, African-American leaders and the Ku Klux Klan. The Klan feared that the chains were undermining white communities with outside influences, while A. Philip Randolph, founder of the Brotherhood of Sleeping Car Porters, argued that the weakening of small business was bad for the economic advancement of blacks. Farmers were worried that powerful grocery chains could force down agricultural prices, while unions criticized long hours and low wages in chain stores. In other points echoed in today’s Wal-Mart controversy, unions warned that the market power of chains allowed them to squeeze their suppliers and thus depress wages in the manufacturing sector.
Opposition to the chains escalated slowly through most of the 1920s and then soared at the end of the decade. The main catalyst for this upsurge, according to historians, was a wealthy businessman in Shreveport, Louisiana named W. K. Henderson. In addition to an iron foundry, Henderson owned radio station KWKH. Around the time of the 1929 stock market crash, Henderson, a supporter of the populist politician Huey Long, began delivering blistering anti-chain diatribes on the station, which reached a wide audience across the South and in parts of the Midwest. Soon Henderson was a national sensation, and his criticism of the big retailing corporations was echoed by local groups that sprang up throughout the country. Within months, these groups existed in an estimated 400 cities and towns. This led to the creation of several dozen anti-chain newspapers with names such as Chain Store Menace as well as numerous radio stations that followed Henderson in denouncing the chains via the airwaves.
Among the states with the most intense activity were Minnesota (especially a group called Break the Chains), Wisconsin (an organization called Community Builders as well as the Progressive Party), Texas and Nebraska. The Nebraska effort won the support of the state attorney general, whose office produced a study documenting predatory pricing by the Safeway grocery chain. Henderson himself formed a national organization called the Merchant’s Minute Men. It held a convention of several thousand delegates in 1930 in Shreveport, but its growth was limited by concerns that Henderson was exploiting the movement for personal profit. Labor activists were also angered to learn that his foundry had engaged in union-busting.
TURNING TO GOVERNMENT FOR HELP
For the most part, the anti-chain movement did not focus on boycotts. There seemed to be a general recognition that it was hopeless to get consumers, particularly during a severe economic downturn, to avoid the stores with the lowest prices. Instead, the movement turned to government—local, state and federal—for assistance in battling the chains.
Even before the upheaval of 1929-1930, the trade associations of the independents and other anti-chain groups were looking to public officials for relief. Their first strategy was to seek federal legislation mandating price maintenance. In 1926 Sen. Arthur Capper of Kansas held hearings to highlight the danger to small retailers posed by chain-store price cutting, especially the use of loss leaders (selected items sold below cost to lure shoppers into the store). A bill called the Capper-Kelly Act (co-sponsored by Rep. Clyde Kelly of Pennsylvania) won the support of some large industrial firms, which saw it as a way to limit the ability of chains to exert downward pressure on the price of manufactured goods. Portraying themselves as friends of the consumer, the chains lobbied hard against the bill, which ultimately passed the House but was blocked in the Senate.
In the interim, chain opponents managed to get a resolution passed in the Senate calling for the Federal Trade Commission to undertake a study of chain-store pricing. Unfortunately for the movement, the FTC embarked on an exhaustive research effort that ended up lasting six years. Moreover, the Commission concluded that the chains were not violating federal antitrust laws.
As reform stalled at the federal level, the resurgent anti-chain movement turned to state and local governments. Activists paved the way by arguing that the chains were not paying their fair share of state and local taxes. This made it easier for the movement to push for the imposition of taxes (or license fees) on chains that were designed mainly to discourage their growth, rather than simply getting them to shoulder more of the fiscal burden.
Bills of this sort began to get introduced in state legislatures in the mid-1920s. Most failed but the ones in North Carolina, Georgia and Maryland passed and were signed into law. All three were struck down in the courts, but the anti-chain movement did not give up. Their effort was bolstered by a 1931 U.S. Supreme Court ruling that states could tax chain stores differently than independent ones. Ultimately, more than two dozen states enacted chain-store tax bills. Some localities imposed their own taxes, beginning with Portland, Oregon in 1931.
In addition to the per-store license fees, states began to discourage large-scale retailing by imposing taxes on all retailers based on their sales volume. The first such measure, passed in Kentucky in 1930, started at one-twentieth of one percent for smaller businesses but jumped to 1 percent on sales of $1 million. Since sales at the various outlets of a chain were amalgamated, the tax hit the chains especially hard. The U.S. Supreme Court viewed this sort of tax differently from the license fees and struck it down. The high court did, however, uphold a Louisiana law that based state license fees for chains on the number of stores they had nationwide.
After Franklin Roosevelt took office in 1933, the anti-chain movement had high hopes for decisive action by the executive branch. Activists were encouraged by the creation of the National Recovery Administration, which was supposed to regulate competition and enforce standards of conduct. Although FDR adopted some of the rhetoric of the anti-chain movement, the chain stores managed to get the NRA’s retail code written to their advantage.
In response, the anti-chain groups sought to whip up public support, which had waned somewhat from the heady days of 1930. A key element of this effort was the promotion of a muckraking documentary film called Forward America that was produced by former NRA official Frank Wilson. Showings of the film, which castigated the chains for undermining economic opportunity, were arranged throughout the country—much like today’s plans for a forthcoming film on Wal-Mart by Robert Greenwald. A flyer for one of those showings stated:
At last here is the dynamite that will blast the chain stores and mail-order houses from your community…If you want to know the truth about the depression, see “Forward America…” You can help solve America’s greatest illness by having “Forward America” shown in your community.
PATMAN TAKES THE LEAD
In 1935 the anti-chain forces raised a stink about the creation of the American Retail Federation, a new trade association that appeared to be an effort by the big retailers to undercut the lobbying efforts of the independents. In an action that illustrated the continuing political clout of the anti-chain movement, Congress agreed to investigate the Federation. The chairmanship of the investigating committee ended up with Rep. Wright Patman of Texas. Patman, who had populist leanings, initiated a wide-ranging probe that turned up embarrassing evidence about chain business practices as well as indications that chains such as Kroger had created bogus advocacy groups to divide its opponents.
Buoyed by the investigation, Patman co-sponsored a bill with Senate Majority Leader Joe Robinson to tackle the chains by outlawing the special rebates manufacturers gave to the chains. Many independent business groups rallied in support of the Robinson-Patman Act, and even organized a meeting in Washington in March 1936 that drew about 1,500 participants. The chains and their allies lobbied intensively against the bill, gaining support from the nascent consumer movement, but Robinson pushed it through. The law remains in effect today, but it has not been vigorously enforced for several decades.
Meanwhile, at the state level, legislatures were supplementing the initiatives on chain taxes with fair trade laws, which allowed manufacturers to set a minimum price at which their goods would be sold. These measures, designed to limit the price-cutting power of the chains, were getting struck down in the courts as violations of the Sherman Act, so in 1937 Congress passed the Miller-Tydings Act, which exempted the state fair trade laws from federal antitrust rules.
Patman then set out to deliver the coup de grace to the chains. In 1938 he proposed legislation that would have established a severe federal tax on interstate chains. This time the opposition from the chains—as well as from labor, farm and consumer groups—was more intense. Claiming that the tax would have amounted to far more than the total profits of many companies, opponents accused Patman of seeking a “death sentence” for the chains. In the end, it was Patman’s bill that died—and with it the anti-chain movement.
Historians point to a variety of factors in explaining the downfall of the anti-chain movement, but certainly one of the most significant was the loss of support from organized labor. Initially, unions saw the chains as a force for lowering wages and eroding working conditions. By the late 1930s, however, the chains were viewed as a ripe organizing target rather than an evil to be eradicated.
One of the first union offensives to occur after the successful 1937 sit-down strike at the General Motors plant in Flint, Michigan was a similar action by workers at a Woolworth store in downtown Detroit. A combination hunger strike and sit-down strike among Woolworth employees in New York City led to rapid union recognition. In April 1938 AFL President William Green met with A&P officials and agreed not to support Patman’s “death sentence” bill in return for the company’s commitment not to oppose unionization.
It is not possible here to give a thorough analysis of whether this gambit finally paid off for labor. It is worth noting, though, that only a few years later, the chief executive of a major national retailing company was involved in one of the most famous incidents in U.S. labor history. In 1944 Sewell Avery, head of Montgomery Ward, defied an order from President Roosevelt to cooperate with unionization of the firm. FDR used his wartime powers to seize the company and had Avery forcibly removed from his office. A photograph of Avery being carried out by National Guardsmen became a classic symbol of corporate resistance to collective bargaining.
REFORM VS. ABOLITION
One theme that emerges from this brief history of the Depression-era anti-chain movement is the difficulty of maintaining common ground among the various interests that were opposed to the growing power of the national retailers. Back then, it was independent merchants who took the lead and promoted policies that were quite self-interested. This was clearest when it came to the price question. The independents promoted policies such as price maintenance that were not beneficial to shoppers, and thus it was no surprise that the newly emerging consumer movement did not jump on the anti-chain bandwagon. Unions also ended up questioning the wisdom of propping up prices when it came to the economic well-being of their members. Anti-chain activists tried making arguments along the lines of what today’s campaigners call “the high cost of low prices,” but that was a difficult sell during the Depression.
For a while, there was relative consensus on government action such as the state chain tax laws, which are reminiscent of today’s efforts to get Wal-Mart to pay its fair share of employee healthcare costs. Yet there is little evidence that the tax measures succeeded in slowing down the spread of the chains. In fact, an argument can be made that they actually strengthened the larger chains in relation to the smaller groupings, which were less able to absorb the added cost.
There was also the perennial question of whether a movement can be sustained when it becomes centered on a legislative strategy, whether at the state or federal level. Even when anti-chain bills were enacted, they inevitably became embroiled in drawn-out challenges in the courts, which are not the most favorable arena for weakening corporate power.
Perhaps the most difficult hurdle for the movement to overcome was the tension between those who wanted to reform the chains and those who wanted to do away with them. Even among the independent retailers, there were differences on this issue. Hardliners wanted to ban the ownership of more than one retail outlet, while others saw nothing wrong in small chains and sought to keep the focus on the giants of the industry. There were also diverse views on what were known as voluntary chains—arrangements such as the Independent Grocers of America (IGA) in which independently owned stores banded together to compete with the likes of A&P and Woolworth.
In the end, it may have been decisive that two of the most important political forces of the day, organized labor and Rep. Patman, came to diametrically opposed positions on the reform vs. abolition question.
CUTTING WAL-MART DOWN TO SIZE
Today’s anti-Wal-Mart campaigns face similar challenges in achieving solidarity. The independent retailers are less prominent in the movement than 75 years ago, but there are new players such as environmental activists, site fighters and class-action lawyers. Organized labor has a key role at the national level—involving unions that seek to represent Wal-Mart employees as well as those that want to stop the spread of the “Wal-Mart model” to other employers—but it remains to be seen how well they will be able to cooperate amid the disunity in the AFL-CIO.
The fact that the contemporary anti-chain movement focuses on a single company may prove to be an advantage compared to the Depression-era assault on an entire industry. It is also a hopeful sign that the debate is less polarized. No one considers it realistic to call for Wal-Mart’s obliteration, yet the major campaigns are seeking fundamental changes in just about all of the leviathan’s practices and policies. Compared to Wright Patman’s utopian effort to make the chains disappear, the current approach is a more level-headed attempt to cut the adversary down to size and make it behave in a socially responsible manner. If the campaigns can stay unified, that just might happen.
BIBLIOGRAPHY
Edward G. Ernst and Emil M. Hartl, “Chains Versus Independents,” a series of four articles in The Nation, November 12, November 19, November 16 and December 3, 1930.
F. John Harper, “’A New Battle on Evolution’: The Anti-Chain Store Trade-At-Home Agitation of 1929-1930,” Journal of American Studies, vol. 16, December 1982.
F. John Harper, “The Anti-Chain Movement in the United States, 1927-1940,” Ph.D. dissertation, University of Warwick, 1981.
David Horowitz, “The Crusade Against Chain Stores: Portland’s Independent Merchants, 1928-1935,” Oregon Historical Quarterly, Winter 1988.
Godfrey M. Lebhar, Chains Stores in America: 1859-1962. Third edition. New York: Chain Store Publishing Corporation, 1963.
Joseph C. Palamountain, The Politics of Distribution. Cambridge: Harvard University Press, 1955.
Thomas W. Ross, “Store Wars: The Chain Tax Movement,” Journal of Law and Economics, vol. 29, April 1986.
Carl Ryant, “The South and the Movement Against Chain Stores,” Journal of Southern History, vol. 39, May 1973.
Harry W. Schacter, “War on the Chain Store,” The Nation, May 7, 1930.
Richard C. Schragger, “The Anti-Chain Store Movement, Localist Ideology, and the Remnants of the Progressive Constitution, 1920-1940,” University of Virginia Public Law and Legal Theory Working Paper Series, No. 21, February 2005. Online at http://law.bepress.com/uvalwps/uva_publiclaw/art21
Cory Lewis Sparks, “Locally Owned and Operated: Opposition to Chain Stores, 1925-1940,” Ph.D. dissertation, Louisiana State University, 2000.
Nancy Beck Young, Wright Patman: Populism, Liberalism & the American Dream. Dallas: Southern Methodist University Press, 2000.