Cheap (4 page)

Wanamaker’s Philadelphia store was an eye-popping colossus, and his Manhattan store even more so. Hailed as “the largest space in the world devoted to retail selling on a single floor,” it featured 129 circular counters around a central gas-lit tent where customers were treated to shows of women’s ballroom fashions. By the early 1890s, improved manufacture and transportation systems had made available a boggling array of consumer goods both domestic and imported, and for the first time customers of nearly every socioeconomic bracket could afford a spectrum of mass-produced and increasingly streamlined everyday wear and sportswear, imitation jewels, artificial silk and furs, cheap perfume—all new on the market and all geared to make the working and middle classes feel rich. Wanamaker offered all of these and more, and in 1911 he expanded with a 150-foot-high Grand Court featuring the world’s second largest organ and a great eagle statue from the 1903 St. Louis World’s Fair. Topping it all off (quite literally) was a rooftop wireless station, the first telegraph office to receive word when the
Titanic
sank.

The opportunity to buy in bulk offered unbeatable economies of scale that, in Wanamaker’s words, was the “most powerful factor yet discovered to compel minimum prices.” Critics decried him as a bottom-feeding monopolist, a vulture whose insistence on low prices was putting smaller merchants out of business. Wanamaker deflected even the most biting critiques, arguing that, on the contrary, by cutting out the “middle man” and passing savings directly to his customers, he was creating opportunities and a better life for his fellow Americans. He made this case eloquently in the Evolution speech, forecasting what discounters would argue decades in the future.

Wanamaker’s argument was lofty and self-serving, of course, and a touch misleading; for one thing, he employed many more low-priced clerks than “high-priced men.” But to be fair, he had experienced firsthand the power of low price to better the lives of ordinary citizens. During his early years in business, he dreaded having to temporarily lay off clerks each year when the inevitable post-Christmas doldrums slowed business to a near halt. Disheartened by the hardship suffered by his employees and those of his textile suppliers during those bleak winter months, he determined to brighten them, purchasing bed linens and other white goods in bulk and putting them on sale at a price just slightly above cost. This innovation, eventually recognized as the first January White Sale, was a huge hit. Customers poured in, employees stayed employed, and America got a new retailing tradition. The success of this high-volume/ low-price gambit inspired Wanamaker to add July Midsummer Sales and February Opportunity Sales. These regular and expected discounting periods whet consumer expectations for cost reductions and made regular low-price sales a department store standard.

Retailing was for Wanamaker not only a career but a calling, and he seemed to believe that making consumer goods affordable to all was the key to heaven. Recognizing that everyone was equal before God, he preached that all should be “equal before price.” (Equating God and price is a stretch we can perhaps forgive as rhetorical flourish.) In Wanamaker’s day, prices were not fixed but fluid, and those in the know haggled, just as they had in the ancient bazaars. Less sophisticated shoppers or those out of favor paid more. To level the playing field, Wanamaker invented what was arguably his most enduring creation: the price tag. Those bite-sized paper dangles made an indelible impression on retail history, fixing price so that pauper and king, insider and naïf, all paid equally, at least in theory. The tags did not foreclose the possibility of negotiation, of course, but they did set an upper limit, making it more difficult for merchants to overcharge and more likely they would set the lowest possible prices to attract customers. Price tags also generated a daunting problem that vexes pricing experts today: how to fix a price that is seductive to bargain hunters and at the same time wrings every possible penny out of the odd spendthrift?

 

 

 

WANAMAKER was not the only nineteenth-century entrepreneur to recognize the power of low price to enrich market share. In 1878, Frank W. Woolworth, a sickly farmer’s son, cut the ribbon on a “five-and-dime” in Utica, New York, the first of over a thousand such stores he would christen in his lifetime. Unlike Wanamaker, who stumbled upon discounting, Woolworth was a low-price man from the start. He had learned the retail trade as an apprentice at Moore and Smith’s, a dry goods store in Watertown, New York. At that time dry goods were stored behind the counter and pulled out for inspection at the customer’s request. Woolworth, who was only a passable salesclerk, found this process tiresome and inefficient. The story goes that one day during a slow spell his boss asked him to arrange a selection of five-cent items in full view on a self-service table display. The cheap stuff sold out in a single day and with little fuss; the customer picked it up, held it, had a close look, and made a decision. No clerk was necessary to make the sale. Woolworth found this both sensible and appealing. When he went on to open his own stores, low price and convenience became the cornerstone of his business.

A Harvard don once noted that “one of the very first psychological lessons learned was that the 5 and 10 business was faddish and promotional—new lines of goods had to be continually added.” Woolworth had an almost instinctual knack for this, giving bargain hunters what they wanted even before they knew what that was. He traveled the globe in search of ornaments, hair ribbons, buttons, fasteners—anything mass-manufactured and cheap. The crushing 1893 depression allowed him to add other things to his stock, such as leather goods. Everyone needed these things, and if they didn’t, they might buy them anyway, given they could purchase them for pocket change.

Europe at the time was far ahead of the United States in adopting and adapting the basic tenets of mass manufacturing and was therefore more efficient. So rather than pay more for American-made goods, Woolworth scoured European factories for bargains; consolidated and packaged them in his warehouses in Sonneberg, Germany, and Calais, France; packed them into crates; and shipped them across the Atlantic to his American stores. During one European buying trip he wrote: “Today I made up my mind to find some bargains . . . and I have succeeded, although it was awfully hard work . . . thermometers on wood, imported, $7.50 per gross. . . . Thermometers are not so good as the domestic goods, but make a bigger show.” Woolworth was not looking for thermometers; he was looking for a bargain, and he found a terrific one. Sure, it was of low quality, but that was beside the point. Woolworth understood then what discounters know now: In selling everyday commodities, price generally trumps value.

Woolworth was endlessly inventive, tireless, and single-minded. When World War I made it impractical to do business overseas (in his diary and letters home he complained of U-boats getting in the way), he determined to bring cheap production closer to home. He studied the manufacturing process used by his European suppliers and taught these methods to a number of American suppliers, at least one of which he then bought outright. Woolworth now had an even cheaper source of goods: American factories versed in European-style mass-manufacturing techniques. Hailed as the “Napoleon of Commerce” for helping American industry catch up with its European rivals and become self sufficient in cheap goods, Woolworth established himself as the king of American mass production.

Woolworth’s and similar chains such as S. S. Kresge Company and W. T. Grant focused on offering the absolutely lowest price even if it meant things would need replacing a lot sooner than they once did. This pushed hard against the American tradition of frugality, where price was only one consideration. Historically, Americans sought durable long-lasting goods that they could pass among themselves and down to their children. Shoes were reheeled, socks darned, and hems let out to fit generations of brothers and sisters. Discounters gave the common man and woman the opportunity to eschew the cobbler and the darning needle, to break in a brand-new pair of shoes or socks when their toes poked through the old ones. Discounters made ordinary folks feel rich by putting a wide selection of goods within easy reach of all but the most meager budgets. Someone had to pay, of course, but that someone need not be the customer.

Woolworth hired only the cheapest labor to serve on the store floor, and most of the time that meant young, unmarried women. In the chain’s early years he paid these clerks two or three dollars a week, not a living wage even then. Woolworth knew this, for as he once wrote in a memo to his managers, it was part of his plan. “It may look hard to some of you for us to pay such small wages but . . . one thing is certain: we cannot afford to pay good wages and sell goods as we do now, and our clerks ought to know it.” Woolworth proudly rewarded his star (and always male) managers; by 1929 a few were paid as much as $50,000 annually. But the vast majority of his employees were low-skilled and low-paid cashiers. Understandably, these jobs were not considered real careers, and the company was plagued by rapid turnover; a problem with which overworked managers were constantly forced to grapple. Still, these low-level managers were not given the tools to solve this or other problems because they, too, were discouraged from thinking too hard for themselves or being “over-ambitious.” Treated like naughty children, they were constantly admonished to be obedient and abstemious in their professional as well as in their personal lives.

Woolworth himself harbored neither of these virtues and lived like a potentate. His Xanadu was the Woolworth Building in lower Manhattan, the tallest building in the world at the time of its completion in 1913. Woolworth’s personal office in this “Cathedral of Commerce” was a close replica of the Empire Room of Napoleon’s palace at Compiègne. The difference was this: Where Napoleon settled for wood, Woolworth demanded marble.

Woolworth’s nickel-and-dime empire had several competitors, some of them fierce. In 1895, Richard Warren Sears published his 332-page
Book of Bargains,
setting in motion a mail-order business that put an astonishingly comprehensive selection of low-priced “consumables” within reach of everyone from the farthest flung cowhand to the girl he loved back home. In this first of his many catalogs, Sears promised, “By comparison of our prices with those of any thoroughly reliable house, you can save money on everything you buy from us.” Catalog prices were indeed very low, sometimes half or even less that of department stores. Sears managed this by driving hard bargains with manufacturers and sometimes buying them. By 1906, Richard Sears owned a major piece of sixteen manufacturing plants, including producers of stoves, furniture, agricultural implements, plumbing equipment, and cameras.

Mainstream retailers, too, were cutting prices and opening special discount sections in their stores. In 1917 the
New York Times
wrote that the

The article went on to praise the

Mass production made onetime luxuries, such as clocks, sewing machines, and typewriters almost everyday things. This trend was not universally admired. While some reveled in these bargains, others scorned the infiltration of cheap goods as suspect, even subversive. Critics derided mass-manufactured “cookie-cutter” goods as “low-priced trash . . . ugly, short-lived . . . abominations.” They railed against the “senseless, vicious, yes criminal tendency to cheap goods.” John Hargreaves, an early president of the Retail Merchants Association, argued that cut-rate prices “reduced the value of labour, and have destroyed the purchasing power of many classes, thereby affecting all classes.” Shopkeepers who advertised low prices to attract business were derided as “common cutters” and “gutter merchants,” and social reformers pointed to the “vile, awful sweatshop” where “plenty of the bargains” were made. Chain stores in particular came under fire as citizens coast to coast banded together to halt what they considered a vicious and cutthroat corporate invasion.

Despite this protest, chain stores rose to prominence with startling speed after World War I, growing in number from an estimated 50,000 in 1920 to 141,492 in 1929. Many Americans found this alarming. The independent, freestanding retailer who knew and valued his customers was a cherished component of the nation’s economic and social life, and integral to its concept of community. It is hard to imagine where either Wanamaker or Woolworth would have ended up had they started their careers as clerks in a chain rather than in an independent store. Because chains did away with the local proprietor, funneled money away from the local community, and traded skilled employees for stock boys and “order takers,” they were seen as waging a direct assault on the American way of life. Anti-chain protesters in the 1920s represented close to three hundred local and national organizations, comprising roughly 7 percent of the country’s population. Editorialists railed against the chains, as did many trade organizations. The National Association of Retail Druggists decried chain store owners as “privilege-seeking tycoons [and] would-be dictators.” Station KWKH owner and operator William K. “Old Man” Henderson of Shreveport, Louisiana, proud forefather of the modern shock jock, warned listeners of the “ruinous and devastating effect of sending the profits of business out of our local communities to a common center, Wall Street. We have appealed to the fathers and mothers—who entertain the fond hope of their children becoming prosperous business leaders—to awaken to a realization of the dangers of the chain stores’ closing this door of opportunity. We have insisted that the payment of starvation wages such as the chain-store system fosters must be eradicated.” To raise funds for his campaign, Henderson sold coffee over the air for more than twice its normal price. And populist politicians built their reelection platforms on a foundation of anti-chain sentiment. Louisiana Governor Huey P. “Kingfish” Long groused that he would rather admit thieves and gangsters to his state than the operators of chain stores.