Frank Thoughts: The Next Retail Wave
Dave Canal
July 11, 2019

When I was quite young, my father and I would go into Boston on Saturday afternoons to see my grandmother.  She lived in a brownstone in the south-end across from the Greek Cathedral.  As we settled in, she would give me a dollar and ask me to “go down to ‘Sam’s” and get a pound of hamburger for dinner.  Sam was the butcher at the end of the street.  Every time I walked in the store an overhead bell on the door would ring and I would become instantly mesmerized by all the sawdust on the floor and the smell of meat.  Sam was a big man who always wore a blood stained white coat.  The atmosphere was unique.   Much later, I realized it had been my introduction to retailing.

As we all know, it is now 70% of our economy.  For most of the past 5,000 years of civilization, retailing was done by barter.  But a Sam’s butcher shop would prove to be the start of decades of rapid innovation.   The first stores – such as Woolworth’s five-and-ten and Sears were based on general merchandise.  A “Sam’s” type concept became known as specialty retail.  For the most part, these stores were started in the 1950s.  Petrie stores – a women’s fashion chain – became the most successful.  For a time, Milton Petrie was the richest C.E.O. of any N.Y. S.E. company.  His net worth was over 300 million. It was evidence of the rising importance of consumer spending in the economy.

Other specialty retailers, such as Charlie Lazarus of Toys “R” us, followed.  It was a time when “Sam’s” proliferated.  But then so did the concept of the “box” store.  These were gigantic – compared to the specialty retailer – general merchandise stores whose whole existence was based on one concept.  Price.  This led to the specialty concept giving way its importance to the box store.  K-Mart – by the late 1960s - was the largest retailer in the country representing nearly 4% of all consumer spending.   But Sam Walton, with his manufacturing overseas model, would put K-Mart out of business.      

Customers will pay a premium price, but only if it is perceived to be a one-of-a-kind product or it conveys a sense of status.  My mind goes back to a book I once read titled On Desire by Professor William B. Irvine.  It’s subtitled Why We Want What We Want. It’s all about our desire to impress other people.  The author tells the story (one of many) of being invited to see a friend’s new kitchen.   On seeing it, he asks his friend why he happened to buy the very expensive commercial Sub-Zero appliances.  “That was the apparent temperature of my brain at the time”, he responded.

However, most everyday purchases are generally a commodity.  They have the same unrelenting price pressure that was started by the box store concept.  Amazon.com is the current manifestation.  But what new retail wave could allow even Amazon to be undersold?  It could be the very phenomenon that made Amazon possible.  The internet.  I remember watching a television program years ago on overseas manufacturing.  A young couple held up a white oxford cloth button-down dress shirt made in China.  It was a high-end brand.  The manufacturing cost to them was – as I recall – about six dollars.  The shirt retailed for $120!   The difference they explained was in all the middlemen costs. 

Therein lies the enormous saving potential which could be achieved selling directly to the consumer.  Let’s call the process the “Tesla Model.”  Tesla sells directly to the consumer.  In the beginning, it could start with a large international company.  NIKE would be perfect.  Wouldn’t it be ironic if the internet, which made an Amazon possible, was also its undoing?

-Francis Patrick Boland

Read more