TELECOM Digest OnLine - Sorted: Re: New Monopoly in Dept Stores; Federated and May to Merge

Re: New Monopoly in Dept Stores; Federated and May to Merge

Bob Goudreau (BobGoudreau@withheld)
Sun, 6 Mar 2005 23:53:25 -0500

Lisa Hancock wrote:

> The other issue about the Bell System was that it was heavilly
> _regulated_ by both the states and feds. The Bell System was not
> allowed to use its technology to go into other fields, where it
> probably could've been quite successful.

More to the point, the Bell system monopoly was actually sanctioned by
the government. No analogous situation has ever existed in US
retail, thankfully.

>> I would be surprised if even the combined market share of Federated
>> and May approached the market share that Sears, Roebuck achieved in
>> its heyday.

> With Sears, it depends on the defined market. I don't think Sears was
> as big in dept stores as in its catalog.

The defined market that Sears itself paid attention to was "retail",
and Sears was for decades the market leader in the US. I remember in
the 1980s when Sears execs were warily watching Kmart creep up to
almost match their market share. They were so busy keeping tabs on
Kmart that they were caught flat-footed when Wal-mart zoomed by BOTH
companies and became the new king of the retail hill (where it
remains today, of course).

> As a shopper, if Wanamaker's didn't have what I wanted, I'd go up
> the street to Strawbridges, and then over to Gimbel's. Three
> different stores, run by three different companies. As mentioned, I
> also_ had the choice of numerous smaller specialty stores and
> discount stores.

And we still do, including a vast plethora of new specialty and
discount stores out there in cyberspace. The way people choose to
shop is heavily influenced by the available technology. The railroads
were what made it possible for Sears to invent the nationwide
mail-order retail channel in the late 19th century. Likewise,
suburban living patterns gave rise to the classic shopping mall in the
mid-20th century. Refrigeration and transportation advances made the
modern supermarket possible. As new ways of buying things become
available and popular with consumers, it is inevitable that some of
the older ways will wane in popularity. And that's a good thing;
"creative destruction", as Schumpeter called it.

>> The management of some of the old department store chains that have
>> fallen by the wayside (e.g., Montgomery-Ward) seems to have stumbled
>> into the same trap that railroad companies fell prey to half a century
>> ago. Namely, they defined their market sectors too narrowly. While
>> railroad executives believed they were in the "railroad business",
>> their consumers treated them as being in the *transportation*
>> business. Thus, the railroads got their lunch eaten by airlines (to
>> which most of the railroads' former long-distance passengers eagerly
>> flocked) and to a lesser extent by trucking firms (which grabbed a
>> quick-growing share of the freight-transport business, though rail
>> still plays a much more important role in moving freight than it does
>> in moving people).

> First, a correction. The railroads knew they were in the
> transportation business and set up bus, trucking and even aviation
> units and cooperative agreements. But the govt made the railroads get
> out of most of that stuff.

I think this actually reinforces (not refutes) my point. (And the
"railroad business vs. transportation business" observation isn't
actually even my own; it's the one made famous by Theodore Levitt in
his 1960 Harvard Business Review article entitled "Marketing Myopia".)
The behavior of the railroad companies shows that they clearly saw
their other business lines as mere adjuncts to support their crown
jewels, which were the railroad lines. So much so that when they were
forced to choose between the old, proven business and the new,
higher-growth lines, the railroad execs chose to stick with what they
knew and to sell off the other stuff. They could have chosen instead
to sell off their rail assets and concentrate on the higher-growth
markets. Of course, that kind of bold step is one that most companies
find hard to take when faced with such a decision, and who can blame
them? A lot of people were probably skeptical when an old Finnish
industrial conglomerate whose chief products were paper, rubber and
cables decided a quarter century ago to get into telecom equipment and
to ditch the older slow-growth product lines. But the move was a
success, and now practically everyone has heard of Nokia. On the
other hand, the formerly stodgy old French water company Gnrale des
Eaux chose to get rid of its original utility businesses several years
ago in order to complete its transformation to Vivendi Universal, an
entertainment conglomerate whose stock price has not so far been kind
to its shareholders.

> Second, the traditional old line dept stores actually had considerable
> variety. The modern mgmt have eliminated a lot of departments and
> special services. Gimbels, for example, had a scouting/camping dept,
> art supplies dept, and bookstore.

That's exactly right. The department stores have been trimming
departments as business trickles away to other retailers, especially
"category killers". How many people would buy a TV or a pair of skis
at Macy's these days, when they know they could get a better selection
and better prices at Best Buy or a sporting goods superstore?

>> That's why the consolidation of the department-store sub-sector of
>> the overall retail market troubles me no more than the shakeout
>> that occurred in the typewriter manufacturer sector a few decades
>> ago, or in the buggy-whip manufacturer sector several decades
>> before that.

> Unlike typewriters and buggy whips, people still need clothes and
> furnishings.

But unlike clothes and furnishings, department stores aren't something
that consumers actually BUY.

People just don't particularly need department stores any more in
order to purchase their clothes and furnishings. They can buy their
clothes and furnishings elsewhere, and they increasingly are doing so,
which is why the department store chains are having so much trouble in
the first place. Department stores themselves are not a product
that consumers buy; they are merely a vehicle, a means to sell
products. Other retail channels have waxed and waned over the years
(how many door-to-door salesmen are still around, for instance?), but
a channel is not a market. It would be absurd to define the
particular retail sales channel known as "department stores" as a
market in its own right, to which antitrust measures must be applied
in isolation without treating discount stores, "big box" and "category
killer" specialty stores, on-line and catalog retailers, etc. as
part of the same market. One might as well try to apply antitrust
rules to nonsensical categories such as "retailers whose names begin
with the letter 'N'", or "retailers whose logos don't use the color

Bob Goudreau
Cary, NC

[TELECOM Digest Editor's Note: I have seen mentions of Sears, Roebuck
occasionally in this thread. Back in the 1920's, Sears Roebuck was a
very large chain of stores. The radio station they started
acknowledged this fact by its call sign: 'W'(orlds)'L'(argest)'S'(tore),
based in Chicago. WLS is on AM radio 890 kc, which was and still is a clear
channel frequency. It was called 'The Prairie Farmer Station' in those
days, and I think it was part of the Mutual Network.

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