In the latest in a series of extracts from America Inc: The 400-year history of American capitalism Bhu Srinivasan recounts how the transformation of American roads led to the development of department stores and the decay of cities.
In the summer of 1960, a green GMC pickup truck with camper attached was delivered to John Steinbeck’s home in Sag Harbor, New York. Years after writing The Grapes of Wrath, he had countered his country’s migratory pattern west by leaving California to settle in this former fishing village on Long Island. Having crossed middle age, and insulated by financial success and literary acclaim, Steinbeck had felt a need to reconnect with America. To once again see and feel his country in the flesh, rather than through news accounts and television footage, Steinbeck embarked on a road trip with his dog, Charley.
After a few days on the country roads of New England, doing his best to avoid interstate highways, Steinbeck was forced to take his green truck onto I-90, “a wide gash” through the wilderness that seemed to him the new “carrier of the nation’s goods.” Efficient but without distinction, the interstate led him to lament the possibility of driving from New York to California “without seeing a single thing,” as the highways were completely removed from local life, a sterile arterial system made up of endlessly paved tar with new, long freight trucks speeding along. The national sameness both struck and distressed him, evoking the feeling of an America lost, of efficiency as the paramount cultural thread as infrastructure changed the landscape.
The nation’s most dominant industry at the turn of the century, railroads, had finally ceded its supremacy in moving commerce. In 1945 railroads carried five times the freight of commercial trucks. In less than twenty-five years, revenues from shipping via tractor-trailers — each one the size of a single rail car — exceeded the railroad’s. This made perfect sense. With each new housing development in suburbia, entire local economies needed to be built around it. Movie theatres, shopping centres, and chain grocery stores, along with local services such as doctors and dentists, started filling out the commercial ecosystem. Instead of quaint town centres with intersections and sidewalks, the new commercial centre of America was typified by large parking lots. In the back, suburban stores often had loading bays that made it efficient to pull up a giant truck. Rather than unload railroad freight at a hub onto local trucks, a preloaded freight truck sent across the country point to point was far more cost-effective in many instances.
This had repercussions for old small towns, communities that already had thriving Main Streets of cobblers and toy stores, bookstores and furniture showrooms. Starting in the late fifties, retailing spawned the idea of the discounter. Just as the railroads had once enabled catalogue merchants like Sears and Montgomery Ward to erase the markups on goods due to distance, the interstate highway opened up logistical possibilities to this new class of entrant.
Unlike the multi-story retail palaces of the downtown department stores or the variety stores that peddled low-cost goods, the new category of discount stores sold everything from appliances to detergent to lawnmowers. The fundamental consideration of the discounters was price. The philosophy was to do away with all aspects of costly service and fixtures, sell goods as cheaply as possible, and do so in volume. In erecting their stores on the peripheries of cities, the stores reflected the economics of the merchandising strategy. Bright fluorescent lights, linoleum floors, cash registers in the front of the store, shopping carts, and limited floor personnel, all accompanied by the most important feature of all: acres of blacktop with hundreds of painted lines for the parked cars.
In the age of postwar American affluence, the retail trend that was sweeping the nation was the opposite of gilded. The department stores of the late nineteenth century had served as a glimpse of luxury for Americans of all economic strata, but the consumer of the 1960s gravitated to the illusion of thrift, of maximising value, at a time of unprecedented middle-class prosperity. The obsequious salesman waiting on the customer was considered not a luxury but an unnecessary intrusion and overhead expense. What assured customers was the names of the brands sold in the stores — the same brands advertised on TV and in magazines. If the price was the same, what difference did the retail environment make? As a result, discount stores in the suburbs were built to the lowest cost specifications allowed by building codes.
As in many phases of American capitalism, the early winners were not the final winners. In mid-1962, the giant Woolworth’s announced a new chain called Woolco. S S Kresge, an operator of similar variety stores, opened a new discount concept called Kmart the same year. Both were overshadowed momentarily by the discount king of the era, Eugene Ferkauf, the founder of the arbitrarily named E J Korvette. The company operated just seventeen stores, but its revenues had climbed to $230 million. It profits, holding with the principle of low margins, were a little over $4 million. The industry as a whole had grown to four thousand stores and several billion dollars in sales by the early sixties.
Low margins, however, were a double-edged sword. The simplicity of leasing or building a large warehouse-type space, stuffing it with goods trucked in from distributors, and selling the best-selling items at close to or below cost left little room for error. Be it a mistake in ordering, shrinkage from shoplifting or employee theft, shortages at a distributor — anything could turn a low-margin business from profitability to losses. Indeed, the industry suffered a dramatic shakeout, with weaker stores closing. But the weakness was operational: The stores rarely closed due to lack of sales, but usually from an inability to generate profits from those sales. The onetime leader E J Korvette sold out to a garment maker and ceded the discounting market to Kmart, which was on its way to becoming the leading retailer in the country.
But the intense competition among discounters had other casualties. Small mom-and-pop shops often had little pricing power in competing with stores that literally sold everything. Contemporary criticism often suggested that this was a distorted free market at work. In 1965’sThe Great Discount Delusion, Walter Henry Nelson pointed out the fallacies of low prices and their impact on small businesses. Often the discounter, in an advertisement, listed a price below cost on a highly popular good such as a new toy or popular brand of toothpaste. The “loss-leader” served to drive customers into the store, where the discounter then made up the difference on other goods. For a small shop focused on selling one category of product, such as toys or books, to compete with the loss-leading practices of a discounter on best sellers was particularly devastating — there was no place for this specialised retailer to make up the loss. Loss leaders also served to cement the belief among consumers that the discounters generally offered lower prices across the board. This then served to attract shoppers from long distances, drawing commerce away from the Main Streets of small town America.