Using Existing Federal and State Laws to Combat Outsourcing and Globalization

Investigate and establish new-store policy for Wal-Mart and other big box retailers

If two booksellers open up in the same mall, the competition can be fierce. If each bookseller obtains his/her books at the same price, the booksellers have to try to figure out what books, if any, to sell at a discount from the price published on the dust jacket of the book. Typically, the independent bookseller will be buying books at a 46% discount off the cover price, which on a $10 cover-price book, the bookseller has $4.60 available for overhead expenses, advertising and other marketing, and for any operating profit. The way in which competing booksellers spend the $4.60 in gross profit margin determines whether the bookseller will prevail or not in the competition with the other bookseller.

Suppose, however, that one of the two booksellers is able to buy the same books in the same quantities at the same time from the same publisher at a discount of 76% instead of 46%. This would give the favored bookseller $7.60 in gross profit margin on the $10 book, allowing the favored bookseller to sell the book for $7 instead of $10 and still have the 46% or $4.60 to spend for the same things that the disfavored competitor is buying.

Do you have any doubt who is going to win? If you see the same book for sale for $10 in one bookstore and across the street you see the same book being sold for $7, and you see that the same is true for most of the other books being sold by the two competing bookstores, aren't you going to buy the book for $7? It is this fact (that many people base their buying decision on price) that encouraged the U.S. Congress in 1936 to enact the Robinson-Patman antitrust act, prohibiting a manufacturer or other supplier from selling the same goods in the same quantities at the same time to competing businesses at a different per unit price. The price is permitted to be lower, but only to reflect actual savings based on the favored purchaser's quantity of purchase. There are other exceptions (such as "meeting competition" and "functional discount") that often become the basis for antitrust litigation claiming violation of the act.

When Wal-Mart comes to town, it is in an even better position. Through purchasing practices that allegedly are in violation of law, Wal-Mart is able to buy its goods at per-unit prices that are one-half as much as paid by the competitor across the street. For example, if an independent bookstore across the street pays the publisher $5.40 (meaning a 46% discount) for a specific book, Wal-Mart is able to buy the same book for approximately 1/2 as much, or $2.70, equal to a discount of 73%. Wal-Mart is then able to sell the $10 book at retail for $7.30 (in contrast to the $10.00 cost of purchasing the book from the independent bookseller across the street) and Wal-Mart still have the same $4.60 profit margin as the independent competitor selling the book for $10. Very few businesses can survive this kind of price competition, which is precisely the reason that Congress enacted the Robinson-Patman Act.

By the failure of the federal and state governments (since the Nixon Administration) to enforce the Robinson-Patman Act as against any of the major retailers, the major retailers have been able to grow into huge multinational corporations, and going into worldwide operations to continue their growth, while the independent competitors in the United States (and in other countries) are being put out of business.

When a business grows to a certain size, it can only show high-percentage growth by moving into other markets (in foreign countries), where it repeats the process of putting local businesses out of business. When a company outgrows the United States, it develops an awareness and experience with lower-priced labor and suppliers, and shifts its purchasing from the United States to one or more foreign countries, to lower its costs and profit even more from the comparatively high price at which it resells the foreign goods in the United States.

In absence of Congressional action to impose controls on outsourcing to foreign countries (such as tariffs on foreign-made goods being imported into the United States, the best way to fight the "Evil Economic Trio of Outsourcing, Globalization and Declining Standard of Living" is to bring suit under the Robinson-Patman Act and any comparable state laws (Note: there is no comparable NY statute) to recover damages from the manufacturers that are selling at illegally low prices per unit to the major retailers. If enough suits are brought against any one manufacturer, the cost of defending such suits will drive the manufacturer out of business, and cause the manufacturer to start obeying the Robinson-Patman Act once again.

Now, this is the most important point for you to understand: None of the major retailers is able to compete against the typical independent retailer if the major retailer pays the same price per unit (with a reasonable discount for no more than the manufacturer's saving on the higher quantities involved). The major retailers would all go out of business. Their business model depends on continuous violation of the Robinson-Patman Act, and this is how globalization is taking place, based upon the retail purchases of almost 300 million Americans, that buy according to lowest price, even (or especially) if the retailer is buying its goods at illegally low prices.

Consumers by and large will not stop buying at bargain prices, even if they destroy their town as a result. Today's saving of 5 or 10 cents on a tube of toothpaste is far more compelling to most consumers than the thought that their purchases from a major retailer are helping to promote outsourcing and globalization and the economic destrution of their town and a lowering of their standard of living.

It is for this reason - that consumer awareness is not enough - the United States needs antitrust law enforcement, and since the federal government has left that business since the days of the Nixon Administration, it is important that such enforcement activities be picked up by state and local officials -- the NYS Attorney General from the State's standpoint, and the "Town Attorney General" from the standpoint of New York's towns, villages, hamlets, counties, townships, cities and other such municipalities.

As the NYS Attorney General, I would develop a policy with standards by which any local government can require a major retailer to meet reasonable conditions before being permitted to open up a store in the area (even if the location is on the other side of the town line). As part of this policy, the local government would be able to require the major retailer to execute a document with Representations and Warranties drafted by businesses in the area to ensure that the opening up of the new retail store is not going to destroy the existing businesses. Part of the process should have the major retailer representing the price it is paying for a representative number of specific items, the retailer's retail price for each, and the retailer's gross profit margin, to enable local businesses to oppose the major retailer's application on the grounds that the major retailer is buying goods in violation of the Robinson-Patman Act. If this procedure cannot be done on a voluntary basis, the Town Attorney General should take the issue into federal court, where there would be court-ordered discovery and a decision on the issue, with a possible order enjoining the major retailer from opening a new store anywhere within 50 miles of the complaining town, village or county, unless and until the major retailer can demonstrate that it is no longer violating the Robinson-Patman Act.

I invite you to look at my extensive writings on the Robinson-Patman Act, at Carl Person's Website on the Robinson-Patman Act. As to the role of the Town Attorney General, you should read the final chapter (ch. 30) of my book Saving Main Street and Its Retailers at Final Chapter - Chapter 30 - of Person's Book Saving Main Street and Its Retailers.