Chapter 3



In October 1993, the researcher determined to measure the economic and sociological impact of the pending arrival of mega-retail discount chains on small retail businesses in four states: Pennsylvania; California; Illinois and New York.

The first study began with the mailing of a questionnaire to retailers in the Greater Philadelphia Metropolitan area. Seventeen of the questions were designed to elicit quantitative results, analyzing opinions as to the economic and sociological impact of the arrival of mega-retail discount chains in the Southeastern Pennsylvania (including Philadelphia). One question, the 18th, was designed to secure subjective detailed opinions in a narrative style (see Chapter IV). The questionnaire itself is available in the Appendix section of this study and is listed as Appendix 1.

After reviewing the results obtained in the Pennsylvania study, the researcher then determined to compare Pennsylvania's (Philadelphia's) results with mailings to retailers in Southern California, in the San Diego area. The respondents were to be retailers in San Diego, Oceanside, Chula Vista, Mira Mesa and Poway. Following this, the study was to add Illinois (including Chicago, Des Plains and Kanakee). Finally, New York State was to be studied, primarily in the Finger Lakes area, including such urban areas as Geneva, Auburn, Syracuse, etc.).

In each of the four states, the questions were identical and the results comprise the basis of Chapter III. The subjective, narrative data derived from Question 18 forms the basis of the findings in Chapter IV.

The Philadelphia or Southeastern Pennsylvania study was preceded by several meetings with selective focus groups of small retailers representing the types of retail products sold by discount chains such as Kmart, Wal-Mart, Home Depot, Target, Pace, Sam's Clubs, etc.

The research staff was involved in the computerization of the data from the inception of the study in Pennsylvania in October 1993, through the final analysis of data in the four states by August 1995. Since August 1995, the staff has been involved in further interviews in the four states to confirm the opinions which were quantified from almost 600 responses received where possible. Furthermore, the staff has spent considerable time in the last six months drafting and preparing the report on the survey.

The retailers selected for the opinion survey were procured through Dalton Directories and other similar sources for Pennsylvania, California, Illinois and New York State. Selections were made by statistical sampling for various categories of retail businesses, i.e., Men's Apparel; Women's Apparel; Children's Apparel; Pets; Food and Grocery Products; Electronics; Games and Hobbies; Sports Products, Paper Products; Health and Beauty; Furniture; Domestic Products; Home Improvement and Building Supplies; Auto Equipment and Supplies; Jewelry; Books; Professional Activities such as Pharmacy; Optometry; etc. These categories and the statistical responses will be found in Tables and Charts 13A and 13B of this chapter, as well as in Question 15 of Appendix 1.

Statistical sampling was based on mailings to approximately 20% to 40% of the universe in the various communities. Copies of the completed questionnaires from each state studied are available in the research files.

Not only did the researchers compute opinions from retailers by computerization of the returns from four states; but also the staff visited and interviewed retailers in each state, as well as visiting malls, strip shopping centers and major retailers and discount chains. Data was compiled from the hundreds of interviews which are useful in the presenting of overall opinions by the staff with respect to how small retailers see their future in view of the potential impact of the arrival of mega-retail discount chains.

Table 1
Summary of the Response Rates for All Four States

Table 1, which follows, shows that the staff mailed out 6014 questionnaires to prospective retail respondents in Pennsylvania, California, Illinois and New York. Of this total, 570 were returned in completed good order or 9.4 percent.

Additionally, 321 were returned by the U.S. Post Office indicating that the addressees were no longer at the designated address. In a side study, the staff learned that the usual reasons generally for the returns were liquidation, bankruptcy or moving to an area away from a threatening mega-retail discount chain. Since Dalton and the other directories are updated annually, it can be presumed that there is a dynamic loss of small retail business firms, owing in great part to the arrival and price competition of the invading mega-discount chains.

Tabular data in Chapter III describes the fears and apprehensions of the respondents by means of quantitative data. Chapter IV will describe their fears and concerns in a narrative way detailing specific quotes made by the respondents.

Although it is early in this chapter to reveal the data, the writer points out that concerns and fears of small retailers in America about their inability to survive are almost uniform in the four states surveyed.

Completely usable returns, as indicated in Table 1 were 14% for New York State; 11% for Pennsylvania; 10% for California and 7% for Illinois.

A return of approximately 10% on a mailing of over 6,000 questionnaires provides substantial data to measure the small retailers' discouraging view of the prospective impact of the mega-discount retail chain upon chances for a business to survive and grow in a healthy fashion.

Table and Chart 2A and Table and Chart 2B
Distribution of Types of Business Entities From Pennsylvania, California, Illinois and New York

Table and Chart 2A, which follow, show clearly that the 570 completed responses came primarily from sole proprietorships. Nationally, there were 465 returns or 86% of all returns who were identified as "sole proprietors." This was a response to Question 1 in the questionnaires provided as Appendix 1. Seven percent were franchisers; 3% were regional chain units. Three percent represented national chain units and 1% retail concessionaires. In using Dalton's Directories, it was impossible to know in advance whether a given location might turn out to be a chain unit.

Table and Chart 2B, which also follow, show graphically that the returns from Pennsylvania, California, Illinois and New York that were sole proprietorships (the essence of small business) represented between 80% and 91% of the respondents from four states. Typically, these were family-operated businesses, with children and other relatives working for decent wages (not near minimum wages). Young persons were able to save monies to prepare for college careers and enriched lifetimes.

Table and Chart 3A and Table and Chart 3B
Number of Years Respondents Have Been in Business

Contrary to the general impression that business "turn-over" among small retailers is frequent and excessive, it appears that the responding retailers who, in the main, consider their companies threatened by the arrival of mega-retail chains in their areas, have been in business a long time and are "solid" business citizens in their communities, regularly paying property, income and sales taxes to the state, county, city, town and school district. They do not receive tax abatements or governmental subsidies, "corporate welfare" of the sort often enjoyed by many of the retail chains who build the "Big Boxes" which eventually lead to the destruction of the traditional "Main Street," bringing on urban, suburban and often rural sprawl.

Table and Chart 3A which follow, provide an impressive national picture of longevity. Sixty-two percent of the respondents have been in business for more than 10 years. In fact, 33% of the respondents have been in business more than 20 years. The data also discloses the fact that, all in all, 82% of the respondents have been in business for more than 5 years. As their businesses begin to close on account of inability, in great part, to meet the price competition of the mega-chains; an observer can begin to see social as well as economic destruction in cities, towns, villages and in suburban areas. Small retail businesses have always served as cornerstones in the neighborhood enclave. Once the grocery store, candy store, bookstore, shoe store and pharmacy close along with the loss of jobs; then social disintegration occurs and ghettoization appears with all the usual costs of crime, violence, drugs, welfare and unemployment. With it arrives the consequent bitterness leading to racial, religious and ethnic disharmony as the unemployed struggle for the fewer remaining job opportunities.

Table and Chart 3B provides a more visual presentation of the differences in business longevity among the respondents in each of the four states under study.

In Pennsylvania, 58% of the respondents were in business over 20 years. Illinois was in second place, with 40% over 20 years, while New York State was in third position with 30%; and California was in fourth place with only 22% of the respondents in business over 20 years.

Much of the data for Pennsylvania and Illinois came from older commercial environments in the Philadelphia and Chicago metropolitan areas. New York's responses came from the "Finger Lakes" region, with more seasonality. California's respondents were from expanding populations in such Southern California locations as Oceanside, Chula Vista, Poway, Mira Mesa and San Diego.

In the San Diego area, 26% of the respondents were in business less than 5 years. Compare this with Illinois for the Chicago area, only 8% were in business less than 5 years.

The data on "years in business" was compiled from answers to question 2 in Appendix 1.

Chart 4
Physical Business Size

Much has been written about community social and economic dislocation as the mega-retail discount chains develop their "Big Boxes" and Superstores in areas formerly emphasizing small retail businesses, either in malls or strip malls or in the traditional "Main Street."

Overtures have been made by the discount chains to governmental leaders that a redesign of the larger stores could fit into the traditional style and enhance the chances for small firm survival, rather than destroy its longevity.

How is it possible to accommodate a "cheek by jowl" relationship between the "Big Boxes" and the small square feet areas reported by respondent small retailers located in the four states studied?

Chart 4 shows clearly that the typical retail respondent in all four states under study, California, Illinois, New York and Pennsylvania occupied stores generally, with only between 1,000 and 5,000 square feet.

Some retailers, particularly in lumber and home improvement products had footage in excess of 5,000 square feet, because their areas required storage of large inventory items.

About 49% of the California respondents were in the 1,000-5,000 square feet category; 48% of the Illinois respondents; 36% of the New York respondents and 33% for Pennsylvania's respondents. The data is derived from Question 3 in Appendix 1.

Table and Chart 5A and Table and Chart 5B
Anticipated Effect on Economic Health if a Large Mega-Retail Discount Chain Opened Near the Respondent's Present Business Location

The data in response to this question was derived from Question 4 in Appendix 1. The research was designed to elicit the attitudes, perspectives and opinions of the respondents about a move in the general area of the respondent's location by a mega-discount chain. While the results in Tables and Charts 5A and 5B have been converted to quantitative data, the subjective comments to be found in Chapter IV embellish the fears and concerns of small retail businesses who see the "writing on the wall" with respect to the viability of their continued business existence.

The responses in Table and Chart 5A which follow, are overwhelmingly "very negative" and "negative." Thirty-three percent of the respondents voted "very negative" and an additional 40% as "negative." Thus 73% of the respondents in all four states studied saw a move into their location by a mega-retail discount store as more than threatening, i.e., "negative" or "very negative."

Only 8% of the respondents saw the arrival of the mega-retail discount chain as "positive" or "very positive."

The writer believes that the 19% of the respondents who answered "no effect," certainly were not inclined to be "positive" but simply as small business persons needing further documentation or data to make a selection. While readers may disagree with the writer's assumptions; it is clear that only 8% of the respondents were strongly inclined to view the arrival of a new "super" competitive chain store as "helping" their own small business to survive.

Thus, the writer believes that 92% of the returns indicated fear, indecisiveness or lack of knowledge. Certainly there was little to be positive about in view of the increased vacancy rate of the small retailers in malls resulting in great part because of the competitive dominance of the mega-retail discount chains settling in their areas.

Further, in advance of the writer's questionnaires, the small retailer had witnessed the decline or elimination of the traditional wholesaler. Many small grocers were reduced to joining Sam's Clubs or Price Clubs in order to buy products for their retail stores.

Table and Chart 5B which follow, show a consistency in "negative" and "very negative" responses in the four states studied. Pennsylvania retailers appear to be most discouraged with 41% voting "very negative"; followed by California with 34%; Illinois with 30% and New York State with 27%.

When the "very negative" and "negative" opinions are added together; Pennsylvania (Philadelphia area) shows the most discouragement and fear with 81%; followed by California with 73%; Illinois with 71%; and New York State with 63%.

Pennsylvania appeared most threatened and reported "no effect" in only 14% of the responses; New York State reported 18%, California 18%, with Illinois at 24%.

Upper New York State in the Finger Lakes areas reported 18% as being "very positive" or "positive." Possibly this was due to the relatively small number of returns from New York compared to the other three states.

Pennsylvania and Illinois were most discouraged with Pennsylvania reporting only 4% in the combined "positive" area, and Illinois only 5%. California again showed a mixed result with 9% being "very positive" or "positive."

The questions addressed to the potential respondents tend to show the need for careful quantitative analysis of the tables and charts in Chapter III. It is therefore suggested that the reader show patience in coming to conclusions until completing a review of the quantitative analyses in Chapter III and then the subjective and narrative comments by small retailers in the four states studied to be found in Chapter IV on a state by state basis.

Table and Chart 6A and Table and Chart 6B
Responding Firms by Size Of Employment

The response to this national attitude survey, with respect to Table and Chart 6A which follow, concerned the impact of the mega-retail discount chains on the destiny and future health of the very small retail businesses. These small businesses generally have less than 20 employees.

The answers were derived from responses to Question 5 in Appendix 1. Fifty-two percent of the national respondents employed 5 persons or less. Seventy-four percent of the respondents had 10 employees or less. Only 26% of the respondents had more than 10 employees. Chart 6A shows that 402 employers, representing 74% of the total responses of 540 firms responding to this questionnaire were in the classification of "10 employees or less."

Table and Chart 6B which follow provides a more graphic review of the size of firms reporting in the four states studied; i.e., California, Illinois, New York and Pennsylvania.

Almost 60% of the respondents in California and New York had "5 employees or less"; with Illinois showing the average return to be somewhat larger with more returns in the "6-10" category than the other three states. Pennsylvania's returns were about 50% in the "0-5" category while their returns in the "6-10" category were also greater than California and New York.

The explanation as to why small retailers in Illinois and Pennsylvania had more employees on the average than California and New York can be clarified somewhat by once again reviewing Table and Chart 3B which showed an overwhelming preponderance of older firms in Pennsylvania (Philadelphia area), and Illinois (Chicago) compared to Southern California (San Diego area) and upper New York State, (the Finger Lakes area, with Syracuse, Auburn and Geneva, etc.)

For example, 57% of the respondents from Pennsylvania (the Philadelphia area) were in business over 20 years; and the same was true in Illinois with 40% of the returns. Compare this to Southern California with only 22% of the firms older than 20 years, and upper New York State with 30% in this category.

Table and Chart 7A and Table and Chart 7B
Pending Impact on Respondent Employment by Virtue of a National Retail Discount Chain Opening Near the Respondent's Location

Question 6 in Appendix 1 provided the responses presented in Table and Chart 7A by respondents of estimates of losses or gains in employment by virtue of having a new mega-discount retailer selling similar products in their area.

This type of question requires more than an educated guess - - it requires some serious quantitative modeling. Hence, it's not surprising that 37% of the respondents were not able to report an opinion as to a gain or loss in employment. However, again the writer views this indecision as being "negative." Certainly they do not see the arrival of a "Big Box" mega-retail discount chain store as being "positive."

Only 4% of the respondents saw their employment rising as a result of a new "chain" neighbor; while 59% predicted serious losses in employment after a mega-chain unit moved in selling similar products.

The question resulted in strong negative opinions. Eighteen percent of the respondent firms predicted losing 50% or more of their employees during the battle for survival. Forty percent of the respondents saw their retail ventures losing from 5% to 35% of their employees.

Imagine! Ninety-six percent of all respondents predicted losses in employment, while 37% saw no gain, but were unable to predict losses. As indicated only 4% saw benefits in employment by virtue of a new chain becoming a competitive neighbor.

Table and Chart 7B which follow, show a respondent breakdown by states. All four states, i.e., California, Illinois, New York and Pennsylvania were quite certain that the gains in employment in their enterprises would be trivial, indeed, with only 4% to 5% responding as to gains in employment. Sixty-two percent of the Pennsylvania respondents estimated loses in employment, with 18% of those predicting losses that more than 50% would lose their jobs.

Sixty percent of the California respondents predicted serious losses in employment, with 21% of those predicting losses visualizing 50% or more in job losses. Forty-eight percent of the Illinois respondents predicted job losses with a 13% job loss of 50% or more. Sixty-two percent of the Pennsylvania respondents predicted job losses, with 18% concerned about a 50% or more job loss. In New York, 57% of the respondents predicted job losses with 16% estimating 50% or more.

Thirty-five percent of the Pennsylvania respondents anticipated "no effect"; Thirty-six percent was a similar result for California. Thirty-nine percent reported "no effect" for New York and 46% of the Illinois returns predicted "no effect." Again, the authors believe a vote for "no effect" was primarily a lack of ability to make a "judgement."

In summary, there appears to be strong concern and worry from small retailers in all four states; California, Illinois, New York and Pennsylvania, that contemplated entry into their neighborhoods by mega-chains will drastically cut their ability to retain employees.

Since Tables and Charts 6A and 6B disclosed that retailers are typically small businesses with "less than 10 employees"; one can assume that there is a substantial percentage of family members who are employed by these small retailers. Their firms offer younger family members the opportunity of earning substantially higher wages than the near minimum hourly rates offered by many of the super-mega-chain stores. Hence, retail stores that "go under" prejudice the chances for continued neighborhood social stability and reduce opportunities for the retailers' family members and other local youth employed by small retailers to have the opportunity to attend college either part-time or full time. Weakening of the small business retail structure threatens the social stability of the neighborhoods in urban, suburban and rural areas.

Table and Chart 8A and Table and Chart 8B
Annual Sales Volume as Reported by Respondents

Data here was derived from quantitative answers to Question 7 in Appendix 1.

It was necessary to secure sales volume data from respondents in order to have them calculate the "negative" or "positive" impact on sales volume by the new competitive entries of mega-discount retailers near their current locations.

Again it is evident that the respondents are essentially small businesses. The four state results disclosed in Table and Chart 8A show 77% of the respondents with sales volumes of $1,000,000 or less. Fourteen percent of the respondents report volume of $1,000,000 to $3,000,000. Five percent reported volumes of $3,000,000 to $10,000,000. Only 4% reported volumes of $10,000,000 or over. Approximately 20% are found in the category of $250,000 to $500,000; and finally about 20% are found in the category $500,000 to $1,000,000. Only 38% had sales volumes of $250,000 or less.

Table and Chart 8B which follow, reveals a vast majority of the respondent firms; namely 77%, report sales volumes in the 70% categories from $0 to $1,000,000. California has 83% of its returns in this category; Pennsylvania, 71%; New York State, 74% and Illinois, 69%. In the $1,000,000 to $3,000,000 category, Pennsylvania led with 19.2%; New York, 18.6%; Illinois 15.2%; and California 11.3%. Illinois had 8% of its respondents with over $10,000,000 compared to an average of only 2% to 4% in the other three states.

Table and Chart 9A and Table and Chart 9B
Anticipated Effect on Sales Volume by Entry Into The Respondents' Location By a Mega-Retail Discount Chain Selling Competitive Products Generally Sold By The Small Retailers

The data in this analysis was secured by virtue to answers to question 8 in Appendix 1.

Table and chart 9A provide a dramatic visualization of the pessimistic views of the survey respondents with respect to diminished sales to be expected by incoming competition of the mega-retail discount chains.

Seventy-nine percent of the respondents nationally anticipate drastic reductions in sales volume, while only 14% anticipate no changes in sales volume. Nineteen percent anticipate a drastic reduction in sales volume of 50% or more. Only 6% see the possibility of increasing volume by having a superstore in the neighborhood.

Again, the writer believes that the 14% voting "no effect" are certainly not "positive" votes about having a new giant neighbor. They simply don't have strong numbers to rely on - - but we can assume that they are more pessimistic than optimistic about their company's future, otherwise they would have reported in a more positive frame of mind. Furthermore, "no effect" means no anticipated growth - which ultimately has a regressive effect.

Table and Chart 9B which follow, clearly show the opinion of respondents by states. Eighty-three percent of Pennsylvania's respondents see volume falling sharply. In California, it is 79%; New York, it is 80% and in Illinois, it is 78%. States showing greatest concern are California with 21% of the respondents expecting sales to drop by 50% or more and Pennsylvania with 20% of the respondents expecting a reduction in sales of 50% or more. New York followed with 16% of the respondents predicting a loss in sales of 50% or more; while Illinois was the lowest with only 15% estimating sales to drop by 50% or more.

As indicated, Charts 9A and 9B are quite dramatic showing strong pessimism for retaining sales volume. As is noted later, lower volumes means reduced profits and reduced employment.

Relationship of Job Loss to Sales Volume Losses to Lower Profits and Lowered Employment

There is consistency shown in the data to this point. For example, Tables and Charts 6A and 6B show the size of firm and number of employees, while Tables and Charts 7A and 7B show the anticipated gains or losses in employment based on the imminence of mega- retail discount chains moving near the proprietor's location.

Additionally, Tables and Charts 8A and 8B report on the annual sales volume of the respondents. This may then be compared to Tables 9A and 9B on the predicted impact on sales volume based upon mega-retail discount stores arriving in the area. Both the data on job loss and the data in sales volume loss combine to show overall concern by the respondents with respect to all the questions addressed to them by the research staff.

While it is true that the study had a total sample of 6,014 mailings and a 570 return of 9.4%; nevertheless, were these results extrapolated among 50 states and numerous cities rather than four states and a limited number of urban areas, it would appear that both the governmental authorities and the banking segment of the United States should be stunned and look to a serious down sizing of the total economy, affected in great part because of the growing weakness revealed by this study of small retail businesses. The small retailer for a long time has been an integral part of our balanced free market economy and appears about to disappear from the business "landscape."

Table and Chart 10A and Table and Chart 10B
What Did the Respondents Believe Would Be The Impact on The Profitability Of Their Firms After the Arrival Near Their Location Of A Mega-Retail Discount Chain Store

The data discussed here is derived from the responses to Question 9 in Appendix 1 and disclosed by Tables and Charts 10A and 10B which follow:

Seventy-six percent of the respondents located in the four states studied anticipated serious reductions in profitability. In fact, 24% of the firms believed that they would see their profits reduced by more than 50%.

The "no effect" answers (about 16%) to this question were quite small compared to other questions requiring a lot of external facts to make a judgement. Here the respondents were clearly convinced that profits would be lowered substantially. Many foresaw serious losses as well.

Only 8% of the firms saw an increase in profitability were the mega-retail discount chain to arrive. The positive expectations were quite conservative, indeed.

The data on reduced profits is quite consistent when compared to predictions on prior questions relating to reduced sales and reduced employment.

Table and Chart 10B breaks down the data by states in the study. The "no effect" is consistent among the four states; i.e., approximately 15%-16%.

All four states showed substantial majorities reporting imminent reductions in profits. Eighty-two percent of the respondents from Pennsylvania reported a prospective downturn in profits. Similarly the downturn in profits reported in California was 79%; in New York, 76% and in Illinois, 69%.

Twenty-seven percent of the California respondents expected a downturn of 50% or more, with New York showing 24%; Pennsylvania, 23% and Illinois only 17%.

Table and Chart 11A and Table and Chart 11B
Rise of the Mega-Retail Discount Chains Has Adversely Affected the Ease with Which Small Retailers were Formerly Able to Buy from Wholesalers

Question 10 in Appendix 1 asked the following questions:

"There appears to be a trend on the part of the large, national discount retail chains to buy directly from manufacturers. As a result, middlemen or intermediate distributors seem to be disappearing. How will this affect your purchasing practices?"

The summary results as noted in Tables and Charts 11A and 11B for the four states collectively were as follows:

How are Retailers Affected by the Reduction in the Number of Wholesalers?

Description Respondents
Very Positive 2.48%
Positive 3.44%
No Effect 43.70%
Negative 26.34%
Very Negative 24.05%

It should be kept in mind that 50% of the respondents reported that the continuing reduction in the unavailability of wholesalers would affect their business futures adversely. Twenty-six percent saw it as "negative" while an additional 24% viewed it as "very negative."

Only 6% of the respondents saw it as "positive" or "very positive." Perhaps this small number of respondents (31) for the four states believe that their unique product lines would continue to permit them to buy "direct" from manufacturers or suppliers.

Forty-four percent voted "no effect." This vote often reflects the small retailer's lack of knowledge of what is happening in the national market. Chapter IV will quote verbatim the disenchantment of the small retailers who are aggravated by the fact that the giant mega-retail discount chains are generally buying "direct" from suppliers and manufacturers.

In a number of regions in the United States, small grocers are buying products from Sam's Clubs, Price Clubs/Costco, and this indicates a kind of hopelessness that precedes liquidation or bankruptcy.

Table and Chart 11B disclosed that approximately 55% of the firms reporting from Pennsylvania and Illinois see the reduction in the number of wholesalers as "negative" or "very negative." California appears somewhat less threatened with 48% in the "negative" grouping. New York is the lowest with a combined "negative" response of 45%.

Recent Moves by Kmart and Wal-Mart May Further Threaten the Survival of the Neighborhood Grocer or Medium-Sized Independent Supermarket

Kmart's recent venture into the "Big Box" grocery and general merchandise field through the introduction of "Super Kmart" stores was intended to gain volume against the number one retailer, Wal-Mart. Kmart is attempting to convince customers that Kmart is not only a great purveyor of women's clothing, but that the "Superstores" are also a good place to buy meat, cold cuts, milk and lettuce. The Super Kmart is Kmart's version of the grocery supercenter and combines a discount merchandise store with a traditional supermarket under one giant roof.

In a recent Wall Street Journal article by Christina Duff, the reporter interviewed a Mrs. Brockman who stated she was keen on Kmart's grocery prices. To quote her, "The tenderloin she recently bought there cost $4.99 per pound, compared to $6.99 at the family-owned Acme Super- Center across the street from Super Kmart."1

Kmart, the nation's second largest retailer, is counting on these newly planned Super Kmarts to help stem the loss of customers to the industry leader, Wal-Mart Stores, Inc.

By the end of 1995, Wal-Mart had already opened 143 combination stores - called "Supercenters" and has 90 - 100 planned for both 1996 and 1997. Wal-Mart plans for Supercenters, generally in excess of 180,000 square feet would not only compete against Kmart but also would target all small and medium sized groceries in the market area, and place added pressure on such firms as Price Chopper, Shop 'n Save and Grand Union, particularly in the Northeast.

While both Kmart and Wal-Mart earlier were less than successful in efforts to sell groceries and merchandise in the same store, Wall Street and marketing analysts believe that both chains had learned from experience and were ready to take on the local groceries and food markets as well as regional grocery chains.

Mass merchandising involves giant warehouses as well as tremendous space to show food products that is not possible for the traditional grocery or grocery chain. Furthermore, buying direct from food processors and suppliers provides better margins than are available to small retailers. Further, wholesalers are disappearing since the giant discount chains with mass merchandising are buying where possible "direct."

Wal-Mart's investment in villages and environs appeared to be tailor-made for Wal-Mart's supercenter concept according to an article by Rick Stouffer appearing in the Buffalo News on May 26, 1994.

The article contained the following analysis by informed marketers and financial analysts:
"Wal-Mart still is in the process of experimenting with the supercenter concept," said Don Spindel, a retail analyst who follows the Bentonville, Arkansas, retailer for A.G. Edwards & Son in St. Louis. "They know they have been very successful in the Midwest, but they want to put a few stores in the Northeast to see how they do. It sounds like the Springville area is ideal." 2

Under the supercenter concept, Spindel said, Wal-Mart uses to food to entice people to its adjacent discount store.

"'People on average shop for food two to four times per week,' the analyst said. 'They (Wal-Mart) use food to drive their general merchandise business. And, unlike a regular supermarket, Wal-Mart does not have to make money on food-- but they do'." 3

Wal-Mart certainly is convinced the supercenter concept is a winner.

"'I think the Supercenter is the wave of the future for Wal-Mart'," said Janet J. Mangano, a retail analyst for Burnham Securities in New York City. 'It's the most profitable store they have and when a Supercenter replaces a regular Wal-Mart, it does much better (from a sales standpoint)'." 4

Table 12
How Does Small Retail Business Generally Promote Its Products and Its Business?

Part of the problem encountered by small retail businesses in their competition with the major retail discount chains is the lack of financial ability to devote substantial sums in their budgets for promotion.

Table 12, which follows, is derived from the answers to Question 11 in Appendix 1: "What methods do you use to promote your business?" "Please check off the methods that you rely on most." A review of the question shows there can be more than one response giving a total over 100%. National data for the four states studied follows:

Table 12
Question 11 - Table 13

% of Sample
Selecting Each Method
Answer Choices
51.32% Flyers/Leaflets/Brochures
9.21% Canvas Personally
7.89% Telemarketing
51.32% Telephone Book/Yellow Pages
67.11% Local Newspapers
2.63% National Newspapers
11.84% Magazines
19.74% Radio
13.16% T.V.

The research staff asked this question to get an idea as to what methods the sample population utilized to promote their businesses. This question provided an understanding of the type of business establishments the sample represented as well as to demonstrate the means and resources available for promoting their businesses. Of those polled nationally, 95% responded to the question.

Upon analysis of the data, the staff realizes that most of the sample were overwhelmingly made up of small businesses with little means and resources to invest in business promotion. One can see that the largest percentages were found in "flyers/leaflets/brochures, telephone books/yellow pages, and local newspapers." These are all low budget methods of business promotion. It will be extremely difficult for these small businesses to compete with mega-retail discount retailers who have extensive staff and financial resources and generally strong budgets for advertising and business promotion.

Can the Small Retailer Compete with the Mega-Retail Discount Chain When it Comes to a 24 Hour Day and a 7 Day Per Week Operation?

Question 12 in Appendix 1 asked the following question: "Please rate the days of the week as to which are your busiest and which are your slowest; also what days you are closed?"

Ninety-five percent of the respondents answered this question, which was in the form of a grid based on a 1 to 7 range from "slowest to busiest" as well as the days of the week that the store was closed. The findings were as follows:

(1) More than 50% of the respondents closed their businesses on Sunday; 8% closed on Saturday; with 1% on Wednesday and the balance kept their stores open seven days a week in some fashion or other.
(2) Interestingly enough, while over 50% closed on Sunday, some 40% of the total population selected Sunday as the busiest day of the week.
(3) Upon analysis of the responses, it seems that these small businesses are still keeping traditional work hours. They must be aware of the fact, that in order to survive, they will have to compete with the hours that the large mega-retail discount chains follow; namely making themselves available day or night to meet the needs of the local consumer market.

Table 13, Table and Chart 13A and Table and Chart 13B
A National Summary of Those Products Sold by Small Retailers Which Parallel Products Available in the Mega-Retail Discount Chains

Question 15 in Table 13 identifies the variety of trades, products and services of which the sample population is composed ninety-two percent of the respondents returning their data and provided detailed breakdowns of what they sold.

Table 13, and Tables and Charts 13A and 13B provide a national total of the data received from the four states and reveal that 570 of the completed returns, which represented 9.4% of the mailing were truly representative of retail business.

This question allowed the surveyors to analyze the heterogeneous nature of the variety of businesses evidenced in the respondent returns. When the sample was selected, great efforts were made to make sure there would be no heavy concentration of mailings to a particular sector of retail activities. This was done to keep the results as unbiased and objective as possible within the retail industry as a whole.

Table 13 and Tables and Charts 13A and 13B shows the heterogenous nature of the responding retail firms. As in the case of the mega-retail chains, smaller retailers also sell more than one product line. For example, a retailer might sell women's, men's and children's apparel. Another retailer might sell sports products as well as electronics, i.e., video/equipment and audio/stereo. Question 15 was designed to procure where possible retail sales in every product line which might be found in a mega-retail chain. Hence the number of responses by categories far outweighed the number of respondents.

Table 13 provides product analyses for all four states as a whole, while Table 13A and Chart 13A provides a breakdown of the 570 respondent retailers in each of the four states under study. Table 13A showed total choices amounting to 1341 selections of retail activity by the 570 respondents in the four state study.

As might be expected, Table 13A shows heavy concentrations in "food products," 18%; "home improvement products," 15%; "other products," mainly jewelry and related items, 11%; "other services," such as Optometry, photography, 9%, and combined apparel, men's, women's and children's, 12%. The nature of these categories are such that the respondents in these businesses may have more serious concerns about survival than the other categories.

The subjective answers in Chapter IV which follow indicate concern and fear of the price competition from such chains such as Kmart, Wal-Mart, Home Depot, Target and Sam's Clubs.

As noted in Table 13A, the return from food product retailers overall was 18%. However, in Table 13B, the return from New York was 22%; from California, 19%; from Pennsylvania, 17%; and from Illinois, 13%.

With respect to home improvements and building supplies; Pennsylvania showed a return of 28%; Illinois 17%, California 11% and New York only 9% for an overall average of 15%.

In apparel with an overall response of 12%, California's combined total for men's, women's and children's was 15%; New York was second with 14%; Illinois was third with 7% and Pennsylvania lagged with 5%. The nature of the area often dictated the characteristics of the responses. For example, Philadelphia and Chicago which are quite metropolitan and urban; and less inclined to buy fashionable "casual wear" appropriate to the warmer climate of the suburban and rural San Diego area. The Finger Lakes region of New York State was more rural than the Pennsylvania and Illinois experiences.

Retail Product Categories Selected by Respondents from the Four States

The retail product returns from each of the four states are categorized by product into subdivisions. There is quite a differentiation between the product mix in one state compared to another, as might be expected based on climate, environment, age of the average residents and style of life.

Table 13A covers 799 selections from Southern California (San Diego, Mira Mesa, Poway, Chula Vista and Oceanside.

Table 13A covers 186 selections from Illinois which includes Chicago, Kanakee and Des Plaines areas.

Table 13A covers 64 selections from the Finger Lakes region of New York State including such areas as Geneva, Auburn and Syracuse.

Table 13A includes 292 selections from the metropolitan area of Greater Philadelphia, Pennsylvania (South Philadelphia, Center City, Society Hill,, Northeast Philadelphia, Northwest Philadelphia and West Philadelphia).

California's response unlike the other three states studied, were numerous in apparel categories. Most of the retail stores selling men's and women's apparel classified as "casual wear" are found in the California returns. There were few returns in these categories from Illinois, New York and Pennsylvania. California, Illinois and Pennsylvania are quite representative on Home Improvement and building supplies.

New York and Pennsylvania showed a substantial percentage of food retail responses. California and Pennsylvania were strong on pets and pet supplies. California was strong in the sports products areas. California and Pennsylvania also had numerous returns in jewelry, watches and related products.

Where Do the Customers Come From? The Rise of Multi-Discount Retail Chains has Benefitted Immensely by the Infrastructure Changes Provided by the Taxpayer (Question 16)

Data received from all four states studied showed the influence that automobiles have on shopping habits. The retail responses showed that their customers came from different towns and counties depending on convenient highway facilities and parking availability.

Obviously the dependence on the automobile tends to favor the mega-retail discount chains. The mega-discount chains and "Big Boxes" have capitalized highways and automobiles to shift the retail center of gravity away from the smaller retailers in the neighborhoods, the enclaves and the traditional "Main Street." The mega centers have huge parking lots, while it has become more and more costly to park in the central city without being "ticketed." Obviously, the "Big Boxes" have benefitted from tremendous investments on the part of federal, state and local governments in highways, egress and access roads and other infrastructure improvements which have not been made available to the traditional retailers. (See section on parking)?

Since customers now have to employ their cars to shop, the sense of community is vanishing along with jobs and the tax revenues.

Table and Chart 14A and Table and Chart 14B
The Retail Respondents Were Queried as to What Methods They Would Employ to Survive in the Face of Imminent Competition by Mega-Retail Discount Chains

The data requested was in response to Question 17 in Appendix 1 which follows: "What methods would you employ in order to compete more effectively with a large retail discount chain that sells similar products/services; or, what decisions would you make to alter, survive or terminate your business? Please check off your alternatives from the list below. It is permissible to check off more than one."

Tables 14A and 14B which follow, describe the alternative strategies that small retailers are contemplating in order to survive the competition of the mega-retail discount chains.

Question 17 was asked in order to gain an awareness of the strategies (positive or negative) small businesses were planning to implement in order to compete with large, national discount retail chains. Eighty-four percent of those polled responded to this question. While the return was substantial, nevertheless, this was the lowest response rate for any given question on the questionnaire. The writer believes that many of those who answered the total survey were reluctant to deal with the subject of "competitive strategies," or possibly didn't answer because they had no idea how to deal with this issue.

Of the alternatives that were given as answer choices, the staff observed a natural classification of responses; as "positive" or "defensive." "Positive" choices demonstrated survival and aggressive competitive strategies. For example, if the respondents indicated choices such as "Increase Work Hours," "Increase Visibility," "Provide Fuller Service" or "Expand Product Line;" this indicates that the business owner is still in the "battle" and is willing to compete aggressively with the mega-retail discount chains for market share.

Data Provides National Results of A Fragmented Nature Into Both "Positive" (More Optimistic) and "Defensive" (More Pessimistic) -- Question 17

"Positive" Strategies % of Total Responses on
Each Alternative Strategy
Increase Work Hours 7.30%
Increase Staff 1.68%
Increase Visibility 14.70%
Provide Fuller Service 17.23%
Expand Product Line/Services 8.47%
Consolidate Business 1.80%
Move Business 4.42%
Sub-total 55.60%
"Defensive" Strategies % of Total Responses on
Each Alternative Strategy
Raise prices 1.52%
Lower prices 11.62%
Decrease work hours 1.12%
Decrease staff 8.08%
Narrow Product level/services 8.98%
Liquidate business 3.42%
Bankruptcy 1.63%
Sell business 6.40%
Merge business 1.63%
Sub-total 44.40%
TOTAL 100 %

The respondents to Question 17 numbered 479 firms on Question 17 or 84% of the 570 total respondents. The 479 firms answering the strategy question selected a total of 1782 alternative choices. Fifty-six percent were "positive" strategies, while 44% were "defensive" strategies.

The major aggressive "positive" strategies were as follows: "Provide Fuller Service," 17%; "Increase Visibility," 15%; "Expand Product Line and Services," 8%; and "Increase Work Hours," 7%.

Obviously, in view of the mega-retail discount chains being open day and night to accommodate the mobile shopper; increasing staff and the work hours would be a forward move for the small retailer. Since the mega-discount chain's large "Boxes" limit salesperson customer contacts; "Providing Fuller Service" creates a retail uniqueness to bring customers into the store. "Increased Visibility" means putting more money into advertising such as hand outs and radio advertising. "Expanding the Product Line and Services" is to create customer interest and provide an innovative solution to the present inability to compete on price alone. "Positive" selections, as stated previously, represented 56% of the choices.

According to the author's classifications, 44% of the choices were "defensive," negative or mildly negative. Twelve percent of the choices were to "lower prices." In view of "direct" mass purchasing by chains from suppliers and manufacturers, can a small retailer meet these lower prices? Obviously not, particularly since the number of wholesalers has begun to shrink because of direct "partnering" between mega-discount chains and suppliers. To illustrate, in the Philadelphia area the average monthly number of workers employed by wholesalers dropped from 44,200 in 1987 to 27,200 in 1994 - a reduction of 37%. The number of wholesale business establishments in Philadelphia in 1987 numbered 2,195; by 1995 this had dropped to 1817, a reduction of 20%.

These trends are continuing and are matched by the loss encountered in retail employment in Philadelphia. In 1987, there were 103,800 retail employees in Philadelphia in an average month. By 1995, this monthly average had dropped to 87,100 - a reduction of 19%. During the same period, retail business establishments were reduced in number from 8,425 in 1987 to 8,063 in 1991, a reduction of 4%.5

Other discouraging defensive strategies advanced were, "decrease staff," 8%; "narrow product line," 9%; "sell business," 6%; "liquidate the business," 3%; "bankruptcy," 2% and "merge business," 2%.

Table 14
Summary of "Positive" and "Defensive" Behavior

California % Illinois % New York % Pennsylvania %
"Positive" Decision Making 54.8 60.0 55.5 49.8F
"Defensive" Decision Making 45.2 40.0 44.5 50.2
Total 100.0 100.0 100.0 100.0

An earlier national analysis in table 14A showed selections weighing the responses from four states as 55.6% "positive and 44.4% "defensive." However some retailers in each of the four states appear ready to fight for survival, while others are closer to quitting.

Illinois had 60% of the selections as "positive," California, 55%; New York, 56%; while Pennsylvania's choices were only 50%. All the data in the preceding charts and tables indicated the potentiality of fragmented decision making, ranging from optimistic to pessimistic.

Overall there appears to be great pessimism at this time in the minds of the small retailers in California, Illinois, New York and Pennsylvania.


(1) Results in four states, Pennsylvania, California, Illinois and New York State indicate that respondents to most questions in the Shils questionnaire, (see Appendix 1), almost uniformly were pessimistic about their chances for survival when faced competitively by the mega-retail discount chains.

(2) Over 6,000 questionnaires were mailed out to small retailers in four states. The 9.4% completed returns provides substantial information and meaningful validity with respect to the fears of small retailers and their concerns and expectations with respect to a possibility of a viable and profitable firm survival.

(3) The statistical results would have been well over 10% had it not been for the 321 or 5% of the questionnaires that were returned unopened because the intended recipients had already gone out of business. This was shocking information since the Dalton directory used in the survey is published annually for each region. The staff visited malls in Illinois; New York and California and noted that in dozens of cases, the addressees whose questionnaire had been returned by the United States Post Office, had signs on boarded up properties stating, "Out of Business." These retailers had suffered to a great extent, because normal sized "anchor" stores in the mall had closed down unable to compete with the super "Boxes" built by some of the mega-retail discount chains in the area.

(4) President Bill Clinton in an address at the 1995 White House Conference on Small Business on June 12,1995, stated that while more new small businesses had sprung up in 1993 and 1994 than in any previous year since World War II; that, nevertheless, he was concerned about their ability to stay alive. He expressed concern about the high rate of failures and bankruptcies among small business. Contributing to the increasing failure statistics among small retailers has been their inability to compete with the mega-retail discount chains.

(5) As to the new starts in small business alluded to by President Clinton, the enormous downsizing (millions) of employees working for America's large corporations has contributed to the desire of the redundant employee to become self-employed. Retail employment at near minimum wage cannot satisfy the family requirements of the former corporate employee; hence a desire for self-employment. Retail employment in most of the major chains can usually lead to a wage near the federal minimum or slightly above it. Many of these chains require that the hourly rate employee pay or contribute to his/her own health benefits. Thus, the opportunities in retail ownership appear rosy compared to a low minimum wage job; but the competition of the mega-discount chains makes survival and profit making speculative, indeed.

(6) As might have been expected, 86% of the returns were identified as "sole proprietors."

(7) Surprisingly, 62% of the respondents had been in business for more than 10 years. Closing a business like this is traumatic and has terrible social impact on the family and the community. Eighty-two percent of the respondents were in business at least 5 years.

(8) To prove that the respondents were in fact "small business," the typical retail respondent occupied only between 1,000 and 5,000 square feet of retail space. Think of the average retailer's inability to stock inventory to compete with the national chains who have stores with 45,000, 90,000 and even 160,000 square feet.

(9) When the respondents were queried as to what the anticipated effect upon the firms's economic health might be if a mega-retail chain were to locate nearby, the answers were overwhelming "negative" and "very negative." Forty percent anticipated the results as "negative" and an additional 33% answered "very negative." Thus, 73% viewed their futures in a most despondent, negative manner. Even the 19% voting "no effect" were certainly not "positive," but it si possible that in many cases, they decided not to answer the question positively or affirmatively because of a lack of hard data to make a judgement.

(10) To further validate the fact that opinions came from small businesses, it appeared that 74% of the firms employed 10 employees or less. Only 26% of the firms had more than 10 employees. These typical "sole proprietor" retailers were small indeed, with 52% of the respondents employing 5 employees or less.

(11) Fifty-eight percent of the respondents visualized serious losses in employment were a major chain to move into the area selling similar products. Forty percent of the respondents saw their retail venture losing from 5% to 35% of their employees. Eighteen percent visualized losing more than 50% of their employees. Only 4% saw a gain in employment. Thirty-seven percent anticipated "no effect."

(12) With respect to their current business volume, the retail respondents were characteristically small. Seventy-seven percent had volumes of $1,000,000 or less. Thirty-eight percent had sales volumes of under $250,000; and 20% had volumes of $250,000 to $500,000. Only 23% had sales volumes over $1,000,000.

(13) The respondents were then asked to estimate the positive or negative impact on sales volume by the imminent competition of a mega-retail discount chain. Eighty percent of the respondents anticipated "sharp" to "drastic" reductions in sales volume; while only 14% saw "no effect." Only 6% saw a rise in volume by virtue of a new competitive entry of a major retail discount chain.

(14) Data appeared consistent as to sales volume loss and unprofitability. As to profitability, 24% of the respondents visualized profits dropping by more than 50%. In fact, 76% anticipated serious reductions in profitability as a result of the imminent competition of the mega-retail discount chains. Only 8% saw an increase in profitability, with these estimates being mostly conservative, i.e., 10% or less. Sixteen percent saw "no effect."

(15) Respondent retailers saw the reduction in the number of wholesalers, or those middlemen willing to sell small retailers, as affecting their business negatively. Over 50% saw the direct selling to mega-retail discount chains by suppliers as being "negative" or "very negative."

(16) Kmart's and Wal-Mart's recent ventures into the Super Kmarts and supercenters' food and grocery departments are creating new competition for the small grocer and the more traditional supermarket. Small retailers see these ventures as further threatening the survival of countless small food retailers. Many of whom (lacking wholesale resources) are buying now from Sam's Clubs or other clubs to survive.

(17) Small retailers do not have the relative financial ability to compete with the mega-discount chains in advertising, promotion, public relations, radio and television. They rely on the small business techniques replete with flyers, leaflets, brochures, the yellow pages of the telephone book and local newspapers.

(18) Ninety-five percent of the respondents lack the ability to compete with chains because of limited hours and days worked per week. More than 50% of these respondents close their businesses on Sunday; 8% close on Saturday. Forty percent of the total respondents however, saw Sunday as the "busiest" day worked during the week. Most work traditional work hours and are unable to compete with the mega-retail discount chains, who in many cases are open 7 days per week and 24 hours per day.

(19) Small retailers sell most of the products sold by Kmart, Wal-Mart, Target and many other major chains. Each store however is limited with respect to national brands, inventory and product lines. One might specialize in apparel; another in food; another in auto mechanics and supplies and so on. Table 13A showed the percentage of respondents selling each product. To recap: 18% are "food products"; 15% "home improvement"; 12% "apparel"; 11% "other" (jewelry, etc.), 9% "other services" (Optometry, photography, etc.). These vary greatly among the four states. For example, California shows heavy responses in "casual apparel"; while this is not as important in Pennsylvania and Illinois.

(20) The customer base of these retail respondents depends greatly on highways and parking. Naturally, the major chains locating outside "Main Street" have the advantage of parking lots; ease of access, freedom from parking meters and downtown traffic congestion. Add to that the fear of crime and violence in downtown evening shopping which creates a major disadvantage for the small "Main Street" retailer.

(21) A major question addressed to the small retailers related to strategies they might apply in competing more effectively with the major discount chains. While the staff received an 84% response rate; it was lower than the answers to other questions. The respondents appear fragmented in their choices; frustrated, confused and pessimistic.

(22) Fifty-six percent selected alternative strategies that could be defined as somewhat "positive"; such as "increase staff," "increase visibility," "provide fuller service" and "expand product lines." Forty-four percent of the choices were "defensive" strategies; "going from raising or lowering prices," "decreasing staff," "liquidating or selling the business" or "going into bankruptcy."

There was not a great deal of difference among the four states as to "positive" strategies. Illinois was the most positive with 60%; New York with 56%; California 55% and Pennsylvania with 50%.

(23) The staff believe that the profile of small retail business as portrayed in Chapter III shows consistency and validity; not only nationally but among the four states studied. Surprisingly, respondents generally have been in business longer than might be the popular notion. Small retailers show concern about their future viability, and evidence fear of job loss, liquidation and bankruptcy; they become less competitive when compared to the mega-retail discount chains.

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