Mass Distribution: The Chain Store

Although the chain store had its beginning and first growth in the post- Civil War years, it did not become a significant retailing institution until the first decade of the twentieth century. By the 1920s, however, such stores were established widely enough and had become efficient enough to receive the brunt of the political protest and its legislative manifestations that had been directed against the department store in the 1880s and 1890s and the mail-order houses in the decade after 1900.76

Chain stores appeared first in trades and sectors where the existing mass retailers were not yet strongly established. They moved into grocery, drug, and furniture trades rather than into dry goods and apparel. And they located in small towns and cities and on the outskirts of metropolitan areas rather than in large urban centers or in rural areas. At first the chains remained, with a few notable exceptions, regional rather than national. By World War I, however, they were operating nationally and were competing directly with other mass retailers. In the 1920s mail-order enterprises began to build chains of their own. By the 1920s, therefore, the chain store had become the fastest growing type of mass marketer and was becoming the standard instrument for mass retailing in the United States.

The first chain store of any size came in the grocery trade.77 The Great American Tea Company, founded in 1859 by George F. Gilman and George Huntington Hartford, was by 1865 operating twenty-six stores, all in the area of lower Broadway and Wall Street. They sold only tea. In 1869 the firm changed its name to the Great Atlantic and Pacific Tea Company and began to extend its chain of stores into the northeast and across the Appalachians. By 1880 it was operating one hundred stores in an area ranging from St. Paul, Minnesota, to Norfolk, Virginia. By then Gilman had retired and Hartford had brought into the enterprise his two sons, George L.and John A., who continued to manage their enterprise until the mid- twentieth century. By 1900 the company had spanned the continent between the Atlantic and the Pacific, though its branches were still concentrated in the northeast. It had sales of $5.6 million and sold a line that included coffee, cocoa, sugar, extracts, and baking powder, as well as tea. In the next decade it began its real growth.

Success brought imitation. Other tea wholesalers built chains and then others did the same in different grocery lines. In 187 2 the Jones Brothers Tea Company of Brooklyn was formed; this became the Grand Union Company of today. Ten years later came the Great Western Tea Company, a forerunner of the Kroger Company, and in 1899 the present Jewel Tea Company was founded. By then more than half a dozen grocery chains were in operation in the United States, including the predecessors of American Stores and the First National Stores.

The story was much the same, although on a smaller scale, in the variety store business. Here Woolworth’s was the first. In the early 1880s, Frank W.Woolworth opened seven variety stores in southeastern Pennsylvania, that is, small department stores selling low-priced goods. By 1900 the Woolworth enterprise was operating flve-and-ten-cent stores with sales over $5 million. Growth quickened and by 1909 the chain had 318 stores in the United States and was beginning to open branches in Britain. Others followed Woolworth’s lead. John G. McCrory began a chain also in southeastern Pennsylvania in 1880. S. H. Kress started a similar one in Memphis in 1896, and S. S. Kresge in Detroit in 1899.

Before the turn of the century similar chains had appeared in mass retailing of drugs, shoes, jewelry, furniture, and cigars.70 Although some, such as United Drug and United Cigar became national, even international in scope, these chains normally had fewer stores, and covered a smaller territory than did Woolworth’s, the A & P, and their imitators. In all these trades the chains continued to grow rapidly during the first years of the twentieth century.

The chains in these different trades used variants of the same general organizational structure adopted by other mass marketers.80 In the chains, each major line had its buyers who made the decisions about specifications of price and volume of orders. As in the department stores and the mail- order houses, the buyers were usually responsible for the private branding of a product and its advertising. As in department stores, they made good use of the advertising agencies. Either the buying department or traffic or shipping department had charge of the shipment of goods and produce from the producers to the branch stores.

The basic difference between the structure of the chain and the other two mass retailers came, of course, in their sales organization. The chains had to administer a number of geographically scattered units. Nearly all the larger chains acquired regional managers with a staff of accountants and “inspectors” or “road men” who kept a constant check on the sales and financial performance of the managers of the individual stores in their own territories. For all these middle managers stock-turn remained the basic criterion for success. The regional officers also advised on marketing policies, displays, personnel, and purchasing, and they made sure that the flow of goods moved into stores as scheduled.

Because they covered a broader and a faster growing market than did either of the other two types of mass retailers, the chains began in the twentieth century to grow more rapidly in number and in volume of sales than did either the mail-order house or the department store. The chains were better suited to respond to the changes in consumer buying resulting from the increased mobility made possible by the coming of the auto- mobile and from the rapid growth of the suburbs. Faced with a declining rural market in the 1920s, the two great mail-order houses—Sears Roebuck and Montgomery Ward—organized chains of several hundred retail stores between 1925 and the coming of the great depression in 1929. Earlier both had constructed new mail order plants in different parts of the country. By the 1930s, department stores, though only in a most tentative way, had begun to build branches in the suburbs of the cities they served. The chains with their geographically widespread network of branches completed the retailing revolution begun by the department stores in the 1860s and the 1870s. They did so because they created administrative organizations that coordinated a higher volume flow of goods from the manufacturer to the largest number of final consumers in an increasingly urban and suburban economy.

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

Leave a Reply

Your email address will not be published. Required fields are marked *