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“The Only Way Is Up”: Overoptimism and the Demise of the American Five-and-Dime Store, 1914–1941

Published online by Cambridge University Press:  10 May 2017

Peter Scott  and
James T. Walker
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Abstract

We examine a classic “wheel of retailing” episode: the abandonment of the five-and-dime pricing formula by American variety chains. The variety chains switched from a conventional product lifecycle, focusing on cost reduction through standardization, to a reverse path up the “service cost–unit value” continuum. We show that, rather than reflecting deteriorating managerial acumen, this shift was a response to the continued imperative for growth following retail format saturation. Firm-specific (rather than format-specific) competitive advantages were too weak for any chain to be confident it could win a within-format price war, making interformat competition through raising price points more attractive.

Type
Research Article
Information
Business History Review , Volume 91 , Issue 1 , Spring 2017 , pp. 71 - 103
Copyright
Copyright © The President and Fellows of Harvard College 2017 

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105 Net incomes to sales ratios over 1929–1938 averaged 3.76 percent for Grant, 3.89 percent for McLellan (available only for 1919–1931 and 1935–1938, owing to receivership), 5.84 percent for Murphy, 6.92 percent for Kresge, and 6.99 percent for Kress. Merrill Lynch & Co., Chain Store Statistics, 9, 11, 13–14, 17–18, 21, 23–25. Data for Woolworths are more problematic, owing to the presence of foreign subsidiaries, though an estimate for 1932–1936 gives an average ratio of 10.52 percent over these years. Anderson-Morrell Associates, “Variety Chain Store Group,” roll 2, 68–70, Kresge papers.

106 These include a full set of fixed effects, which may also indirectly capture firm- and store-level factors and other unobservable elements. We also include year effects to capture economy-wide exogenous impacts specific to any given year.

107 Based on annual report data on sales from 1908 (or the earliest available year thereafter) to 1940. “Record of the 5 and 10 Stores' Growth,” 110–33, Kresge papers.

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