Anthony Behar/Sipa USA via AP Images
The Forever 21 Times Square store on the eve of the presidential election, November 2, 2020, in New York. The chain was bought by Simon Property Group and Brookfield Property Partners in February.
The COVID-19 pandemic has accelerated the long decline in retail. Twenty-nine retail companies have filed for Chapter 11 bankruptcy, leading to the shuttering of 2,368 apparel stores, 1,433 home furnishing stores, and 907 department stores. The carnage has also given rise to a new trend of ownership in the industry.
In September, real estate companies Simon Property Group and Brookfield Property Partners purchased J.C. Penney for $800 million, after the department store chain had filed for bankruptcy in May. The same real estate firms bought Forever 21 in February. Simon also acquired clothing retailer Brooks Brothers this year after its bankruptcy filing. As Simon and Brookfield coordinate and purchase stakes in wobbly retailers, it helps ensure that the outlets keep paying rent at their shopping malls.
These acquisitions signal the imminent end of the model of brick-and-mortar retail chains, a model that has dominated the U.S. retail landscape for decades. Even before the pandemic, brick-and-mortar retail outlets were struggling to stay profitable and competitive; the reasons for the struggle were many. Many apparel retailers never recovered from the Great Recession, and private equity vultures then bought up these troubled retailers, loading their balance sheets with massive amounts of debt and turning many retailers into “zombies.” In addition, one of the most powerful causes of the retail apocalypse has been the rise of Amazon. Amazon has an increasing monopoly over e-commerce and this year became the country’s largest apparel retailer, with $30 billion in sales.
But Amazon’s dominance, the long-standing frailty of the retail industry, private equity takeovers, and massive consolidation in the sector are all largely the result of lax antitrust enforcement. This has allowed Amazon to deploy an array of anti-competitive practices to increase market share, and has allowed private equity vultures to burden businesses with debt and extract all the value away from workers.
These acquisitions signal the imminent end of the model of brick-and-mortar retail chains, a model that has dominated the U.S. retail landscape for decades.
This lax antitrust enforcement mirrors regulators’ and courts’ failures in the 1970s and 1980s, when discount chains abused and culled the retail landscape of the time, which was dominated by department stores. Consolidation was the flawed response to this past crisis, much as we are seeing today. The outcomes, then and now, include losses of independent local businesses, labor rights, and civic community. The only way to remedy this and to prevent further damage is to reverse these changes in antitrust enforcement that began decades ago.
The rise of discounters such as Walmart, Sears, Kmart, and others in the late 1960s had an adverse effect on department store retailers, because of the discounters’ much lower prices for consumer goods. Some might interpret this market share gain as simply fair competition with benefits for consumers, but weakened antitrust enforcement enabled this outcome.
Discounters had lower operating costs because they spent less on inventory maintenance. They passed on these savings to customers, which increased market share and pressured their competitors. But discounters could offer lower prices also because they frequently paid less for their wholesale goods than did smaller, independent department stores—and that was illegal. Under the Robinson-Patman Act, passed by Congress in 1936, price discrimination in the form of discounts by manufacturers or suppliers is illegal. Under the Miller-Tydings Act, passed in 1937, manufacturers were required to charge the same price to all customers. This practice, known as resale price maintenance (RPM), created a competitive playing field for smaller, independent retailers. But weaknesses in Miller-Tydings, its repeal in 1975, and the feeble antitrust enforcement of Robinson-Patman and other laws all account for the success of discounters.
Keep this site free and open for all to read...
Miller-Tydings only applied to in-state RPM agreements and did not affect the sale of goods across state borders. Yet it did give most independent retailers the benefits of fair competition, because nearly all competitors had to abide by the same rules. The rise in the 1970s of a consumer rights movement led by Ralph Nader led to a consumer-centric focus in antitrust that emphasized low prices, garnering support for the repeal of Miller-Tydings.
This coincided with influence-peddling in Washington by lobbying groups established by discounters. In 1969, discounters such as Walmart, Kmart, and Target had helped found the Mass Retailing Institute. Lobbying by this organization and consumer rights activists helped Congress pass the Consumer Goods Pricing Act in 1975, which repealed the system of state-level RPM created by Miller-Tydings. Discounters were now free to benefit from price discrimination that hurt small, local, independent retailers.
The repeal of Miller-Tydings was a landmark in the rise of a new ideology that narrowed the scope of antitrust law solely to consumer prices. In the late 1970s, legal scholar Robert Bork, who served as solicitor general in the second Nixon administration, advocated for an emphasis on consumer welfare in antitrust law and drove antitrust away from the principles of Robinson-Patman. Under the sway of this ideology, the Reagan administration’s Justice Department rarely brought any cases against companies violating Robinson-Patman. Compare that to the 1960s, when the Justice Department brought more than 500 cases—compared to five during Reagan’s presidency—against companies for violating Robinson-Patman.
The rise in the 1970s of a consumer rights movement led by Ralph Nader led to a consumer-centric focus in antitrust that emphasized low prices.
Additionally, the Reagan administration ignored the era’s mergers, just when consolidation was rampant among department stores during the 1980s, and in spite of the 1976 Hart-Scott-Rodino Act, which aimed to increase merger reviews and merger scrutiny. Department stores, attempting to fend off competition from discounters, either merged or were bought up by chains. Some fell victim to leveraged buyouts, common during a Reagan era characterized by the rise of corporate raiders, investors who took large stakes in companies and strong-armed managers into pumping up share prices and paying out quarterly dividends. These twin goals faithfully adhered to the dogma of shareholder value, which was another aspect of the ideology of free-market fundamentalism espoused by Bork, Milton Friedman, and others.
In 1986, real estate investor Robert Campeau’s Campeau Corporation took over Allied department stores, which had acquired many department stores during the preceding decade. In 1988, Campeau acquired the department store Federated, which owned popular stores such as Bloomingdale’s and Lazarus. Campeau sold the company years later and forced its subsidiaries, including many local and regional retailers, to shut down. Filene’s department store, which was owned by Federated, was sold to May Department Stores, as were regional chains such as Foley’s and Lord & Taylor. Real estate investor Alfred Taubman acquired Woodward & Lothrop, a popular Washington, D.C., department store, in 1989. Gimbels, which had been the world’s largest department store chain in the 1930s, went out of business in 1987.
By the mid-1980s, department store companies with one store made up half the total number of department store firms but operated only 5 percent of outlets in the United States. In other words, the chains had taken over. By the late 1980s, ten holding companies had largely rolled up control over the country’s department stores. These mergers continued into the 1990s, as Federated merged with Macy’s. Consolidation led to industry standardization and the decline of independent and local department stores that had local attributes and more of a connection to their communities. The loss of regional identity for department stores contributed to a decline in community engagement and civic life and even the loss of access to “a kind of cosmopolitanism” for middle-class consumers, as professor of media studies at Georgia Tech Ian Bogost puts it.
Even more important than this was the fact that department stores had been crucial for the upward socioeconomic mobility of African Americans during the mid-20th century. The department store offered new job opportunities for Black women, who at that time primarily worked in domestic labor occupations. African Americans were able to use their increased purchasing ability, rising middle-class status, and collective labor to make their way into department store careers that bolstered prosperity and upward mobility. The decline of these department stores coincided with a decline in labor protections for their workers, with African Americans hit particularly hard.
Discounters were able to succeed in part because of their exploitative labor practices, and department stores adopted those same labor practices in a competitive race to the bottom. There was a high cost, in sum, to low prices.
The failure of antitrust enforcement to create a fair, competitive environment for department stores facing anti-competitive pressures from discounters bears a striking similarity to the present moment, with Amazon playing the role that Walmart and other discounters played in the past.
Amazon is killing off much of remaining retail through predatory pricing, anti-competitive tactics, and its hardening monopoly over e-commerce.
Amazon is killing off much of remaining retail through predatory pricing, anti-competitive tactics, and its hardening monopoly over e-commerce. Predatory pricing—dropping the price below production cost to undercut competition and monopolize a market—has been a major strategy for the corporation. Although predatory pricing is illegal under antitrust law, it is difficult to prove, as plaintiffs don’t have a producer’s internal budgets to confirm production costs. Consumer welfare antitrust theory suggests that no company would ever engage in predatory pricing, because they would be instantly ruined. This has made predatory pricing an unenforced crime.
Additionally, Amazon has been able to achieve dominance over the e-commerce market partly thanks to questionable labor practices that boost employee output. Massive surveillance of workers and limits on unionization have negatively impacted its workers and their rights. Furthermore, Amazon has used the practice of predatory pricing to “lock” customers onto its website and buy more products, helping it achieve dominant position as the “railroad of e-commerce.”
Amazon has caused retailers to again look toward mergers and acquisitions to stay alive. The largest mall owners in the country, such as Simon Property Group and Brookfield Property Partners, have rapidly been acquiring department stores. Simon, for example, has stakes in 400 of the stores in its mall properties. Though these deals may look like other efforts by conglomerates to take advantage of company valuations depressed by the pandemic economy, the acquired brands are highly unlikely to prosper in the long run, because organizations such as Simon have little experience operating successful retail outlets, much less niche apparel brands.
Keep this site free and open for all to read...
These acquisitions benefit Amazon and hurt consumers and communities. Amazon will increasingly conquer market shares in the retail industry, while physical retail outlets fall under the control of private equity giants or real estate conglomerates (or sometimes both, in the case of the now-shuttered Toys “R” Us, owned at the end by KKR, Bain Capital, and Vornado Realty Trust). Real estate corporations are ill-suited to run department stores, and there is a long history of failure in the industry. These retailers will be propped up as zombies, rather than going through potentially rejuvenating restructuring processes. It’s even been reported that real estate conglomerates are in talks with Amazon to turn former department stores into Amazon distribution centers. A retail landscape monopolized by Amazon will mean worse labor standards, fewer options for consumers, and the closure of shopping malls in some communities, much like what happened during the rise of discounters decades ago.
But this future is not inevitable. Just as antitrust enforcers could have stopped the damage that discounters did to department stores and the economic standing of communities of color, enforcers today have strong tools to decelerate and eventually stop retail’s decline. Stronger enforcement by law enforcement agencies, such as the Federal Trade Commission, of antitrust laws such as Robinson-Patman, and proper scrutiny by the Justice Department of mergers and acquisitions would create a solid foundation for a fairer, more competitive marketplace, one where Amazon is properly regulated and where retailers can compete on equal ground.
