During the Great Depression, the rise of chain stores threatened local retailers. Source: Library of Congress Prints and Photographs Division
During the Great Depression, the rise of chain stores threatened local retailers. Source: Library of Congress Prints and Photographs Division

Facing increasing unemployment, falling wages and terrible returns on investments, consumers of all classes sharply cut spending in the early 1930s. Retailers suffered.

Annual sales at department and specialty stores in 1932 had dropped more than 40 percent since 1929. Chain stores, by contrast, experienced much smaller declines, just more than 10 percent since 1929.

The battles from the 1920s continued between freestanding retailers and encroaching regional and national chains, which sold shoes, groceries, tobacco, clothing, meals and cheap goods. Small merchants became increasingly desperate in the face of price discrimination (chain buyers’ ability to score quantity discounts).  

Retailers' legislative allies had enacted a series of anti-chain store taxes and regulations at the state level in the early 1920s. Even so, by 1929, more than 140,000 chain outlets were doing business in the U.S. The chain stores went to court to contest legislative restrictions.

Cheap imports, including costume jewelry and toys, presented another source of competition to small retailers. "Buy American" campaigns, a reaction to British nationalist efforts, had floundered, despite publicity from publisher William Randolph Hearst. Time magazine noted: "When patriotism is advanced as the principal argument for buying a certain article, the impression is created that, aside from patriotism, the article is not the 'best buy.'" Comparable regional efforts, like the "Keep Ozark Dollars in the Ozarks" campaign, were no more effective.

The Great Depression had taken its toll on the chains, too. Some had expanded enthusiastically in the boom decade and were hamstrung by long-term leases for stores that were doing little business. Others couldn't meet payments for loans or goods. McCrory’s, with 244 five-and-dime stores, declared bankruptcy in 1933, as did National Department Stores, United Cigar Stores, the Brentano's bookshop chain and others.

Even so, new competitors continued to emerge. One was Big Bear's low-price, self-service supermarkets. Far from what current-day Americans understand the term "supermarket" to mean, Big Bear and similar ventures "set up in idle garages, factories, or in other buildings obtainable at nominal rentals." Its first New-York-area venue operated in an abandoned New Jersey automobile factory, which nonetheless catered to 200,000 people each week. Such enterprises threatened not only mom-and-pop stores but also corporate chains, because of the cut-price policies they installed.

Grocery specialists such as V.H. Pelz of General Marketing Counselors Inc. assured independent stores that these low-end competitors would collapse. They were "located outside the normal shopping areas in order to save on rent and must draw customers from a wide radius in order to do their volume business," he said. But automobiles had already transformed Americans’ shopping habits to the chains’ advantage.

More troubling for small stores, on March 13, 1933, the U.S. Supreme Court invalidated Florida's chain-store tax, responding to a suit by 13 corporations. The court determined that increasing tax levels, based on the number of a firm's outlets, was discriminatory. The National Chain Store Association’s Robert Lyons crowed that state legislatures "would no longer be able to run hog-wild on punitive expeditions."

Now who was looking out for the little guys?

(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)

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To contact the writer of this blog post: Philip Scranton at scranton@camden.rutgers.edu.

To contact the editor responsible for this blog post: Kirsten Salyer at ksalyer@bloomberg.net.