Competition, Mom and Pop Store, Big Box Store, Cooperative, Internet Sales, POS System, Inventory Control System and Wal-Mart

Posted by PITHOCRATES - July 3rd, 2012

History 101

Big Box Stores offered More Choice and Lower Prices putting Mom and Pop Stores our of Business

Competition makes everything better for consumers.  Consumers love competition.  Because it gives them so much to choose from.  And choice is good.  Especially when that choice lowers prices.  And raises quality.  Which is why we love competition.  But it’s not very popular with businesses.  Especially the older ones.  Used to doing things the old way.  Who got into a comfortable rut.  Doing things the way they always did them.  Enjoying their comfortable incomes.  Until something arrived that shattered their world. 

America became the innovative capital of the world.  Thanks to their entrepreneurs.  In the land of liberty they were free to do great things.  Invent great things.  And go into business.  In cities and small towns everywhere moms and pops opened up shops.  Mom and pop stores.  Family affairs.  Serving their communities with quality goods and services.  At reasonable prices.  At least what people thought were reasonable prices.  Often times there was little competition for these mom and pop stores.  Apart from other mom and pop stores.

Mom and pop stores don’t have large sales.  Or large purchasing power.  So their prices are higher than a competitor who has large sales and large purchasing power.  Mom and pop office supply stores learned this lesson quickly when Office Max opened in town.  And Office Depot.  And Staples.  Big box stores that offered more choice and lower prices.  And no matter how much we loved our mom and pop stores when we had a chance to get more for less we chose to get more for less.  And these big box office supply stores put the mom and pop office supply stores out of business.

Advanced POS and Inventory Control Systems allow a Large Variety of Items at Low Prices

The mom and pop hardware stores suffered the same fate.  When the big box home improvement stores moved in.  Builders Square.  Home Quarters.  Home Depot.  Lowes.  Who served both consumers and contractors.  Giving them huge economies of scale.  Moving such a wide variety of material at low prices the small mom and pop hardware stores could never match.  Some survived.  Offering services like they did in the old days (like fixing a broken window).  And joining a cooperative (such as True Value or ACE Hardware) to match the purchasing power of the big box stores.  To get some economies of scale.  But more have gone out of business than stayed in business.

During the Eighties a lot of computer stores opened as the personal computer industry took off.  A lot of small stores custom built PCs.  Sold dot-matrix printers.  Fanfold printer paper.  Printer ribbons.  Floppy disks.  Cables.  External storage devices.  With the advent of the Internet they added dial-up modems.  As the industry grew the big box stores came in.  CompUSA.  Computer City.  The big box office supply stores.  Best Buy.  And Circuit City.  Put the small computer stores out of business.  By providing a huge variety at low prices.  They added software.  Games.  Uninterruptible power supplies.  And other electronic devices (PDAs, digital cameras, game boxes, game controllers, etc.).  Then Internet sales took off putting pressure on the big box stores.  Putting some of them out of business.

A big driver in the move away from the mom and pop stores to the big box stores is technology.  In particular inventory control systems.  Tied into their point of sale (POS) systems.  Buying a lot of goods and storing them in large warehouses is costly.  Because inventory doesn’t earn any revenue.  It costs to warehouse items.  And it takes cash to place things into inventory.  Businesses buy these things to sell them later.  If they buy too much of the wrong things they may sit in those warehouses.  Becoming less valuable as people’s interests change.  Requiring deep discounting to move these unwanted items out of inventory.  On the other hand, if you don’t carry a large inventory there is a chance you may run out of something that is popular and is selling.  This is where technology comes in.  When a cashier completes a sales transaction a lot of things happen automatically.   As people receive their change from the cashier the POS system automatically interfaces with the inventory control system.  It updates the system to show the reduction in inventory.  And the inventory control system places an automatic order to replenish the inventory.  The successful big box stores carry smaller inventories of each individual item.  Allowing them to carry a larger variety of items.  Which is how they can offer a larger variety at lower prices.

Stores like Wal-Mart are the People’s Hedge against Bad Fiscal and Monetary Policy 

The king of retail, Wall-Mart, got to be king with technology.  The ultimate big box store that sells just about everything under the sun (groceries, clothes, hardware, gardening supplies, electronics, prescription drugs, you name it).  They have taken inventory control systems to an art.  They combine economies of scale and efficiency that few can match.  They sell so much that they get to buy at the best prices.  And their sophisticated POS and inventory control systems keep the shelves stocked with the things people want to buy while keeping their inventories lean.  Few stores please consumers more by their wide variety and low prices.  Allowing them to fill their shopping carts without having to sacrifice other family needs.

Competition created Wal-Mart.  Because people wanted more choice and lower prices.  And Wal-Mart figured out how to do that.  Something the mom and pop stores just couldn’t do.  Which is why Wal-Mart stores are opening everywhere.  The people love them.  And the people want them.  Or they want the store that puts Wal-Mart out of business by offering even more choice at even lower prices.

Of course this begs the question why do people want more choice at lower prices?  Are they greedy?  Materialistic?  No.  They’re just not rich.  More and more of their income is taxed away at the local, state and federal level.  And prices keep rising thanks to Keynesian monetary policy.  Which continuously expands the money supply to ‘stimulate’ the economy.  Higher taxes and permanent inflation is why two-income households have become the norm and not the exception today.  And why shoppers love stores like Wal-Mart.  Because stores like Wal-Mart are the people’s hedge against bad fiscal and monetary policy.  Which is the true destroyer of mom and pop stores everywhere.

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