Corporate Predators and the Suicide Economy
by Victor Bremson
Retired Management Consultant and Business Turn Around Specialist
Over the last 40 years, the United States has rapidly moved from downtown main street economies populated by local independent businesses devoted to serving community needs to a global Wall Street economy dominated by huge predatory discount chains located in the middle of vast parking lots seeking to extract the maximum profit from local consumers in the shortest possible time. With household names like Wal-Mart, Home Depot, Costco and many others, these chains mimic the behavior of predator species characteristic found in immature ecosystems. In simple terms they destroy all other competing businesses in their path. Our financial economy specialists proclaim how wonderful their increase in market share is without taking into effect the damage done to our communities.
Owned primarily by investors without a stake in the local community, these "predators" force community-based competitors out of business by pricing very low, sometimes even below cost. They accomplish this partially by making their suppliers dependent on them and then constantly squeeze them for greater margin. The legal alternatives available to a small business are very expensive and most independent companies would be out of business before any successful legal resolution would ever take place. The predators arrogantly consider any legal expense for this type of action as part of their marketing budget.
The predators also conduct misleading advertising and public relations campaigns programs that project an image of community commitment, but in truth are nothing more than vacuous sloganeering to undermine the loyalty people might otherwise feel for their neighborhood stores. Wal-Mart was brilliant at promoting the slogan "Made in America Whenever Possible" on red, white and blue banners through out their stores. This slogan was broad enough that it did not have to get in the way of management's appetite for providing ever-increasing returns to their absentee owners. In the short-run, predator chains keep consumers happy with lower prices and and small investors with attractive returns on investment. The substantial costs to the community are less visible, but become ever more substantial over time. These costs include loss of entrepreneurial class local business, losses of higher paid jobs, loss of environmental standards, increased need for automobile usage and loss of support for building community infrastructure. The following are two actual case studies from my own experience that are typical of the experience of independent businesses that find themselves dealing with most any one of the large predatory chains.
Case study of a lighting fixture producer.
In the early 1980’s I became the president of a small lighting fixture company operating out of East Los Angeles. Our largest customers had been small lighting fixture showrooms all around the country. This was quickly transitioning to the large home center chains. These chains would give us huge orders but would demand terms more favorable than those given to our long-term customers. We expanded our facilities and hired more employees to support their ever-growing demands.
We tried to protect our old customers but the chains demanded that we sell them our most newest and most popular items at lower prices than we could offer our old line customers. They then ran major promotions on our best selling products at very low prices until they ran their small competitors out of business. Thousands of small lighting fixture related businesses went out of business during the 1980’s.
As the small lighting fixture stores also went out of business the power of the large stores grew even more. Their buyers started encouraging Asian companies to copy the products produced by American companies and then further squeezed the American companies for better pricing and more favorable terms. I remember clearly being asked to provide designs for new products only to be asked by the same buyers to compete with the prices of Asian companies that turned out copies of our designs with low cost labor. The final blow was their demand that since I was a local company I must provide substantially better in store service than their Asian suppliers.
Eventually I was forced to move the company's production facilities to a ‘maquiladora’ in Mexico in an effort to compete with the Asian companies. I justified laying off over a hundred local manufacturing workers based on the rationale that I had to move or go out of business, which by the way was true. But this is not the whole story.
I quickly found out that there were fewer regulations to follow in Mexico. Despite my orders to the contrary, our local managers regularly allowed workers to weld lighting fixtures using lead wire despite the fact that this was very harmful to the workers. There was nothing approaching an OSHA or an EPA there. We were under less supervision regarding the discharge of paint fumes into the environment. Our workers were represented by a Union whose job was primarily to make sure that the employees did not cause the owners any problems.
Consumers got low prices but at what expense!
Case study of a pet food store.
A few years later, approximately 1993, I got a chance to experience directly what it is like to be a small local retail store chain competing with a big predator style chain. I managed a small independent chain of pet food stores that was competing with national discount pet stores. The independent sole-owner of this company was getting older and had risked everything he had in this venture. He was in serious financial problem. The predators were able to purchase products much cheaper than we were, had large amounts of venture capital, and would often follow the practice of opening stores near us in order to weaken us. It is very easy for their experts to intentionally locate a store that cuts off customer traffic to your store.
One competitor would spend approximately $500,000 to open a new store. To compete we developed a system to open up smaller stores for as little as $80,000. Our joke at the time was if you had venture capital you didn’t need profits. They were not smarter merchandisers than we were, nor were they more efficient, they were just bigger with more money. They extensively advertised poorer-market quality pet food below our cost in order to attract customers from our stores to buy at their stores. Their shear size allowed them to bully suppliers into giving them special pricing and below the radar deals that we would not get.
At the time the large chains would sell live animals and tropical fish as a side business. These departments would often be run for profit instead of love of animals. Examples of this include the sale of beautiful, but endangered, salt-water tropical fish despite the fact that much of this inventory is provided by suppliers from places like the Philippines where they would be collected from coral reefs by stunning them with poisons or explosives. Both methods would kill many fish and ruin the health of the endangered coral reefs. They sold temperamental species of tropical birds for which their staff was not trained to take proper care of. For a while some stores even sold puppies from breeders as opposed to encouraging adoption from pounds where animals were being slaughtered every day. It was only a business to them not a place to respect living beings. We as example used only fresh water fish that are bred domestically for sale. We only sold hand fed birds from breeders that we personally knew and insisted that every story had trained staff. We also was one of the first stores to encourage dog adoptions from the local shelter
We learned to carry better quality merchandise than our predator competitor and trained and paid our employees a fair wage. Our employees were pet lovers who came to work with spirit and enthusiasm. We offered true service, not catchy advertisements — and our customers responded. When it became obvious to them that they couldn’t force us out of business, they bought the business from the aging owner and closed us down. Most of our employees were offered only minimum wage jobs and chose to move on. Our customers lost a pet friendly alternative. I understood that the owner was frightened about his future but it didn’t make it any easier for me. I felt like a huge traitor to the employees because we had worked so hard to out compete the predator only to lose in the end. In hindsight I believe the owner would had done better by selling the company to his employees.
It is important to remember that these are just small examples of wide spread practices by predator companies of which most consumers are not aware.
Revised March 31, 2002. First posted July 20, 2001