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Discount Stores
offset the lower prices, a number of different strategies and The development of supermarkets, chain stores, and
tactics are used, depending on the type of discount the predecessors of the discount stores that caused greater
retailer. Some of these strategies and tactics include: main- price competition in the 1930s, and concern, in the midst
taining a high sales volume; keeping expenses down; of the Depression, for maintaining employment brought
negotiating lower wholesale prices; and cutting profit about legislative constraints in several states to protect
margins. Other tactics are: using inexpensive fixtures, dec- small retailers. These resale-price-maintenance, or “fair-
orations, and displays; minimizing free customer services trade,” laws provided that manufacturers could establish
and maximizing the use of self-service; carrying overstocks retail prices for products that carried their brand name,
and discontinued products from other retailers and pro- thus legally fixing prices. In 1937 these laws were
ducers; and stocking off-season merchandise. strengthened by federal legislation, the Miller-Tydings
In addition, improvement of operational efficiency is Resale Price Maintenance Act. Even though the laws were
continually sought to control costs. Modern discount difficult to enforce, they would present a major challenge
stores may range from specialty shops (such as discount to discount merchandisers over the years to come.
bookstores) to major discount chains that typically sell a After World War II (1939–1945), discount merchan-
wide variety of products including hard goods (e.g., major dising grew rapidly. This explosion in growth was fueled
electronics, automobile supplies, toys, and small appli- by consumer bargain hunting in the face of rising prices,
ances), soft goods (e.g., apparel, bedding, and bath prod- the pent-up demand for goods created by wartime short-
ucts), groceries, and other general merchandise. ages, and the establishment of homes and families by
returning GIs. Many consider E. J. Korvette, opened in
HISTORY OF DISCOUNT STORES 1948 by Eugene Ferkauf, as the first discount store. Soon
regional discount stores, such as Zayres, Arlans, Gibson’s
Discount stores evolved from a series of retailing changes
and Two Guys, sprang up across the country to satisfy the
that began in the United States in the late nineteenth
demand for consumer goods, including television sets and
century. Following the Civil War (1861–1865), the devel-
opment of mass-production processes and a mass- other new products. Many of these new discounters sold
their merchandise out of other existing businesses or set
distribution system, along with population increases,
up in low-cost facilities such as abandoned factories and
paved the way for a new approach to retailing—mass mer-
chandising. The first type of mass-merchandising opera- lofts. Despite these often makeshift origins, the modern
discount industry was beginning to take shape.
tion was the department store. The second was the chain
store, which included variety stores and “junior depart- Sparked by increased consumer confidence in dis-
ment stores.” The third was the mail-order house. These count stores and increased availability of goods from man-
patterns for mass merchandising remained relatively con- ufacturers, discounting continued to grow rapidly during
stant through the 1920s. The genesis of discount retailers, the 1950s and became an important part of the retail
known as “undersellers,” also occurred in the early 1900s. landscape. New chains were drawn to the field, and estab-
S. Kline (1912), J. W. May (1924), and Alexander’s lished chains opened new outlets. Variety stores, specialty
(1928) were the early undersellers of soft goods (e.g., retailers, traditional department stores, and supermarkets
apparel). were looking into discounting and, in some cases, launch-
ing ventures.
The Great Depression of the 1930s and the accompa-
nying economic hardships set the stage for another retail-
ing change and the further emergences of discount Mid-Twentieth Century. The look of discount stores also
operations. Grocery supermarkets, the fourth type of began to change in the 1950s as leading discounters (e.g.,
mass-merchandising operation, appeared in 1930s. Early Masters, Two Guys, Korvette) took on a department-
supermarkets, pioneered by Fred Meyer (1922) and Hen- store-like appearance by adding household goods, apparel,
drik Meijer (1934), were comprehensive grocery stores and other soft goods. “Mill store” discount operations fur-
that were designed for self-service and consumer accessi- ther contributed to this change as they began to surface
bility. Size and low-cost facilities enabled these supermar- with their base of soft goods.
kets to operate on low margins and sell below the In addition to the national and regional chains that
competition. The inventories of supermarkets expanded entered the industry in the 1950s, several others opened
to include nonprescription drugs during this time. The their doors in the early 1960s. Many of the new additions
starting point for the fifth type of mass merchandising, were inexperienced and underfinanced, but among the
discount stores, is often traced to the opening of a radio new entries were four that would become the giants of the
and appliance store by the Masters brothers in Manhattan industry: Kmart, Woolco, Target, and Wal-Mart. All four
in 1937. began their operations in 1962.
202 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION