Growing Pains

"This business is no place for a golf player--it's only for the guy who gets to work at 7 in the morning, leaves at 7 at night, and takes half an hour for lunch. The years have finally caught up with us --you've got to give the customer everything but your blood."

So said Victor Grossi of Chicago's Grossi Bros. Home Appliances last week of the discounting business--which only a few years ago threatened to knock old-line retailers out of many a choice market. Since the war, the discounters have built a $5 billion business selling appliances and other hard goods 20% to 40% below list price. Now that the first bloom is over, theirs is no longer the no-overhead, no-service happy hunting ground that it used to be. Discounting is a rugged business, growing tougher each month.

Competition & Customer. In downtown Washington, D.C., eight, or about half, of the city's big discount houses went out of business in the past year. The shakeout is almost as severe in Los Angeles, Boston and Dallas, where dozens of small discounters have fallen by the wayside. A St. Louis discount house, H. E. Krisman & Co., pushed its gross to $3,500,000 annually--and lost $200,000 doing it. Says George Wasserman, owner of Washington's George's Warehouse: "The big ones are holding their own, but the little ones are going out of business as fast as they came in."

Part of the discounters' troubles comes from a general slump in the appliance market. With overall sales down some 10% this year, many a discounter, depending on high volume to make his cut-rate prices pay off, is in dire straits. Chicago's Grossi Bros, cites manufacturers' reports that factory sales of automatic washers are down 28%, conventional washers 32%, electric dryers 44%, refrigerators 20%, dishwashers 32%, stoves 32%. Another worry is increasing competition from conventional retailers who, instead of sitting back, cut prices right and left. St. Louis' Famous-Barr Co. has been matching discount prices since 1954, when it offered to equal any price reported by a customer, and has the capital to buy carloads of appliances at lower prices than most small discounters can command. Many other big stores from coast to coast hold "warehouse sales" to take advantage of the discounters' low-overhead, high-volume merchandising idea.

The change that affects the discount business the most is the changed customers. People are no longer content with a cluttered loft offering cut-rate appliances and little else. They want liberal credit, free delivery, a repair section, the right to return purchases. They want more goods in the store, e.g., shoes, shirts, suits, dresses, lingerie, towels. They want individual attention, well-mannered clerks. And all at 20% off.

All in One. Answering this demand, the big, successful discounters are turning into cut-rate department stores. San Francisco's Government Employees Together, a clublike discounter aimed at Government workers, claims a wider diversity of goods than any of the city's regular department stores. Los Angeles' William Phillips Co. carries gifts, clothing, luggage and records, even added a liquor department this year. Manhattan's E. J. Korvette (estimated 1957 sales: more than $70 million), which calls itself a "promotional department store" and is even listed on the New York Stock Exchange, has quickly fanned its discount selling into the suburbs to follow population trends. Of its eleven stores, four (including two supermarkets) are in Westchester County, Long Island, suburban Philadelphia; seven of the nine new Korvette stores planned by the end of 1958 will be in other bustling suburbs.

The trouble is that such expansion costs more than most discounters can afford. Even with more and more self-service, Korvette's overhead has risen from 7% of sales in 1951 to around 14% (v. an average 33% for department stores). Korvette and other big discounters have the cash reserves they need to grow, but their smaller brothers do not. Traditionally, the discounters' main credit source has been manufacturers' wholesale distributors, who "carried" discounters through periodic slow periods. Even if the discounter failed, the distributor could rationalize his own loss as advertising for the products. The sagging appliance market has tightened that credit source just when shoestring discounters need it most. For small operators, vainly trying to wrap packages, and make deliveries and give credit to today's tougher customer, the added cost often spells ruin. Says Dun & Bradstreet: "You can't sell at 5% above cost and give the services people want." For those who can expand, the potential market was never bigger. Says Sol Polk, Chicago's top discount merchandiser: "The greatest sport in the next five years will be stretching the American dollar. The American woman wants quality merchandise at knocked-down prices. She deserves it."

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