by Naomi Klein
Where big boxes used their size to move previously unimaginable amounts of product, the new retailers would use their size to fetishize brand-name goods, placing them on a pedestal as high as Wal-Mart’s discounts were low. Where the big boxes had swapped a sense of community values for a discount, the branded chains would re-create it and sell it back —at a price.
Clustering: The Starbucks Model
“A Comforting Third Place” is the phrase Starbucks uses to promote itself in its newsletters and evangelical annual reports. This is not just another non-space like Wal-Mart or McDonald’s, it’s an intimate nook where sophisticated people can share “coffee … community … camaraderie … connection.”7 Every thing about New Age chains like Starbucks is designed to assure us that they are a different breed from the strip-mall franchises of yesterday. This isn’t dreck for the masses, it’s intelligent furniture, it’s cosmetics as political activism, it’s the bookstore as an “old-world library,” it’s the coffee shop that wants to stare deep into your eyes and “connect.”
But there’s a catch. The need for more intimate spaces designed to tempt people to linger may indeed provide a powerful counterpoint to the cavernous big boxes, but these two retail trends are not as far apart as they appear at first. For instance, the mechanics of Starbucks’ dizzying expansion during the past thirteen years has more in common with Wal-Mart’s plan for global domination than the brand managers at the folksy coffee chain like to admit. Rather than dropping an enormous big box on the edge of town, Starbucks’ policy is to drop “clusters” of outlets in urban areas already dotted with cafés and espresso bars. This strategy relies just as heavily on an economy of scale as Wal-Mart’s does and the effect on competitors is much the same. Since Starbucks is explicit about its desire to enter markets only where it can “become the leading retailer and brand of coffee,”8 the company has concentrated its store-a-day growth in relatively few areas. Instead of opening a few stores in every city in the world, or even in North America, Starbucks waits until it can blitz an entire area and spread, to quote Globe and Mail columnist John Barber, “like head lice through a kindergarten.”9 It’s a highly aggressive strategy, and it involves something the company calls “cannibalization.”
The idea is to saturate an area with stores until the coffee competition is so fierce that sales drop even in individual Starbucks outlets. In 1993, for instance, when Starbucks had just 275 outlets concentrated in a few U.S. states, per-store sales increased by 19 percent from the previous year. By 1994, store sales growth was only 9 percent, in 1996 it dipped to 7 percent, and in 1997 Starbucks saw only a 5 percent sales growth; in new stores, it was as low as 3 percent. (See Table 6.3, Appendix.) Understandably, the closer the outlets get to each other, the more they begin to poach or “cannibalize” each other’s clientele —even in hyper-caffeinated cities like Seattle and Vancouver people can only suck back so many lattes before they float into the Pacific. Starbucks’ 1995 annual report explains: “As part of its expansion strategy of clustering stores in existing markets, Starbucks has experienced a certain level of cannibalization of existing stores by new stores as the store concentration has increased, but management believes such cannibalization has been justified by the incremental sales and return on new store investment.” What that means is that while sales were slowing at individual stores, the total sales of all the chain’s stores combined continued to rise — doubling, in fact, between 1995 and 1997. Put another way, Starbucks the company was expanding its market while its individual outlets were losing market share, largely to other Starbucks outlets (see Table 6.4, Appendix).
It also helped Starbucks, no doubt, that its cannibalization strategy preys not only on other Starbucks outlets but equally on its real competitors, independently run coffee shops and restaurants. And, unlike Starbucks, these lone businesses can only profit from one store at a time. The bottom line is that clustering, like big-boxing, is a competitive retail strategy that is only an option for a large chain that can afford to take a beating on individual stores in order to reap a larger, long-term branding goal. It also explains why critics usually claim that companies like Starbucks are preying on small businesses, while the chains themselves deny it, admitting only that they are expanding and creating new markets for their products. Both are true, but the chains’ aggressive strategy of market expansion has the added bonus of simultaneously taking out competitors.
There have been other, more brazen ways in which Starbucks has used its size and deep pockets to its competitive advantage. Until the practice began creating controversy a few years back, Starbucks’ real-estate strategy was to stake out a popular independent café in a well-trafficked, funky location and simply poach the lease from under it. Several independent café owners in prime locations are on record claiming that Starbucks went directly to their landlords and offered to pay them higher rental payments for the same or adjacent spaces. For instance, Chicago’s Scenes Coffee House and Drama received an eviction notice after Starbucks rented a space in the shopping complex where it was located. The coffee chain attempted a similar maneuver with Dooney’s café in Toronto, though Starbucks claims it was the landlord who made the initial approach. Starbucks did gain control of Dooney’s lease but the community protest was so strong that the company ended up having to sublet the space back to Dooney’s.
These cutthroat real-estate practices hardly make Starbucks unique as a developer: McDonald’s has perfected the scorched-earth approach to franchising, opening neighboring franchises and mini-outlets at gas stations until an area is blanketed. The Gap has also adopted the cluster approach to retailing, brand bombing key neighborhoods with multiple outlets of the Gap, Baby Gap, Gap Kids, Old Navy, Banana Republic and in 1999 Gap Body stores. The idea is to make Gap’s family of brands synonymous with clothing in the same way that McDonald’s is synonymous with hamburgers and Coke is synonymous with soft drinks. “If you go to a supermarket, you would expect to find some fundamental items. You would expect to find milk: nonfat, 1 percent, 2 percent, whole milk. You would expect dates to be fresh…. I don’t know why apparel stores should be any different,” says Mickey Drexler, Gap CEO.10 It’s fitting that Drexler’s model for the Gap’s ubiquity is the supermarket, since it was the first supermarket chains that pioneered the clustering expansion model. After A&P launched its “economy stores” in 1913 (the prototype of the modern supermarket), it quickly opened 7,500 outlets, then closed half of them after saturation had been achieved and many competitors were forced out of business.
The Gap welcomes these comparisons with Coke, McDonald’s and A&P, but Starbucks, because of the nature of its brand image, strenuously rejects them.11 After all, the Gap’s project is to take a distinctive product —clothing —and brand it so completely that purchasing it from the Gap is as easy as buying a quart of milk or a can of Coke. Starbucks, on the other hand, is in the business of taking a much more generic product —a cup of coffee —and branding it so completely that it becomes a spiritual/designer object. So Star bucks doesn’t want to be known as a blockbuster, it wants, as its marketing director Scott Bedbury says, to “align ourselves with one of the greatest movements towards finding a connection with your soul.”12
Yet no matter how urbane the original concept may have been, the business of chains has a logic and a momentum of its own, having very little to do with what it sells. It breaks down each of a brand’s elements —no matter how progressive and homespun —into a kit of easy-to-assemble bits and parts. Just as the chains snap together like Lego, each chain outlet is made up of hundreds of its own snappable parts. Within the logic of chains, it matters little whether those snappable parts are a McDonald’s deep frier and a Hamburglar mannequin or the “four elemental icons” that form the building blocks for each Starbucks store design: “Earth to grow. Fire to roast. Water to brew. Air for aroma.” A clone is a clone, whether it is molded in the shape of an arch or a peace symbol, and its purpose is still replication.
This process
is even more apparent when the chains expand on the global stage. When retailers move outside their countries of origin, Starbucks-style clustering melds with Wal-Mart—style price wars to create a kind of “bulk clustering strategy.” To keep prices low in a new market, chains like Wal-Mart, Home Depot and McDonald’s must carry with them their trump card of being volume buyers; and in order to have the market clout to get lower prices than their competitors, they can’t dribble into countries one store at a time. Instead, it has become a favored expansion tactic to buy out an existing chain and simply move into its stores in one dramatic entrance, as Wal-Mart did when it bought out 120 Woolco stores in Canada in 1994 and when it purchased the Wertkauf GmbH hypermarket chain in Germany in 1997. Similarly, when Starbucks moved into the U.K. in 1998, it acquired the already existing Seattle Coffee Company and retrofitted its 82 stores as Starbucks outlets.
For national companies looking to avoid becoming the prey of the global giants, it has become an increasingly popular strategy to initiate preemptive mergers of their own between two or more large national brands. In the name of nationalism and global competitiveness, they consolidate, lay off staff and mimic American retail formulas. Not surprisingly, they generally end up transforming themselves into copies of the global brands they were attempting to block. That’s what happened in Canada when fear of Wal-Mart prompted the country’s oldest department store chain, the Hudson’s Bay Company, to buy Kmart Canada, fold it in with Zellers, lay off six thousand workers and open several lines of big-box discount outlets: one for furniture, one for home and bath and one for discount clothing. “Wal-Mart executed better than either Kmart or Zellers. By merging the two operations, we’re going to learn how to execute better,” said George Heller, president of Kmart.13
Selection versus Choice
The combination of the big-box and clustering approaches to retailing is having a transformative effect on the retail landscape. Though they represent very different retail trends, the combined effect of the Wal-Mart and Starbucks models has been to gradually erode the market share of small business in what was one of the few fields remaining where independent operators stood a solid chance of competing head-to-head with multinationals. With the chains able to outbid smaller competitors for space and supplies with barely a second thought, retail has become a battle of the big spenders. Whether they are using their clout to drive prices down to impossibly low levels, to keep them artificially high or simply to seize near monopolistic market shares, the net effect is the same: a retail arena in which size is a pre requisite and small companies can barely maintain a toehold. Like sumo wrestlers, the competitors in this game must push the limits of their weight category; bigness begets bigness.
Of course independent stores and restaurants continue to open and thrive, but more and more, these are high-end, specialty retailers in gentrified neighborhoods, while the suburbs, small towns and working-class neighborhoods get blanketed in —and blasted by —the self-replicating clones. This shift affects not only who can afford to stay in business but also (as I’ll get into in Chapter 8) what makes it onto the store’s shelves.
There is another retail trend that is in many ways exerting an even more significant influence than the two just discussed: the branded superstore, a marketplace marriage of the size power of big boxes with the branding clout of the store clusters. As I’ll show in the next chapter, the superstore is the logical result of the corporate preoccupation with synergy: part marketing, part brand-extension supermarket, part theme park.
All of these three retail phenomena, and the impact they are having on consumer choice, are about much more than changes to the way we shop. They are key pieces of the branding puzzle that is transforming everything, from the way we congregate to the way we work. In fact, the divide between the bland big boxes at the edge of town and the branded castles and clusters in the center of town can be traced back to Marlboro Friday and its aftermath. These parallel developments are the physical embodiment of the split that opened up between the lowly price-slashers and the spiritual brand-builders. For its part, Wal-Mart stands as the single most powerful symbol of the decline in brand value that sent Wall Street into a tailspin on that Friday in April 1993. The year before the so-called brand crash was a record one for Wal-Mart, during which it opened 161 new discount stores —unheard-of growth for the end of a recession. Wal-Mart’s shoppers were the new “value generation” in motion, flocking to the suburbs to avoid paying premium prices for heavily marketed brands. If Wal-Mart was selling Tide at deep discounts, so much the better, but these formerly brand-conscious shoppers were just as happy to take home detergent from Wal-Mart’s own private label, Great Value.
At the same time, the proliferation of Nike Towns, Disney Stores and Starbucks clusters is powerful evidence of a renewed reverence for a handful of élite lifestyle brands. For many of their loyal consumers, no price is too high to pay for these branded goods and, in fact, merely buying the products provides an insufficient relationship. Brand-obsessed shoppers have adopted an almost fetishistic approach to consumption in which the brand name acquires a talismanic power.
Not surprisingly, capitalizing on the urge for this sort of brand cocooning has become the central preoccupation of the fashion, athletics and entertainment corporations selling these fetish brands. Theme-park-inspired super stores are one part of this process, but as the successive waves of mergers and attendant synergies continue, they are only the beginning.
Top: Michael Eisner (Walt Disney Co. CEO) seals merger with Thomas Murphy (Capital Cities/ABC Chairman). Bottom: Ted Turner (Turner Broadcasting Chairman and President) does the same with Gerald Levin (Time Warner Chairman and CEO).
CHAPTER SEVEN
MERGERS AND SYNERGY
The Creation of Commercial Utopias
I would prefer ABC not cover Disney.
—Disney CEO Michael Eisner, September 29, 1998, National Public Radio
Commenting on the future of poetry and art in a democratic society, Alexis de Tocqueville wrote that he was not worried about a lapse into safe realism so much as a flight into unanchored fantasy. “I fear that the productions of democratic poets may often be surcharged with immense and incoherent imagery, with exaggerated descriptions and strange creations; and that the fantastic beings of their brain may sometimes make us regret the world of reality.”1
We are surrounded now by the realization of Tocqueville’s predictions: gleaming, bulbous golden arches; impossibly smooth backlit billboards; squishy cartoon characters roaming fantastically fake theme parks. When I was growing up, these strange creations awakened something in me that I’ve since come to think of as deep longing for the seductions of fake; I wanted to disappear into shiny, perfect, unreal objects.
Maybe this condition was brought on by television, maybe it was a too-early trip to Disneyland, maybe it was malls, but just as Tocqueville predicted in 1835, the world of reality looked pretty dingy by comparison. The humiliating spectacle of my all-too-real family, so sixties authentic, set against the cascade of inviting plasticity that was the seventies and eighties, was simply too much to bear. “Stop it, guys, you’re embarrassing me!” was the near-hysterical cri de coeur of my youth. Even when there was no one but family around, I could feel the plastic world’s reproachful gaze.
My parents, part of a wave of American hippies who moved to Canada to dodge the Vietnam War draft, were terribly disturbed by these tendencies of mine. In their newly adopted country, they had imagined themselves to be breeding a new kind of postrevolutionary child, blessed with the benefits of Canada’s humane social services, public health-care system and solid subsidies to the arts. Hadn’t they diligently mushed their own baby food? Read Parent Effectiveness Training? Banned war toys and other “gendered” play?
In an effort to save me from corruption, my parents were forever dragging me out of the city to appreciate the Canadian wilderness and experience the joys of real-time family interaction. I was distinctly unimpressed. The only t
hing that saved me on these reality excursions was my dreams of fakeness, unfolding in the back seat of our station wagon as it sped past verdant farmland and majestic mountains. At five or six, I would eagerly await the molded plastic of franchise signs on the side of the road, craning my neck as we passed McDonald’s, Texaco, Burger King. My favorite was the Shell sign, so bright and cartoon-like I was convinced that if I could climb up and touch it, it would be like touching something from another dimension —from the world of TV. During these family trips, my brother and I would beg to stop for fast food packed in shiny laminated boxes, and sometimes my parents would relent, if they were feeling particularly defeated that day. But more often than not, lunch would be another ponchoed picnic at a national park, with dry cheddar cheese, autumnal fruit and other distressingly unpackaged foodstuffs.
By the time I was eight or nine, my back-seat daydreams grew more intricate. I spent an entire journey through the Rockies conducting covert makeovers on everyone in the car. My father would lose the sandals and get a sharp, dignified suit, my mother a helmet hairdo and a wardrobe of smart pastel blazers, skirts and matching pumps. As for me, the possibilities were endless: kitchen cupboards filled with fake foods, closets overflowing with designer labels, unlimited access to eyeliner and perms. I wasn’t allowed to have a Barbie (“a racket,” my parents ruled, “first it’s a doll, then a camper van, then the whole mansion”) but I had Barbie in my brain.