Cheap (42 page)

110
financial risk of marketing their goods:
This is not to imply that retailers had no power, particularly in regional markets. For example, in 1904, Marshall Field & Company employed eight thousand to ten thousand workers and served as many as a quarter of a million customers a day, and had grown into a powerhouse for both retail and wholesale. By 1920 the company controlled factories in the United States, China, and the Philippines, producing everything from underwear and neckties to lamps, rugs, and linoleum.

111
toy stores, and hardware stores
: For example, I grew up in Syracuse, New York, shopping at Dey Brothers, a family-owned chain of nine stores founded in 1877. Dey’s, as we called it, became part of Allied Stores holding company, which was bought out by the Campeau Corporation in 1986. In 1987, Campeau sold Dey’s to May Company which merged it with another of my favorite stores, Addis Company. After another merger, with Sage-Allen stores, all Dey’s stores were closed by 1993. May Company also owned Sibleys, Famous-Barr, Filene’s, Foley’s, Hecht’s, The Jones Store, Kaufmann’s, L. S. Ayres, Marshall Field’s, Meier & Frank, Robinsons-May, and Strawbridge’s. Today, only Macy’s and Bloomingdale’s retain their names.

111
slack if and when the sales went south
: Tracie Rozhon, “Markdown Money Sparks a Clothing War,”
International Herald Tribune
, February 25, 2008. Rozhon quotes one retailer: “As Lauren’s product line got bigger, and the volume increased, he lost some of his exclusivity. Now even Ralph pays markdown money.”

111
were absorbed into even larger chains
: The history of the decline of department stores is well told in a number of books, including Jan Whitaker’s excellent and comprehensive
Service and Style: How The American Department Store Fashioned the Middle Class
(New York: St. Martin’s, 2006). There are also several well-maintained Web sites on the subject:
http://www.dshistory.com
and
http://www.deadmalls.com
.

111
chains sold 72 percent of American clothing
: Robert J. S. Ross,
Slaves to Fashion: Poverty and Abuse in the New Sweatshops
(Ann Arbor: University of Michigan Press, 2004), 131.

111
“The manufacturers and contractors are stuck”:
Edna Bonacich and Richard P. Appelbaum,
Behind the Label: Inequality in the Los Angeles Apparel Industry
(Berkeley: University of California Press, 2000), 90.

111
Critics call it extortion, and sometimes it is
: Tracie Rozhon, “3 Saks Executives Fired Over Vendor Payments,”
New York Times
, May 10, 2005.

112
Oscar de La Renta and Michael Kors
: Tracie Rozhon, “First the Markdown, Then the Showdown,”
New York Times
, February 25, 2005.

112
and paid no fine:
Michael Barbaro, “Saks Settles with SEC on Overpayment,”
New York Times
, September 6, 2007.

112
smaller vendors and manufacturers
: Edna Bonacich and Richard P. Appelbaum,
Behind the Label,
91-94. The authors write: “Small manufacturers are more likely to have difficulty meeting the complex demands of large retailers, each one of whom has a different set of specifications, some running to shipping and packing guides the size of telephone books.”

112
by experience told them what to stock
: See, for example, Adam Gopnik, “Under One Roof,”
The New Yorker
, September 22, 2003. Gopnik’s charming and prescient essay on the life and death of the New York City department store quotes Bloom ingdale’s founder Marvin Traub as saying that today “the buying is all done on a corporate level, and so the connection between the customer and the product is damaged. They order from the central headquarters with, say, twenty to thirty per cent for the individual store. The department store depends on trust and belief, and if you knock down the reasons for belief, you damage it.”

112
department store sales was a paltry 5.2 percent
: B. Peter Pashigian and Brian Bowen, “Why Are Products Sold on Sale?: Explanations of Pricing Regularities,”
The Quarterly Journal of Economics
, November 1991, 1015.

112
to a startling 18 percent in 1984
: Ibid.

112
merchants ended up eating their bad calls
: See, for example, Susan Kaiser and Karyl Ketchum, “Consuming Fashion as Flexibility,” in S. Ratneshwar and David Glen Mick (eds.),
Inside Consumption: Consumer Motives, Goals, and Desires
(New York: Routledge, 2005), 125.

113
“goods from other countries”
: Richard Freeman, “The U.S. Import Bubble Is Bursting,”
Executive Intelligence Report
, January 19, 2001.

113
$1.2 trillion in 2000
: Ibid.

113
store merchandise sold at full price:
Edna Bonacich and Richard P. Appelbaum,
Behind the Label,
94.

113
had grown to an astonishing 33 percent
: Scott C. Friend and Patricia H. Walker, “Welcome to the New World of Merchandising,”
Harvard Business Review
, November 2001.

113
within two months of its launch:
Rhys Blakely, “Apple cuts third off price of its iPhone 68 days after launch,” Times Online, September 7, 2007, see
http://business.timesonline.co.uk /tol/business/industry_sectors/technology/ article2398965.ece.

114
fashion in transport
: B. Peter Pashigian and Brian Bowen, “Why Are Products Sold on Sale?”, 1018.

114
for the next Christmas season:
Interview with Rama Ramakrishnan, Cambridge, Massachusetts.

114
than the Asian imports:
Ibid.

114
lap them up, or they don’t:
B. Peter Pashigian and Brian Bowen, “Why Are Products Sold on Sale?”

115
“June 13 sale followed by the June 14 sale”
: Amy Merrick, “Priced to Move,”
Wall Street Journal
, August 7, 2001, A1.

115
many are quickly discounted
: This is true not only of fashion but of electronics, furniture, and even books. The “window” for a new book title today is roughly six to eight weeks. If a title doesn’t take off during that time, it is likely to move from the shelves to the bargain bin.

116
has been available since at least the mid-1980s
: ProfitLogic, Inc., formerly known as Technology Strategy, Inc., was an early player in this space. Founded in 1983, it was based in Cambridge, Massachusetts, and is now part of Oracle.

117
“They are the price makers, not the price takers”
: Robert J. S. Ross,
Slaves to Fashion
(Ann Arbor: University of Michigan Press, 2004), 129. Ross is a sociologist at Clark University.

118
a combined savings of $3 billion
: “Rebates, Coupons and Discounts,”
NPD Insights
, no. 2 (May 2005), available at
http://www.npdinsights.com/corp/enewsletter/html.archives/May2005/index.html
.

118
nearly half of all computer sales—involved them
: Matthew A. Edwards, “The Law, Marketing and Behavioral Economics of Consumer Rebates,”
Stanford Journal of Law, Business & Finance
12, (2007), 362.

119
redemption rate data:
: Redemption rates are equal to the number of successful redemptions divided by the number of units sold.

119
make public this side of their business
: See Tim Silk and Chris Janiszewski, “Managing Mail-In Rebate Promotions: An Empirical Analysis of Purchase and Redemption,” Sauder School of Business, University of British Columbia, working paper, 24.

119 “
what the manufacturer had in mind”
: Catherine Greenman, “The Trouble with Rebates,”
New York Times
, September 16, 1999, G1.

119
consider their time too valuable
: Widespread speculation that a subgroup of consumers choose not to bother because they don’t want to take the time doesn’t qualify as an explanation.

120
is considered an abject failure:
Timothy Guy Silk, “Examining Purchase and Non-Redemption of Mail-In Rebates: The Impact of Offer Variables on Consumers’ Objective and Subjective Probabilities of Redeeming,” dissertation, University of Florida, 2004, 6.

120
“without encouraging redemptions”:
Ibid., 7.

122
to buy the product:
Carrie Heilman, Kyryl Lakishyk, Sonja Radas, “The Effectiveness of In-Store Free Samples on Sample Takers,” 2006, available online at
http://www.commerce.virginia.edu/faculty__research/Research/Papers/FreeSa- mples__July26__2006.pdf.

123
“five shillings besides”:
From the essay “Advice to a Young Tradesman Written in the Year 1748,” in
Autobiography of Benjamin Franklin
(New York: Macmillan Company, 1921), 188.

123
“an opportunity cost”
: Diip Soman, “The Mental Accounting of Sunk Time Costs: Why Time Is Not Like Money,” J
ournal of Behavioral Decision Making
14, no 3 (2001), 169-85.

123
we tend to underestimate its value:
Richard Thaler, “Mental Accounting Matters,”
Journal of Behavioral Decision Making
12 (1999), 183-206.

125
“let’s pull the legs off”
: Oliver Burkeman, “The Miracle of Almhult,”
The Guardian
, June 17, 2004.

125
among the world’s richest men:
In March 2008,
Forbes
magazine estimated Kamprad’s fortune at U.S. $31 billion, making him the seventh richest person in the world, while other sources, such as the Swedish business weekly
Veckans Affärer,
argue that he is in fact the wealthiest. Company finances are cryptic, making it very difficult to sort this out, but it is largely agreed that in 2008 he was the world’s wealthiest European-born man.

126
“And the new one is much bedder”:
This commercial first ran in 2002 and is available on YouTube at
http://www.YouTube.com/watch?v=I07xDdFMdgw
.

127
Bomull twin fitted sheet:
See IKEA 2008 catalog, “Home Is the Most Important Place in the World.”

127
why does it sell a wok named after a girl?:
IKEA sells a wok for $6.99 called Pyra. See the 2007 catalog, page 73, under “cookware.”

128
“let alone build the thing”:
I was fortunate to spend a most informative morning with Peter Korn, founding director of the The Center for Furniture Craftsmanship in Rockport, Maine. Peter is a master craftsman and a master teacher.

128
the short, dark winter days:
Thanks to Michaele Weissman, author of the excellent
God in A Cup: The Obsessive Quest for the Perfect Coffee
(Hoboken, N.J.: Wiley, 2008) for filling me in on the coffee-drinking habits of Swedes.

129
“to low prices in its stores”:
Author unnamed, “Flat Pack Accounting,”
The Economist
, May 11, 2006.

129
they poached was acquired legally:
“No Questions Asked: The Impacts of U.S. Market Demand for Illegal Timber—and the Potential for Change,” Environmental Investigation Agency, November 2007.

130
felling trees and hauling logs:
Peter S. Goodman and Peter Finn, “Corruption Stains Timber Trade: Forests Destroyed in China’s Race to Feed Global Wood-Processing Industry,”
Washington Post
, April 1, 2007, A01.

130
rate unprecedented in human history:
Steve Kemper, “Forest Destruction’s Prime Suspect,”
Yale Magazine
, Spring 2008.

130
industrial manufacturing sectors:
“No Questions Asked,” Environmental Investigation Agency, November 2007.

130
provenance of their wood products:
In June 2008 the United States became the first country in the world to ban the import and sale of illegally-sourced softwood and softwood products as part of the 2008 Farm Bill. How and when this law will be enforced remains to be seen, but it is certainly a hopeful first step.

130
made by other discount retailers as well:
For example, Home Depot pledges “to give preference to wood that has come from forests managed in a responsible way and to eliminate wood purchases from endangered regions of the world by the end of 2002.” This message was still on the company Web site in the early months of 2009. Lowe’s states on its Web site that it will “aggressively phase out the purchase of wood products from endangered forests.” And in 2007, Wal-Mart released a comprehensive progress report on its Sustainability Initiative, in which it proclaimed a goal of selling products “that sustain our natural resources and the environment.” Wal-Mart’s “Wood and Paper Network” describes “good wood” as “first and foremost, not illegally harvested.” Yet it is hard to take such rhetoric seriously in light of documented evidence that, in the words of the Environmental Investigation Agency, “the company’s current supply chain includes suppliers who speak openly about paying protection money to the Russian mob, and do their logging in some of the most high conservation value forests in the world.” (See Environmental Investigation Agency, “Attention Wal-Mart Shoppers: How Wal-Mart’s Sourcing Practices Encourage Illegal Logging and Threaten Endangered Species,” 2007.)

131
75 million cubic meters of timber:
Mikael Toll, ”The Storm Gudrun,”
Swedish Energy Agency News
, April 2006.

132
installed a factory in Danville, Virginia:
IKEA press release, “IKEA Opens 1
^st
Swed wood Factory in United States as Virginia Governor and Local Officials Welcome New Facility, Jobs,” Business Wire, May 21, 2008. Also see Ylan Q. Mui, “IKEA Helps a Town Put It Together,”
Washington Post,
May 31, 2008, A01. What is striking in this celebration of the new IKEA factory is the mention of a worker whose previous factory job paid $16.95 an hour. Her job in the IKEA factory pays $11.50, far closer to the median wage of a Wal-Mart greeter than that of an experienced manufacturing worker.