7. Strength in inherent competi tive strength in chain stores is due almost without ex ception to the one element of size. Generally speak ing, the chains are strong because they are large merchandising units—they do big things in a big way, and tbey take advantage of all the cost-saving ex pedients that seem to go with large scale business.
The large capital requirements of an extensive chain put this type of enterprise in the class of "big busi ness." The great financial houses are attracted to the chains, frequently become interested in them, and thereby, thru interlocking directorates and other means, often tie up the chains with advantageous sources of supply. Many chains use their large cap italization as a means of advertising; they make a point of selling stock in very small blocks, and of placing it largely in small amounts among individual investors in communities in which the chain stores operate. This results in the enlistment of an army of local boosters for the chain system.
8. Advantages in picking 'picking sites for the stores the large capital of the chains permits them to adopt methods not open to their small com petitors. The following quotation from Printers' ink (November 12, 1914) suggests methods followed by most of the large chains: There are over 80 Childs restaurants in the country, and every one of them located by system. The right and proper location is considered so important by the company that it will not go into a city or a neighborhood unless it gets the place it wants. It has waited as long as five years to get it, and it always knows why it wants it, because it has data on virtually every available place in the country. The Childs Company owns the buildings where many of the stores are located. Take the site at 194 Broadway, New York. The ground is assessed at some $9.25,000. On this plot it has put up a three-story building that certainly could not have cost less than $75,000. The investment is thus a round mil lion dollars—a sum that would earn $50,000 or $60,000 at interest. The estimated income for a year of week-days is $600,000. Anybody who knows anything of marketing can guess at the cost of the food. Labor, salaries, and overhead are harder to figure, but it will be seen that the margin be tween the investment value of the money, $60,000, and the gross earnings of $600,000, is a promisingly large one out of which to carve profits.
Many companies buy their own buildings. It is said that the United Cigar Stores Company will fre quently buy an entire building, utilize only a tiny comer of it, lease the rest, and make enough on the transaction to return adequate interest on the in vestment, pay the rent of the store, and yield a hand some profit besides. Indeed, some chains are said to make their entire dividends on their real estate trans actions. Most of the large chains operate subsidiary companies that are charged with the entire responsi bility of selecting locations, fixing rentals, purchas ing property and managing it. The method of fix ing on locations by counting the pedestrians passing promising situations has been explained in many mag azine articles. This is simply the application of sci entific management to the first step in store-keeping; facts and figures are substituted for guesses as a basis for picking store locations. The plight of the small retailer in picking locations is made clear by another quotation from Printers' Ink: When the individual retail merchant picks out a site, the rental usually makes a big hole in his estimates. Unless he has had real-estate experience he does not drive so good a bargain with the landlord, to say nothing of buying cheap. Most merchants, taking the big and little together, have real estate transactions only once or twice in their lives. They are likely to be doubtful, cautious, and conservative in se lecting sites, renting, and buying. The chain system, on the contrary, acquires experience as it grows, and comes to cap italize this into standard practices. It is able to select its cities, its neighborhoods, its sites, with speed and precision. The dickering for lease or sale is done by experienced men.
In other words, the chain knows the best locations, and it usually gets them. It gets long-term leases, and thereby the most favorable rents, or else it buys outright and makes money on the deal. These ad vantages give the chain store an advantage at the start which the independent finds it hard to overcome.