Why, and how, did chain stores come into being?

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Accepted answer

Chain stores became an important force in the American economy around the turn of the century. Mass production (and the accompanying potential for mass consumption) made this new business model possible. Innovators saw that they could make more money from high-volume low-margin sales than from the low-volume high-margin sales that characterized traditional retailers, who were accustomed to a slower pace of business.

High-volume sales strategies were first perfected by urban department stores (Macy's, Marshall Field) and by the famous Sears catalogue (which catered to rural customers) in the mid-late 19th century. The department stores demonstrated the potential of business models focused on lowering costs/prices through centralized management and purchasing in bulk while focusing on increasing the "velocity of flow" of products through the shops ("stock-turn"). Alfred Chandler called this model an "economy of speed."

Starting in the 1880s, chain retailers such as Woolworth and Atlantic & Pacific borrowed the department stores' business models, but also used modern management techniques to build more flexible organizations that could cover wider territory:

The chains had to administer a number of geographically scattered united. Nearly all the larger chains acquired regional managers with a staff of accountants and "inspectors" or "road men" who kept a constant check on the sales and financial performance of the managers of the individual stores in their own territories. For all these middle managers stock-turn remained the basic criterion for success. (p. 235)

Chains soon became more important than department stores or mail-order catalogues, causing these businesses to imitate the chain store in the 20s and 30s:

Because they covered a broader and faster growing market than did either of the other two types of mass retailers, the chains began in the twentieth century to grow more rapidly in number and in volume of sales than did either the mail-order house or the department store. The chains were better suited to respond to the changes in consumer buying resulting from the increased mobility made possible by the coming of the automobile and from the rapid growth of the suburbs. Faced with a declining rural market in the 1920s, the two great mail-order houses--Sears Roebuck and Montgomery Ward--organized chains of several hundred retail stores between 1925 and the coming of the great depression in 1929 . . . By the 1930s, department stores . . . had begun to build branches in the suburbs of the cities they served. (p. 235)

TL;DR from Chandler himself:

The chains with their geographically widespread network of branches completed the retailing revolution begun by the department stores in the 1860s and 1870s. They did so because they created administrative organizations that coordinated a higher volume flow of goods from the manufacturer to the largest number of final consumers in an increasingly urban and suburban community. (235)

Source: Alfred Chandler. 1977. "The Visible Hand: The Managerial Revolution in American Business."

Upvote:2

The original chain stores sold low cost, mundane products that enabled merchants to save money by "buying in bulk." The first three included United Cigar (a "single" product store), F.W. Woolworth, a "dime" store that we would now call a "dollar" store, and Great Atlantic and Pacific (A&P), a grocery store.

Chain stores became popular in the United States after World War II, when American soldiers came back from war, with a bent for "standardizing" society. In 1954, for instance, a veteran named Ray Kroc, who was working as a paper cup salesman, noted that the hamburger store of the McDonald Brothers did the same business as five ordinary outlets. Kroc asked the brothers for permission to "clone" (in today's language) their one store, and soon controlled ten of them. In so doing, he had "out McDonalded" the McDonald brothers, bought them out, and created a "chain" of "McDonald's" stores. Other war veterans like Conrad Hilton (Hilton hotels) did much the same thing.

One thing was that the returning GIs had developed a common American culture in the armed forces, passed it along to their Baby Boom children, and laid the ground work for chains of similar stores in different parts of the country.

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