UC Berkeley

This dissertation analyzes the development of the retail sector in the United States and Western Europe. The predominant literature on the service sector in both economics and political science has argued that the only way to create jobs in services such as retailing is through the low-wage, high-inequality route epitomized by the United States. Nevertheless, in the retail trade sector, a number of European countries have matched or exceeded American productivity and employment growth, despite considerably higher wage levels. How do we explain the puzzling combination of rapid job growth and high wages in European retail?

This dissertation resolves this puzzle through a cross-national comparison of the retailing strategy in three countries: the United States, Denmark, and France. It identifies three modes of competition in retail, labeled "lean retailing" (US), "relational contracting" (Denmark), and "vertical integration" (France). It shows that each approach has strengths and limitations, with none inherently more successful than the others.

The first model, American lean retailing, is a cost-squeezing strategy built around scale, turnover, and low margins. It uses dominating relationships with suppliers and workers to strip costs and retailer control over logistics to improve efficiency. The second model, Danish relational contracting, illustrates that more collaborative relationships can produce equally efficient retailing outcomes. Danish retailers work with workers and suppliers, finding ways to share and reduce long-term costs through worker training, improved productivity, and reduced costs from confrontation. Finally, a third model, French vertical integration, seeks to add and capture as much value as possible throughout the distribution supply chain. French retailers have built their own partners and brands, developing services and private label products that allow them to add value.

Most explanations of retail business strategies emphasize either the imperatives of the technology available to retailers or the vicissitudes of consumer preferences or markets. This dissertation argues, by contrast, that contemporary retailer strategies are rooted in a series of political battles fought in the 1960s. The key to this political explanation is the embedded nature of the retail sector. Retailers are amongst the most connected actors in political economy, with ties to numerous economic and political players, including consumers, suppliers, workers, and both local and national governments. These connections were activated in the 1960s as a new crop of large-scale retail entrants began shifting the retail sector from shopkeepers to supermarkets.

The political coalitions that emerged were a function of national structural factors, notably the power resources of the retail sector, electoral institutions, avenues of interest aggregation, and the economic organization of small shops. These coalitions set in motion longer economic trajectories of firm management and policymaking. Where retailers could defend their interests unilaterally, without coalition partners (US), the lean retail model took hold; where retailers forged multiple coalitions with other stakeholders (Denmark), the relational contracting model developed; and where coalitions were partial and unstable (France), vertical integration predominated.

In the United States, the fragmented and decentralized political environment meant that the opposition to retailers was local and diffuse. Consequently retailers were able to counter with unilateral political action. This unilateral political approach set the stage for a confrontational, and ultimately dominating lean retail strategy that uses market power and digital information as a club against suppliers and workers.

In Denmark, weak retailers confronted powerful small shops, producers, and workers. Needing support, retailers reached a broad compromise involving all of these groups that divided the gains from consumer distribution in a more stable, long-term and equitable fashion. Under this relational contracting approach, retailers were forced to work with partners, but eventually found numerous benefits from these alliances, and have continued their cooperation long after the initial political crisis has past. Policymaking has also continued its history of concertation, and new challenges are still tackled jointly by a broad coalition of groups.

Finally, in France, retailers faced vocal and national, but disjointed opposition movements of shopkeepers and workers. Retailers responded by forging uneasy, partial alliances, but these were constantly contested. In this unstable political environment, retailers pursued a vertical integration strategy, seeking to maximize value by controlling and internalizing much of the production process.

Analysts of the retail sector suggest that new developments, such as trans-national retailing and e-commerce (sales over the Internet) are undermining national models of retailing. This dissertation shows, however, that retailers are largely integrating these new developments into their existing, nationally distinctive business strategies. In the United States, retailers are using market power and fragmented politics to dominate where possible. In Denmark, numerous partners are working collaboratively to share the gains of new opportunities. Finally, in France, national political fights over digital commerce are reopening unresolved policy questions from the pre-digital era. Like the previous set of political challenges facing retailers, therefore, national institutions and politics continue to mediate economic transformations and drive divergence in firm strategy, competitive advantage, and national variation in secondary outcomes such as wage equality, price levels, and patterns of technology implementation.