Retail and the FTC's track record of failure

As the FTC prepares its legal case against 亚马逊 , it is worth exploring the agency’s abysmal track record of failure in the retail sector.

Safeway and Albertsons

In 2015 there was the $9.2 billion merger of Safeway and Albertsons . The FTC felt that this would result in competition being weakened in some areas, so it required the merged entity to sell off 168 stores.

The bulk of these shops were bought by Haggen Holdings which, at the time, operated just 18 stores and had only around 2,000 employees.

Haggen converted its new stores but, unfortunately, ignored the preferences of existing customers who found the new chain too expensive. While Haggen tried to blame Albertsons for the debacle, the truth was the company, which was not used to operating at scale, made too many errors.

Haggen filed for bankruptcy in late 2015. Ironically, some of the stores they had acquired were sold back to Albertsons.

The FTC based their disposal demands on a view that a lack of competition would lead to higher prices and lower quality for shoppers in some locations. As much as this analysis was flawed – mainly because grocery shopping is not fixed to specific areas because of travel and online ordering – the remedy was even more absurd.

The FTC opted to put in place a supermarket that charged higher prices than the original stores and had too little operational experience. The net result was competition was ultimately weakened as a result of the FTC's decisions rather than because of the merger.

Dollar Tree and Family Dollar

In 2015, after a long running battle with Dollar General , Dollar Tree Stores triumphed in the war to acquire Family Dollar .

Despite the fact the propositions were very different, the FTC believed that the merger would weaken competition in some locations and ordered the sale of 330 shops.

These were sold to Sycamore Partners which created a new brand called Dollar Express. As part of the transition, Dollar Tree was to aid its new potential competitor with the establishment of the business.

However, not a single store was converted to Dollar Express. Sycamore was accused by Dollar Tree of turning the Dollar Express venture into a personal cash cow. In turn, Sycamore accused Dollar Tree of acting in bad faith.

The truth is that Dollar Express was never really viable. Running a chain of 330 low-margin shops scattered across 36 states is financially challenging. Especially for Sycamore which had no experience in the dollar segment.

Eventually, Sycamore sold the shops it had bought to Dollar General.

Again, the FTC’s judgement was faulty. It simply failed to understand the nuances and complexities of the businesses involved.

Walgreens and Rite Aid

In 2017, Walgreens wanted to buy RITE AID . Although the FTC took no action, Walgreens accused it of scuttling the deal.

Eventually, Walgreens agreed a scaled down transaction under which it acquired 1,932 Rite Aid stores and a number of distribution centers. The FTC happily approved the deal.

The rest of the stores were left under a shrunken Rite Aid which was too small to compete in the cutthroat pharmacy market – especially with the huge debt pile the company was sitting on at the time, and which is still burdening it today.

Rite Aid is now in dire financial distress and is likely to file for bankruptcy.

The FTC should have pushed for a complete takeover by Walgreens, which would have created a stable business. However, it didn’t recognize the risks or look too closely at the operating models of the businesses.

Conclusion

In all of these cases, and more, the FTC has categorically failed.

The main problem is that the agency is theoretical. It looks at markets and how they operate on paper and spreadsheets, but rarely concerns itself with the practice and nuance of real life.

It also has a general working thesis that big equates with bad and that a healthy market is one with lots of players. This isn’t always so. In low margin sectors, like grocery and dollar stores, scale is needed to produce volume which produces profits. Without that scale, businesses become less viable and are prone to failure. A few larger players can actually be much more competitively dynamic than a larger number of small players.

All of these things are worth bearing in mind as the FTC tries to take on Amazon a company which has succeeded because, unlike the FTC, it is good at what it does.

#retail #Amazon #antitrust #FTC