Chicago burned to the ground in the Great Fire of 1871. But, like a phoenix rising from the ashes, the city was quickly rebuilt, and rebuilt better than before.
Marshall Field, the great merchant prince of Chicago, [FN3] began construction of a grand new department store just a few years after the fire. His goal was to create a store that set a tone of “elaborate courtesy . . . where the customer was always right.”
Soon after the first portion of the beautiful new store opened in 1892, while Chicago was hosting the World’s Fair and celebrating the city’s rise from the ashes, Field toured his store–as he did every morning to ensure that his business was operating properly. He came to observe a manager in a heated discussion with a female customer. Field asked the manager, “[w]hat are you doing here?” The manager replied, “I am settling a complaint.” “‘No you’re not!’ snapped Field. ‘Give the lady what she wants.”’
This admonition to a manager became so strongly obeyed that the oft-repeated “Give The Lady What She Wants” became corporate policy and the store motto of Marshall Field & Co. And it remained so–until September 9, 2006 when the name Marshall Field & Co. was banished to the dustbin of history in favor of the name Macy’s in recognition of the store’s new corporate owner.
A change in ownership for Field’s was not all that unusual. Since Marshall Field’s descendants and other stockholders sold the department store in 1982, the chain was owned in turn by the U.S. subsidiary of British American Tobacco (“BATUS”), Dayton Hudson/Target Corp., and May Department Stores (“May”). Each new successor to the Field’s legacy made similar pledges that many Chicagoans considered critical: Frango Mint chocolates, sold only at Field’s, would still be featured in each store; for a limited time, shoppers could, upon request, receive their purchases in Field’s singular green shopping bag featuring a drawing of the big clock on the flagship downtown store; and, of course, the name Marshall Field & Co. would live forever. The federal antitrust authorities reviewed these, and indeed all large department store mergers, and pronounced each free of antitrust concern.
This time, however, was different. Upon hearing of Macy’s plan to change the name of downtown Chicago’s iconic anchor to–of all things–a New York department store, hundreds of Chicagoans took to the streets in protest. Film critic Roger Ebert told Macy’s in a newspaper editorial “[d]on’t mess with Chicago, and don’t mess with the name Marshall Field’s. You will generate rage beyond your wildest nightmares.” Pulitzer Prize-winning author Studs Terkel considered the decision a big mistake. But after its merger with May Department Stores, Macy’s determined that one national department store name brand–Macy’s–would be its best marketing tool and a better strategy than continuing the legacy of Marshall Field & Co. and the other regional department store names memorializing his merchant prince peers.
Macy’s began similarly to every other department store in the United States–as a single store in a single city–in Macy’s case, New York City. Despite a national reputation–due in no small part to an enormous and high profile flagship store in Manhattan’s Herald Square and a nationally televised Thanksgiving Day parade–Macy’s was a regional chain with stores in the New York City metropolitan area and a few other states. Despite these modest beginnings, Macy’s was so well known that it was featured (and immortalized) in the Academy Award-winning movie, Miracle on 34th Street.
In 1994, Macy’s merged with Federated Department Stores (“FDS”), creating a national retail behemoth spanning the continent, although leaving an important coverage gap in America’s heartland. Soon afterwards, Macy’s embarked on a new strategy of changing its historic regional brand names to its two marquee brand names: Macy’s and (for a select few upscale locations) Bloomingdale’s. In 2005, Macy’s acquired May for $17 billion, filling Macy’s Midwest gap and resulting in a nationwide chain of 1000 department stores, most now operating as Macy’s.
Several states ordered Macy’s to divest a few stores to satisfy antitrust concerns. But the Federal Trade Commission (“FTC”), which reviewed the transaction, took no action beyond its extensive investigation into the merger.
Earlier mergers and name changes by Macy’s had eliminated Bullock’s in Los Angeles, Wanamaker’s in Philadelphia, Jordan Marsh in Boston, Rich’s in Atlanta, Burdines’s in Florida, A&S in Brooklyn, and Lazarus in Ohio, as well as many others, almost all rebranded as Macy’s. Most of these famous names had been around for at least a century, the legacy of “immigrant entrepreneurs who moved to America and helped build the nation’s cities.” In most instances, the founding families had sold out years earlier, but their names lived on, tightly intertwined with individual and family memories of wedding and Christmas gifts, interview suits, and other memorable purchases. While consumer reaction in Chicago was particularly intense, shoppers across the nation expressed reluctance to trade their local department store for Macy’s, even if long divorced from its original founders.
According to Chicago School antitrust dogma, none of this is particularly relevant. The Chicago School worldview, boiled down to its most simplistic description, would argue that “[a]ntitrust concern should kick in only when a firm had a dominant market share in a market protected by entry barriers, and entry itself could be relied upon to solve most competitive problems, except when government action protected incumbents.” Chicago School antitrust lawyers and economists–were they to consider this issue at all– would likely declare that department stores are a mere basket of goods, because department stores are essentially a collection of goods mostly available at other stores. And were a department store to impose anticompetitive price increases, shoppers should, at least according to Chicago School theory, make wise decisions for allocative efficiency and maximization of consumer welfare. In this idealized perfect market, department store shoppers would then flock to the myriad stores that offer similar wares. Even if that were not to happen, the lack of entry barriers in something as simple as retail would invite a host of new competitive entrants to vie for the business of the incumbents.
An incongruity therefore exists between the reaction of consumers to Macy’s absorption of the majority of department stores in the United States and the Chicago School’s belief in the irrelevance of that absorption. Particularly in the city of Chicago, was it pure emotionalism, driven by fond memories of Marshall Field’s as an independent and elegant store? Or did Chicagoans–the real denizens, not those just attached to the University of Chicago and Chicago School thinking–have good reason to anticipate higher prices as well as reduced output in the form of less service and fewer choices?
Several noted antitrust scholars have suggested that the time is ripe for “‘merger retrospectives’. . . reviews of the actual competitive effects of mergers that were consummated despite having raised serious antitrust concerns.” This Article will examine the antitrust ramifications of Macy’s growth and conclude that the real Chicagoans are in fact correct: Macy’s acquisition of May has led to market power, manifested by both an increase in prices and a reduction in output.
Part II of this Article will provide the analytical framework for an antitrust analysis of department stores, including product market definition as well as submarkets, cluster markets, and price discrimination markets. This section will also analyze previous antitrust decisions concerning department stores. Part III of this Article will review the results of an empirical study designed to carefully examine some of the assumptions and conclusions made by the FTC. The study offers significant proof that Macy’s has increased its prices since the merger, suggesting that the firm has market power. Part IV of this Article contains conclusions, appropriate remedies, and suggestions for additional research. Ultimately, this Article suggests that the FTC must use its power under § 46(b) of the FTC Act to review Macy’s actions since acquiring May. On further review, it may be necessary to order a dissolution of some or all of the merger.