Monthly Archives: February 2019

Payless: A Brief Obituary

Back in 1956, there were a couple of events that helped shape the course of globalization. One, about which I wrote in my book The Box, was the first modern containership voyage. This would eventually lead to the behemoths, some carrying more cargo than 10,000 full-size trucks, that move much of the world’s trade today. The other was the most prosaic development one could imagine, the opening of a shoe store in Topeka, Kansas, by two entrepreneurial cousins, Louis and Shaol Pozez. Sixty-three years later, that company is about to go out of business, the victim of the globalization it played a small role in bringing about.

My family knew both Pozez families and we shopped in their store. Payless-National, as they ambitiously called it, aimed to offer quality shoes at discounted prices. It did so by keeping costs low. The floor was covered with linoleum, not carpet, and the wooden shelves weren’t even painted. Payless laid out its merchandise in shoeboxes. Sales clerks were few; customers were expected to find their size and try on the shoes themselves. In return for putting up with these rather austere conditions, shoppers could buy two pairs of shoes for five dollars.

The Pozez cousins were able to undercut their competitors thanks to a series of court decisions in the early 1950s that effectively prohibited manufacturers from fixing retail prices. Importing was not part of their strategy: the United States imported very little footwear in 1956. Although shoes cost far less to make in many other countries, the United States still had a vibrant shoemaking industry, with 1,900 factories employing more than a quarter-million people in places like Endicott, New York, and St. Louis, Missouri. Thousands more people were employed in tanneries and in factories that made synthetic shoe materials.

But while making footwear provided plenty of jobs, those jobs came at a cost. By today’s standards, shoes were expensive. Men’s dress shoes from Florsheim started at $18.95 a pair. That’s about $170 in today’s prices—which is far more than an equivalent shoe from Florsheim costs today. A pair of men’s loafers from Sears for went for $8.65, or about $77 in today’s money—nearly twice the price of the loafers available right now on Sears’ website. StepMaster children’s shoes cost $5.50 a pair. No wonder Payless’s offer of two pairs of shoes for five dollars seemed like a good deal to a bus driver or factory worker earning two bucks an hour. Payless became a huge success, operating thousands of stores. It was purchased by a big department store chain in the 1970s, then spun off as a publicly traded company, and  eventually ended up in the hands of private equity funds.

Footwear manufacturing has proven difficult to automate, making labor costs the single most important factor in choosing production locations. As factories in low-wage Asian countries filled millions of containers with cheap plastic and synthetic shoes and shipped them across the pacific at only a few cents per pair, the U.S. shoe industry couldn’t come close on price; today, about 98 percent of the shoes sold in the United States are imported, mainly from China. To keep its lead in the discount shoe business, Payless became one of the largest shoe importers. For it, as for many other companies, globalization was not a choice, but the only alternative.

What killed it, at the end, was the same thing that made it a success–the constant quest for lower prices. According to the Bureau of Labor Statistics, the average consumer price of footwear has gone up all of 8 percent over the past 25 years. Rent and workers’ wages, meager though those may be, have been rising much faster, squeezing shoe retailers’ margins. In that environment, even globalizers can end up as road kill.

Delivering the Goods

Perhaps more than any other industry, trucking should demonstrate the virtues of capitalism. Almost anyone can become a driver or start a trucking company. Since the federal government’s economic regulation ended in 1980, truckers have been able to drive whatever routes they wish, carry whatever type of freight is available, and charge whatever price the market will bear. Conversely, shippers can hire employees to drive company-owned trucks, can sign long-term contracts with trucking companies, or can hire an independent trucker to haul a single load. With hundreds of thousands of truck operators on the one side and hundreds of thousands of shippers on the other, the price of freight transportation fluctuates constantly based on supply and demand. This is the free market on steroids.

Or downers. Whatever economic theory says it should be, in the real world the trucking market is a mess. Shippers complain about terrible service, and their customers complain about blown schedules. Drivers, who often earn little or nothing when their vehicles are not moving, complain about congested highways and about having to cool their heels at a distribution center that is in no hurry to load or unload their truck. Trucking companies complain they can’t retain drivers. Meanwhile, many of the long-haul trucks on U.S. highways are running empty. Deregulation was supposed to put an end to that problem, but it didn’t. Local drivers now seem to spend much of their time making repeat deliveries to households that ordered online but weren’t at home when the order arrived, hardly a constructive use of capital and labor.

The extraordinary inefficiency of the trucking industry has not escaped notice. I recently spoke at a meeting organized by a company called FreightWaves, which is one of many trying to figure out how to create order out of trucking chaos. In addition to running a news service, it brings entrepreneurs touting solutions to the trucking industry’s problems together with investors who might finance their ventures and truck lines that might purchase their products. Some were selling software. Some were selling hardware. Some were selling services: Uber Trucking, which offers an app that a shipper can use to summon a driver, paid for dinner. Which is to say, Uber’s shareholders paid for dinner, because the company isn’t earning any profits that could cover such a bill.

The common vision of these visionaries is that technology can help squeeze the waste out of trucking. So far, though, their track record isn’t great. Trucking illustrates a paradoxical problem. The very things that economists praise about markets — the jockeying of many buyers and sellers to find the best deal, the constant pressure to innovate in order to eke out a profit, the dynamic benefits that arise from forcing prices down and inefficient players out — mean that there may be few commonalities among the participants. No one is in a position to coordinate or to impose order, so an innovation that may have great benefit overall — for example, a new system for matching drivers with loads or a device for keeping track of drivers’ hours — may not be used widely because it doesn’t serve the purposes of many industry participants.

In fact, once they’re done grousing, neither truckers nor their employers seem all that eager for change. Despite the purported driver shortage, the average weekly pay of long-haul truckers rose a scant 2% last year. After inflation, the year-on-year pay increase was zero. Even so, the number of people employed by general freight trucking firms reached an all-time high in 2018. This suggests the industry may not be quite as ripe for disruption as techno-optimists believe.

And what of the unhappy shippers? There’s an interesting development underway. Companies from WalMart and Amazon to your local furniture store seem to giving up on the industry’s ability to straighten itself out. They are buying more trucks, hiring more drivers as full-time employees, and handling a larger share of their freight transportation needs in-house.

This is a return to the old ways. Back before deregulation, about half of all over-the-road trucks were owned by the manufacturers and retailers who required their services. Even though these “private carriers” usually carried loads only in one direction and returned home empty, they provided cheaper, more reliable service than the regulated truck lines. In today’s environment, it’s likely cheaper for shippers to purchase trucking services than to manage their own truck fleets. They’re paying a premium for protection from a chaotic market that isn’t able to deliver the goods.