In this short note, Open Markets Executive Director Barry Lynn remembers Ted Halstead, who founded the New America think tank, where Barry and Phil Longman first developed the Open Markets concept and built the Open Markets team. Ted died earlier this month at age 52. 

Barry Lynn’s full statement can be read here. 

Last week, the French luxury conglomerate LVMH backed out of a $16 billion agreement to buy the Tiffany chain of jewelry stores. But the collapse of that one deal is less a sign of the times than an exception to the current rule, which has seen ever more retail brands brought under the control of a few giant holding companies. Indeed, another deal last week is a more accurate example of how concentrated physical retail has become in the United States. This was the purchase by mall operators Simon Property Group and Brookfield Property Partners of J.C. Penney’s department stores for $800 million, after J.C. Penney filed for bankruptcy in May.

Simon Property Group is among the biggest commercial landlords in the country and is the largest mall operator in the U.S., with 204 mall properties. Before the pandemic, Simon held stakes in 400 of the stores in their properties. Since March, however, Simon has acquired Brooks Brothers and Lucky Brand Dungarees, in addition to J.C. Penney. Simon’s acquisitions are a part of what one industry consultant described as a strategy to be “the last mall owner standing.”

The J.C. Penney deal is also notable for Simon’s cooperation with Brookfield, the second-largest shopping mall operator, which controls more than 170 properties. Earlier this year, the two also collaborated in an ultimately successful effort to acquire struggling retailer Forever 21 for $81 million.

The spate of deals, and the new collaboration, come after a long series of similar moves by the two corporations. In the last decade, Simon in 2010 failed in an attempt to buy General Growth Properties in 2010, the second-largest mall owner at the time. Brookfield then stepped in to buy General Growth in 2018. Not all deals have worked out. In 2015, Macerich, the third-largest mall owner in America, rejected a $16.8 billion offer from Simon. Earlier this year, Simon abandoned a $3.6 billion deal to buy mall owner Taubman Centers, arguing that Taubman had failed to protect its value during the pandemic.

This accelerating roll-up of mall operators and retailers by a few giants marks the final stage of a process that began in the 1980s, soon after the Reagan administration radically relaxed antitrust enforcement. The effects were immediate. In the 1960s, there were hundreds of department store companies in the United States and no major chains. By the late 1980s, 10 holding companies had largely rolled up control over department stores.

Even before the crash of 2008, private equity firms had loaded massive amounts of debt onto these corporations. The resulting Great Recession then made matters far worse, driving retail sales to their lowest levels in 35 years. 

Amazon’s hardening monopoly over e-commerce further weakened almost all retailers in the years before the COVID-19 crisis. In 2018, Amazon took almost half of U.S. e-commerce sales and has expanded rapidly into the apparel retail market. That same year, Amazon became the nation’s largest apparel retailer, with $30 billion in sales. The corporation has launched services such as Amazon Fashion, Prime Wardrobe, and Personal Shopper, and has also created more than 100 Amazon-owned fashion brands.

Although the deals may look like a smart effort by these commercial real estate conglomerates to take advantage of bargain prices during the pandemic, it’s hard to imagine any of these brands or holding companies prospering in the long run.  Simon and Brookfield have precious little experience in apparel retail, and the idea of combining high-end Brooks Brothers with J.C. Penney would be difficult for even the most sophisticated of retailers.

More likely, Americans will find themselves in a retail landscape in which Amazon completely dominates online business, while the remaining physical retail outlets are controlled by a few real estate holding corporations, which cooperate more or less openly with Amazon. And indeed, in August The Wall Street Journal reported that Simon was in talks with Amazon to turn empty J.C. Penney and Sears stores into Amazon distribution centers. 

In the Populist and Progressive eras, farmers responded to the threat posed by railroad, grain, and meatpacker monopolists by strongly advocating for anti-monopoly laws. They also turned to another critical tool for building power: cooperatives. As a democratic, farmer-owned alternative to investor-owned firms, cooperatives allowed small producers to counterbalance monopoly power in the supply chain.

Earlier this week, the Open Markets Institute published Redeeming the Democratic Promise of Agricultural Cooperatives. The report details how cooperatives, if owned by employees or community members rather than by investors and financiers, provide a democratic alternative to traditional corporations, whose business model emphasizes maximizing short-term returns to shareholders, often at the expense of the organizations’ workers.

But the report also details how agricultural consolidation has led some cooperatives to become so large and powerful as to resemble the abusive monopolies that they were created to battle against. It’s a story that is closely related to changes in how the United States regulates competition. The same failure to enforce the antitrust laws has also led to increasing concentration among agribusiness players, encouraging cooperatives to consolidate, as well. 

The number of agricultural cooperatives dropped from roughly 4,000 in 1978 to fewer than 2,000 in 2016, largely due to mergers and buyouts. Monopolistic cooperatives often act much the way monopolistic corporations do, dominating regional markets, squeezing farmers, and failing to protect their members’ interests.

Our new report proposes several reforms to revitalize the cooperative as a form of ownership. Our proposals would ensure that cooperatives follow democratic governance principles and serve as an effective counterweight to monopolized supply chains. 

These reforms include: 

• Requiring greater transparency and reporting in cooperative management
• Mandating one-member, one-vote systems in cooperatives’ elections
• Revoking the antitrust protections and tax benefits of cooperatives that do not benefit their members
• Promoting federated cooperative structures
• Ensuring cooperative decision-making processes have no biases against smaller members
• Increasing public investment in research, technical support, and financing for cooperatives
• Limiting horizontal mergers between cooperatives, if the mergers would create a harmful level of power among either buyers or sellers
• Limiting vertical integration in large cooperatives that have monopsony pricing power over farmers
• Ensuring that mergers, joint ventures, and partnerships between cooperatives and investor-owned corporations are demonstrably in the interest of co-op member owners

 Read Open Markets’ full report here.

The Open Markets Institute and the Center for Journalism & Liberty invite our readers to join an online conference featuring Steven Waldman, president of Report for America, in conversation with media advocates about his new paper and proposals. Waldman’s forthcoming paper outlines a plan to acquire and transfer hundreds of newspapers owned by private equity funds and replant them with local community groups. 

Waldman will be joined by Elizabeth Hansen, lead researcher of the News Sustainability and Business Models project at the Shorenstein Center on Media, Politics and Public Policy at Harvard's Kennedy School, and Marc Hand, CEO of Public Media Venture Group. Hansen and Hand are proposing a new National Trust for Local News that would assemble capital to finance the transition of locally owned newspapers to more sustainable forms, including new business models and operating structures. 

Register for the event here. 

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