Jonathan Chait

The Mystery Of Dysfunctional Retail Outlets

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This weekend, I took my daughter out for ice cream at a local Gifford's, a popular ice cream chain around Washington. We went to the shop near my house, which used to do gangbusters business during the warm months, but has gradually slid into total dysfunction. The shop is out of most flavors -- there are supposed to be 30 available, but they had only 9. Unavailable flavors included such exotic varieties as chocolate and vanilla. The frozen yogurt machine has been broken all summer, and the freezer with pre-packed pints has been empty. The bathroom was out of service. There were only a handful of customers on a gorgeous summer weekend evening, and they were giving each other glances suggesting, "What is wrong with this place?"

What is wrong? I've always had a minor fascination with dysfunctional chain outlets like this. I don't eat fast food much any more, but in my younger years when I did, I'd occasionally come across a McDonalds or a Burger King where the process simply... didn't work. These are franchised with elaborately mechanized routines worked out by experts -- the line should only take 30 seconds, the fries should be exactly this temperature, and so on. In most restaurants it works, but then in the odd one, each customer takes several minutes to process, you have to wait 10 or 15 minutes for your meal once you've paid, much of the menu is unavailable, and so on.

I'm not writing this because I consider these places a major imposition on my life. I come across them pretty rarely. What I fail to understand is how they persist. It's not the same phenomenon as an independently owned coffee shop or bookstore that lacks the brand awareness or economy of scale to make a profit. Two things are going on. First, the outlet is managed not just poorly but so horribly that it breaks down completely. Second, and even more strange, there's a curious lack of oversight, which allows the managerial dysfunction to persist for a long time.

Somebody owns Gifford's Ice Cream. They have a popular brand located in a coveted, high-traffic location. Even if that somebody is never visiting the shop near my house, they can surely tell that sales volume is down at least three-quarters from last summer. Why is that person not doing something about it?

I'd be interested in reading about the microeconomics of this phenomenon.

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