On the surface, the idea of sacrificing fourteen percent, or one-seventh, of a retail store’s potential selling hours seems absurd enough. To do so on a day of the week when most consumers have a day off seems to be even more damaging for the prospects of a retail business. Customers want to purchase goods and services at times that are convenient for them. Many business models revolve around catering to the consumer and this often includes long hours particularly on weekends.
I am familiar with a number of businesses that are closed on Sunday, including two examples that are extremely successful: R.C. Willey and Chick-fil-A. What is most interesting about both businesses is the fact that they appear to use their Sunday policy as a competitive strength rather than an impediment that must be remedied. Behind the success of both businesses are important psychological tendencies that, over a long period of time, have expanded competitive moats.
Let’s take a brief look at the characteristics of each business and then try to draw some lessons from their success despite a policy of remaining closed on an important day of the week.
R.C. Willey was the subject of a book review on The Rational Walk last week. The company has a 75 year history originating in a small community near Salt Lake City, Utah. Over the past fifty years, the company has expanded from a single location in Utah to thirteen stores in four Western states. The company’s Mormon founder instituted the Sunday policy and subsequent managers have kept this tradition over the years. The company’s success in Nevada and California shows that the business model works well even outside the heavily Mormon population centers of Utah. The growth of the company in terms of sales and profits leaves little doubt of the presence of a formidable economic moat.
Chick-fil-A was founded in 1946 by Truett Cathy when he opened a restaurant named Dwarf House in a suburb of Atlanta. He put in place a Sunday closure policy immediately both because of his Baptist faith and due to a belief that employees would better serve customers if they can be certain that Sundays would be free for family and church activities. Today, the fast food chain has over 1,300 locations in 37 states including areas outside the South. The company has developed a loyal following with many fanatic customers who camp out overnight when a new store opens in order to win free meals for a year. The presence of an economic moat cannot be denied.
Supported Only by Religious Customers?
The most common explanation for the success of businesses with a Sunday closure policy is that they must be supported primarily by customers with religious convictions who appreciate the message sent by the business. This argument is basically using the concept of social proof to explain the success of the business model.
While there is little doubt that a certain proportion of customers of Chick-fil-A and R.C. Willey support those businesses for religious reasons, it seems doubtful that each company could have grown so rapidly with what can be viewed as a niche strategy. Furthermore, the expansion of each business into areas that have a lower concentration of very religious people seems to contradict the idea that social proof alone can account for success.
Obviously, there are other factors at work here. Each business offers customers competitively priced quality merchandise and, without this, it is highly doubtful that religious customers would remain loyal. After all, if the underlying value is not there, few customers of any religious persuasion have the luxury of making sub-optimal economic choices particularly in difficult economic times.
While providing quality goods and services at competitive prices is the prerequisite for success in nearly all retail businesses, I believe that other important psychological factors help to account for the success of businesses with a Sunday closure policy.
When goods and services are available 24 hours a day, as is the case with many businesses today, customers know that they can make a decision to go to the store at any time. In contrast, when a retail store is closed on Sunday and when the merchandise offered is superior in quality and/or price, the closure creates an aura of scarcity. Customers know that they cannot just hop in the car on Sunday and get a Chick-fil-A sandwich.
This may seem silly. A customer can just hop in the car and go to KFC or McDonalds. While this is true, the perceived quality and scarcity factor may simply shift consumption of Chicken sandwiches to Saturday or to other days of the week rather than result in incremental business for competing fast food chains.
In the case of R.C. Willey, the situation is not that different. Customers know that there will be a “scarcity” of the prices offered by R.C. Willey unless they shop on Saturday or during the week rather than on Sunday. This likely has the effect of simply shifting customers to other days of the week rather than shifting business to competitors.
Not For Everyone!
While the Sunday closure advantages of Chick-fil-A and R.C. Willey are hard to deny based on their demonstrated track records over many decades, it is far from clear than other businesses can implement similar policies. An established business that has always been open on Sunday may appear opportunistic and insincere if they suddenly decide to implement a Sunday closure policy. It appears that this type of policy has to be deeply ingrained in a company’s culture almost from the beginning to create the desired effect. Therefore, even if the Sunday closure advantage is compelling, it may not be a policy existing businesses can leverage.
Disclosure: The author owns shares of Berkshire Hathaway. R.C. Willey is a subsidiary of Berkshire Hathaway.