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The Resale Doctrine: Trader Joe’s Edition
I am an unabashed fan of Trader Joe’s. I do nearly all of my shopping there. When I lived in Johnstown for two years, I would drive 90 minutes to Pittsburgh every week or so to stock up on groceries. In the month gap after I moved to Louisville, and before the first store opened, my diet suffered (I would stock up in Cincinnati when we had a sitting). When I first moved to Houston, I would drive nearly an hour to the only Trader Joe’s in the Woodlands. Fortunately, a month later, a store opened ten minutes away, which I frequent weekly. This store is awesome.
I have serious empathy for those who do not live near a TJ’s. Such as fine folks of Vancouver. But, there are TJ’s across the border in Washington. So one enterprising entrepreneur had a brilliant idea! Buy stuff in Washington, and schlep it across the border to resell it. The store is called Pirate Joe’s!
Hallatt decided to open a store in the affluent Vancouver neighborhood of Kitsilano. He named it “Pirate Joe’s.” Hallatt stocked his new store by making frequent trips across the border to Trader Joe’s around the city of Bellingham, Washington. Hallatt spent over $350,000 on Trader Joe’s items, including Charmingly Chewy Chocolate Chip Cookies, Milk Chocolate Covered Potato Chips, Gluten Free Rice Pasta, and Tea Tree Tingle Conditioner. Hallatt marks the products up by a couple of bucks and puts them on the shelves of Pirate Joe’s, where hungry Vancouverites have been snapping them up.
Genius! Canadians similarly buy milk at Washington Costcos, because it is much cheaper. But TJ’s isn’t happy. They are alleging trademark infringement. But, as Freakonomics notes, this is also an application of the resale doctrine.
Instead, PJ’s is reselling TJ’s popular merchandise. The ordinary rule of property is that once you purchase an item, it’s yours to use as you like. Or, to resell. This concept is the basis of a great American (and Canadian) institution: the yard sale. And more recently, eBay.
Figures. A few years ago the Court considered a resale doctrine case involving my other favorite store, Costco.
Speaking of Trader Joe’s and Costco, Megan McArdle has an apt summary of my two favorite stores, in the context of why Wal-Mart can’t pay wages as high as Costco.
In other words, Trader Joe’s and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages. Fewer products to handle (and restock) lowers the labor intensity of your operation. In the case of Trader Joe’s, it also dramatically decreases the amount of space you need for your supermarket … which in turn is why their revenue per square foot is so high. (Costco solves this problem by leaving the stuff on pallets, so that you can be your own stockboy).
Both these strategies work in part because very few people expect to do all their shopping at Trader Joe’s, and no one expects to do all their shopping at Costco. They don’t need to be comprehensive. Supermarkets, and Wal-Mart, have to devote a lot of shelf space, and labor, to products that don’t turn over that often.
Between Costco and TJ’s I can do all my shopping.