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UnCoop the Coop

By Kenneth A. Katz

Something's rotten at the Coop. It goes far beyond the Coop's plethora of perennial problems, like unfriendly employees, mediocre merchandise, a confusing store layout and hours that are short on weekdays and nonexistent on most Sundays.

Decent prices and a good location used to make shopping at the Coop worth the hassle, but no more. The Coop may still occupy the Square's best retailing location, but along with all its old faults these days it's also got some of the Square's highest prices.

And those prices are high even for Coop members, who this year will receive the all-time lowest patronage rebate--a measly 1.1 percent--in the Coop's history. Just four years ago, the rebate stood at 10 percent. It's been plummeting ever since.

What's happened to the Coop? The Coop's president has blamed the economy and rising rent and health care costs for the store's poor performance this year. No doubt all these factors have contributed to the rebate's decline.

They're not the whole story, though.

The basic problem with the Coop is the fact that the Coop--short for the Harvard Cooperative Society--is a consumer cooperative. And the disadvantages of operating as a consumer cooperative are finally catching up with the Coop.

Here's how the Coop works. The Coop is owned by its members, who must be students, alumni, faculty and staff of Harvard, M.I.T. or the Episcopal Divinity School.

Important business decisions--including fixing the percentage of the annual rebate--are made by the Coop's board of directors. Elected by Coop members every spring, the Coop has 23 directors, including the Coop's president, 11 non-student members and 11 student members. Three of the student directors have to be Harvard undergraduates, three Harvard graduate students and three undergraduates or graduate students at M.I.T.

Members--and anyone else who so desires--can shop at the Coop. Profits on sales are passed on to Coop members through rebate checks, which refund a certain percentage of members' annual purchases. This year, members will be refunded 1.1 percent of the money they spent at the Coop last year.

The theory behind consumer cooperatives is that the arrangement minimizes prices for members by returning profits to them and maximizes consumer control over the enterprise by allowing them to vote for and serve on the board of directors.

So long as conditions are favorable, the theory holds.

Favorable conditions are situations in which consumers stand to be ripped off in the absence of a consumer cooperative. Take a small-town general store. If it's the only shop in a town that isn't big enough to support a second store, its owner can price-gouge mercilessly. In this case, the consumers are better off forming a cooperative, buying in bulk and splitting the proceeds.

In larger markets, however, economic theory suggests consumer cooperatives won't do nearly as well.

Take Harvard Square, which is a hub for increasingly ruthless retail competition. This is a Square that has attracted--in the middle of a recession, no less--stores like HMV, Tower Records, Structure, The Body Shop, Origins and Learningsmith. With the notable exception of the Coop, most of these stores are not consumer cooperatives but for-profit companies, in which business decisions are made and profits kept by investors, not consumers.

So who's making the best business decisions? Common sense suggests it's not the Coop. Compare, after all, who's making the decisions at companies versus consumer cooperatives. At profit-making stores in the Square, experienced, efficient corporate types are in charge. At the Coop, on the other hand, inexperienced amateurs--Harvard and M.I.T. students and alumni--are calling the shots.

That the amateurs on the board of directors are elected by Coop members is no consolation if the Coop's business policies do not make us better-off. (The policies are certainly making student directors better off, since they get to add juicy lines to their resumes.) And a mismanaged Coop with high prices--even with the rebate--certainly does not serve its members.

There's really nothing the Coop provides for its members that cannot be found elsewhere in the Square. One exception might be textbooks, but if there were no Coop, other stores in the Square would probably pick up the slack. If they didn't, Harvard would have to. And even that couldn't be as bad as searching for texts at the Coop every semester.

Maybe the economy will pick up soon and the Coop's rising rent and health care costs will come down.

But even so, there's no guarantee that the neophytes on the Coop's board of directors are capable of making the savvy decisions that would restore the Coop's competitiveness in an increasingly competitive Harvard Square. Such bold decision-making is the only way the Coop rebate will once again rise to 10 percent--where it hovered for much of the past 30 years before starting its free-fall in 1988, when both the economy began to sour and competition in the Square began to intensify.

Consumer cooperatives are not fundamentally evil, but they don't always work either. Coop members just may be better off if the Coop were to "decooperatizing" and restructure itself as an investor controlled company. The prospect of better service and competitive prices at a "non-co-op" Coop would be far more rewarding to consumers than the privilege of voting for incompetent boards of directors and collecting insignificant rebate checks.

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