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Sam's Liquors takes on Wal-Mart: What's in a name?

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As Fred Rosen sees it, the odds against him in his fight against Wal-Mart are the most lopsided since "David took on Goliath back in the biblical times. Just the fact that most people never heard of me but everyone's heard of Wal-Mart proves my point. With all their money and political clout, they could crush me."

Rosen owns Sam's Wines & Liquors, a large store in a drafty old warehouse at 1000 W. North Avenue. Wal-Mart, of course, is the largest retail chain in the country, with 1,735 stores and about $55 billion a year in sales. For almost two years the two sides have been squabbling over the name Sam's. Or more exactly, over whether Wal-Mart can call its string of new suburban wholesale appliance and grocery stores Sam's Clubs.

Rosen says Wal-Mart can't, because its stores sell liquor--and Rosen's store is the only one in the area with the legal right to sell liquor under the name Sam's. Rosen contends that by calling its stores Sam's, Wal-Mart is making money off his reputation, stealing his customers, and impeding his opportunity to expand into the suburbs.

In August Rosen sued Wal-Mart, demanding that it either change the name of its wholesale subsidiaries or pay him for the right to use the name. In a court document Wal-Mart has denied all of Rosen's claims; the chain's Chicago-based lawyer didn't return calls.

"My father, me, my brother--my whole family--all worked hard to make that name Sam's mean something," says Rosen. "Because of us, Sam's means quality. And if you think I'm gonna let some outfit out of Arkansas come into Chicago--my hometown--and steal that name to draw away customers who think they're going to our store, you got another thing coming."

What makes the squabble so intriguing is the contrast between the two Sams. Sam Rosen, Fred's father, was a Jewish immigrant from Ukraine. He opened his first liquor store on the west side in the 1940s. In 1960, when Fred was in the Army, Sam moved the store to a larger building at the corner of North and Halsted. There it prospered, along with the surrounding Lincoln Park neighborhood. Sam died in 1979, and five years later Fred moved the business to an even larger abandoned warehouse just down the street. It's been there ever since.

"We're not small-timers," says Rosen, who's not afraid to toot his own horn. "We do about $20 million in sales a year. We have 25 to 39 employees. We've got the finest wine selection in the country. We've been voted best liquor store in the midwest by the suppliers--and it was a secret ballot. My father was an immigrant who didn't speak English so well and had to work his way up from the bottom. But he came a long way from the shtetls of Europe. It's the American dream, baby."

But for all its success, Sam's Wines & Liquors is small compared to Wal-Mart, which was founded in 1962 by Sam Walton, then a 44-year-old Arkansas-based merchant.

"Mr. Walton created Wal-Mart with the idea, once mocked by retailers, that large discount stores could thrive in small towns and rural areas," Thomas Hayes wrote in a 1992 New York Times article. "A gifted, homespun orator, he entranced legions of low-paid loyal workers with a simple refrain--help customers, cut costs and share profits. Wal-Mart's headquarters, in contrast to the 110-story Sears Tower on the edge of Chicago's Loop, remain a box-like warehouse and general office in Bentonville, Ark."

Walton devised a new strategy for distributing goods, Hayes explained: "Eighty-five percent of the merchandise Wal-Mart sells is shipped from its distribution centers, compared with 50 percent at its biggest competitor in discounting, K mart, which relies on suppliers to ship the rest of its merchandise."

By keeping labor costs low, controlling distribution, and locating stores near easily accessed highways, Wal-Mart was able to dominate the small-town trade. That meant "financial ruin for hundreds of small-town merchants on Main Streets across the south and midwest," Hayes wrote.

By 1991 the Walton family fortune was estimated at $23 billion. The company's stock soared in value throughout the 1980s; according to Hayes, a $3,000 investment in Wal-Mart stock in 1981 was worth $105,000 ten years later. In December 1991 President Bush ventured south to Arkansas to present Walton with the Presidential Medal of Freedom, hailing him as "an American original who embodies the entrepreneurial spirit and epitomizes the American dream."

Walton died of cancer last April. By then Wal-Mart had already opened several Sam's Clubs around Chicago. "[We're a] members-only warehouse club that can offer you the lowest possible prices on the things your business needs every day," reads a Sam's Club ad from the January 27 issue of Crain's Chicago Business. "And once you're here, you'll see how our low warehouse prices will allow you to buy from SAM'S, resell at a profit and still undersell the competition."

As the ad says, Sam's Club is geared for businesses. But the annual membership fee is only $25, and enrollment is open to just about anybody--including the average consumer who might otherwise buy booze at Sam's Wine & Liquors. Which is why Rosen says Wal-Mart should either change its name or pay him several million dollars. "Wal-Mart is creating tremendous confusion in the marketplace by using the name Sam's. My store is losing its identity. The day doesn't go by when someone doesn't come into our store asking us if they can sign up for a membership card."

But isn't that good? Doesn't it mean that Rosen is benefiting from the chain's advertising? "Not really. You have to ask yourself: How many more people are going to some Sam's Club out in the suburbs thinking that they are me? They are reaping all the benefits that come from selling liquor under the name Sam's, and they aren't paying me a dime. They're a huge company making even more money off of me. That's not fair."

Rosen also says the presence of Sam's Clubs limits his ability to expand. "How can I go into the suburbs or even franchise there with that kind of competition? They can kill me with advertising. They're limiting my options. Because of them I can't grow."

In 1990, when word leaked out that Wal-Mart was planning to open several Sam's Clubs here, Rosen had his lawyers write the company a letter. "We wrote Wal-Mart to notify them of the existence of Sam's Wine & Liquor," says James Faier. "We consider this a classic trademark case. Fred Rosen has registered the name Sam's with the U.S. Patent and Trademark Office as a registered trademark. We wanted them to know that they couldn't use that name in the Chicago area."

Faier says his client was willing to sell Wal-Mart the right to use the name Sam's. "We could have worked something out. Fred might have had to change the name of his store. Maybe he could have called it Rosen's."

But Wal-Mart made no such offer, and early this year it opened Sam's Clubs in Cicero, Gurnee, Joliet, Matteson, Naperville, and Streamwood. Faier wrote another letter to Wal-Mart on Rosen's behalf, demanding that it stop operating under the name Sam's. It didn't. Rosen sued.

Wal-Mart's lawyers counter that Rosen doesn't have an exclusive right to the name Sam's. They argue that Wal-Mart also has a federal trademark: "Sam's Wholesale Club." And that they received their trademark before Rosen received his. In response to Rosen's suit Wal-Mart's lawyers argued, "Wal-Mart denies the implication that Wal-Mart needed permission from Sam's Liquors to use the name and mark 'Sam's Club Members Only' or 'Sam's Wholesale Club.'"

Faier contends it doesn't matter who received trademark status first. "When you register for a trademark, you conduct a search check. That means Wal-Mart had to have known that Sam's liquor store existed when they applied for their trademark. If they intended to open a Sam's Club in this area, they had to have known that Fred had the common-law right to that name. So either they didn't know they were coming to Chicago when they applied for their trademark, or they didn't care about Fred being here. They certainly didn't come forward and say, 'We would like to use your name.'"

In October a hearing on the suit was held before federal judge Wayne R. Andersen, who admonished both sides to "think creatively" about finding an out-of-court solution. "We haven't heard from Wal-Mart since that hearing," says Rosen. "I guess they think they can wear me down with years of litigation. Well, I got news for them. They might have had their way with those Main Street merchants down south. But this little kid from Chicago ain't going down without a fight."

Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.

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