Why There Are So Many Frame Stores

Bryan Caplan has vacated the guest-blogger perch over at the Economist's Free Exchange blog, but he did leave his readers with an interesting puzzle in microeconomics, lifted from his own blog:

Why are there so many framing stores? It seems like there is a place that puts your artwork into frames on practically every street corner. According to yellowpages.com, there are fourteen framing stores in Fairfax, compared to only eight Pizza Huts.
What's the puzzle? We normally see lots of small stores in markets for frequently-purchased low-price goods. Think 7-11. On the other hand, we normally see a few large stores dominate retail in markets for infrequently-purchased high-price goods. Think Best Buy.
The economic logic is simple. Retail has economies of scale, but for petty purchases, these are outweighed by transportation costs. Convenience stores cost more, but they're usually a lot closer. This is especially true for low-price items. It is probably worth 30 minutes of your time to save 50% on a $100 purchase, but not worth 30 minutes of your time to save 50% on a $4 purchase.
Where does framing fit in? I doubt most people frame more than two or three items per year. No one gets home at 7 PM and says "My God, we forgot about our framing! Luckily we can just run down to our corner framing store." Furthermore, framing is expensive. A custom frame usually runs around $100-$200. Both of these reasons lead us to expect the opposite of the market structure that we see.

I think I can answer this one – altough, as in all such cases, the answer comes ex post, as a rationalization, and I'm not at all sure I would have predicted this outcome ex ante. For instance, it seems to me to be a simple contingent fact that there aren't any strong brands in the framing space. Maybe in an alternate world someone would have managed to create such a thing, with profound consequences for the framing industry.

In any case, there's a huge difference between buying a frame and buying a television. Frame stores are a low-volume, high-margin business which put a huge premium on customer service. Television stores, by contrast, are a commoditized, low-margin businesses with relatively low levels of customer service.

Imagine, if you would, that a big frame store opened up a few miles away from you. Would you go there, rather than to your friendly local frame shop? There are a few good reasons why you wouldn't. Firstly, and most importantly, frames are custom made, which means that it's effectively impossible to make price comparisons. The big store might turn out to be cheaper – or, on the other hand, it might not. There's no real way of telling, short of taking the same piece in to both places, and getting a competitive quote.

Secondly, although frames are indeed expensive, they often have only a fraction of the value of the artwork they contain. What's more, the customer has to hand over his beloved artwork to the frame store for the duration of the job. In such a context, trustworthiness becomes vastly more important than price. In general, you'll get better customer service if you're dealing with the owner of the store than if you're dealing with a spotty teenager on an hourly wage, who may or may not treat your art with the care and attention it deserves.

What's more, most people are at least a little insecure in their framing expertise, and welcome informed and intelligent help from an experienced framer. If such help comes from the owner of the frame store, they feel that they're getting valuable advice for free. On the other hand, if they're being helped by the aforementioned spotty teenager, they might not value the advice as highly – even if the spotty teenager actually has a better eye. It's the difference between getting advice on what to drink at a restaurant from a dedicated sommelier, rather than simply asking the server what he would recommend.

Finally, there's the whole question of loyalty. People like to have a relationship with a framer who knows them and has framed many pieces for them. If they do, they're likely to recommend that framer to their friends. But such a relationship is almost impossible to build in the context of a big store, where employees naturally come and go.