A Brief History of the Department Store

A Sign of the Times, Target replaces the legacy Marshall Field’s Store on State Street Chicago

The relentless march of e-commerce disrupts legacy retail.

In the mid 19th century the department store was developed to house various ‘departments’ under one roof in a serene, calm and refined setting. The mega stores were the antithesis to the small merchant,  single product boutiques spread throughout the city. The single-stop-shop was the convenience category-killer of its day.  Department stores held sway over retailing for a century. After WWII growth occurred in the suburbs and the stores grew along with the rise of the shopping mall.

The growth continued unabated through the seventies. The first real competition came from  mass-merchandisers including Walmart and Target. The categories and price points didn’t overlap much so the competition was tepid; however by the 80’s the mass merchandiser’s supply chain management, logistics and inventory control radically reduced prices and department stores were feeling the competition. As a result, the nineties witnessed massive industry consolidations, dozens of the independent, family owned, regional stores sold out to the larger national chains. The Kaufman’s, Wanamaker’s and Strawbridge stores all disappeared. The mantra of the day was that scale mattered. Macy’s which acquired Federated Department Stores eventually dropped all of the venerable names including Marshall Field’s further eroding regional variations and homogenizing the industry into one nation wide brand.

By the start of the 21st century there were only a dozen dominant departments stores. But the retailers were now competing against fast fashion retailers from Europe, and discount cosmetic companies that were taking market share and a major driver of foot traffic. Add to that casual workplace attire and the  athleisure trend captured by boutique start-ups such as Lululemon and personified by direct competitors such as Dick’s Sporting Goods. The result was a perfect storm. Retail sales at department stores slid 4% from 1998 to 2018 and now stands a meager 1.5% of total retail sales.

Industry pressures noted above don’t even include the rise of e-commerce. Amazon which started in ’94, made its first profit in ’01, and surpassed Walmart in market cap in 2015 is the category-killer of its day.  The ‘Amazon Effect’ as its known is forcing retailers to play catch up, spending millions on their IT infrastructure and distribution channels. Late to this new omni-channel reality the legacy retailers are fighting back.

Bottom Line:  Department Stores are a nineteenth century retail model competing in a twenty-first century e-commerce world. Department stores will survive but they need to radically rethink the department store paradigm. Not surprisingly Walmart and Target are best positioned to compete and making great strides, leveraging data, e-commerce and mobile. Their efforts are paying off with increasing e-commerce sales this holiday season. But innovation is coming from surprising corners of the bankrupt retail universe as well.  Carson’s has recently reemerged in Evergreen Park, IL with a truly reimagined department store. This radical innovation is probably not going to come from legacy retailers such as JCP and Macy’s and as a result I would expect to see more bankruptcies in the short run.

Photo Credit: Top Target photo by the Walsh Group.

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