Retail Department Stores, Variety Stores and General Merchandise Stores
SIC 5300
NAICS 452111, 452112, 452990, 452910
Department stores carry a diverse line of nonfood merchandise, including general wearing apparel (suits, coats, and dresses), home furnishings (furniture, floor coverings, curtains, draperies, linens, major household appliances), and housewares (table and kitchen appliances, dishes, and utensils). Many department stores offer their own credit lines and various supplemental services as well. Variety stores carry a diverse line of goods in the low-price range. General merchandise stores carry goods similar to department stores, but normally have fewer than 50 employees. For discussion of food retailing, see Grocery Stores.
The retail industry, the second largest industry in the United States in terms of number of establishments and number of employees, enjoyed unprecedented gains in the late 1990s and through 2000. In part, this was due to strong consumer confidence, low interest rates, and high employment levels. Between 1994 and 2000, the retail industry grew rapidly. By late 2000, however, as the United States and much of Europe and Asia were experiencing recession, retailers began to feel the effects of the sluggish global economy, a slowdown in manufacturing, high consumer debt, and job layoffs. The unstable economic environment following the 2001 terrorist attacks, coupled with the rise of Wal-Mart and other discount retailers, pushed many retailers over the financial edge.
By the mid-2000s, as economic recovery was well under way and the retail landscape had improved, the landscape had changed forever. Consumers around the world were showing a preference for discount shopping and a shopping format that allowed them to buy all their goods under one roof. Major department store chains had merged to gain economies of scale in an effort to compete against discounters such as Wal-Mart, or had divested themselves of some businesses in an effort to focus on their core retail undertakings. By the end of 2004, the leading retailer of any kind in the world was U.S.-based Wal-Mart. France's Carrefour followed, the company credited with giving the world the hypermarket format.
In response to marketing pressures, stores restructured internal organizations and changed marketing patterns. Where they could, stores also took advantage of the same new technology that had changed their marketing environment. Department stores were particularly quick to embrace advanced computer technology. The ability to centralize operations, have a complete and up-to-date status of inventory, and get an accurate reading of items purchased were only a few of the data-related advantages offered by computerized point-of-sale systems. Retailers were able to reduce not only their paperwork but also the lead times necessary to update stock. Particularly in the United States, improved logistics led to a shift from standalone stores offering personalized shopping assistance to mega-chains, which were able to bring identical merchandise into nearly identical mall stores at competitive prices.
The modern department store has it roots in the U.S. mail-order catalog business that flourished in the nineteenth century. With catalogs offering quality merchandise at competitive prices, the United States pioneered the concept of self-service retailing. The first true "department" stores may have been the general stores and trading posts that sprung up in the small towns of the frontier United States, supplying locals with every necessity from sewing needles to plowshares. In the East, New York City saw the first urban department stores establish themselves as early as 1846. Although their primary business came from the city's elite, early urban merchants wanted to expand operations to people of all classes. While accepted marketing practices of the time consisted of holding goods behind a counter and bringing them forth on request, these new outlets openly displayed merchandise on floor racks to encourage browsing. Parallel retail development had occurred in a number of European countries by the mid-nineteenth century, but the global significance of the U.S. retail industry probably owes its existence to the steady growth and westward settlement—which just happened to come at a time that U.S. families on the East Coast were being introduced to the availability of, heretofore, unimagined luxuries and conveniences.
Richard Sears, who had the innovative concept of expanding mail-order business into catalog sales—and eventually into retail outlets—is credited with the creation of the modern department store. In 1886 Sears, then a railroad station agent, bought a shipment of watches. He proceeded to mail out these watches to purchasers, and the R.W. Sears Watch Company was born. Sears advertised for a watchmaker to help him support the growing business, and in 1887 Sears hired Alvah C. Roebuck. Their early catalogs advertised only watches and jewelry. However, in 1889 the pair sold the watch business in a move that was a precursor to real growth. After two years without an established company identity, in 1891 a new mail-order firm came into being, and, in 1893 that firm formally became Sears, Roebuck and Company. In 1896 the company produced its first general catalog and brought low prices and money-back guarantees to its primary customer base—farmers who had previously been vulnerable to the idiosyncrasies of local general stores.
The success of Sears and other pioneer U.S. department stores caught the attention of the global industry. Similar operations sprung up around the world, often from widely diverse beginnings. In the United Kingdom, a Russian refugee named Michael Marks sold out of an open stall in the market square in Leeds until 1894, when he formed a partnership with cashier Tom Spencer. Marks and Spencer broke new ground for retailers by buying directly from manufacturers, eliminating the middleman and reducing cost of goods and time to market, at the same time. In Japan, Takshimaya had been a clothing retail outlet as early as 1831. In 1922, the company initiated full department store operations. G.J. Coles & Coy, the forerunner to today's Coles Myer, was a variety store that expanded to serve remote areas throughout Australia. As other major department stores followed a similar pattern of expansion, the largest stores in each nation often based development specifically on the U.S. department store concept. Both Coles Myer and Japan's Ito-Yokado blatantly modeled their businesses after U.S.-style stores, and they were not alone.
The concept of large-scale, organized credit service began in 1911, when Sears offered payment plans to farmers for large mail-order purchases. By the 1920s, layaway installment plans were common, and their practicality was emphasized by the lean years of the Depression and wartime shortages. In a time when plastic credit cards were not part of the world's culture, the introduction of department store charge plates not only made purchasing easier for budget-conscious customers, but at the same time these store cards, usable only in the issuing store, were a great incentive to customer loyalty.
In the affluent years following World War II, most department stores turned to upscale clients and merchandise, relegating low-end bargains to "bargain basements" and occasional sales. This created a marketing gap into which discount operations such as Kmart (an outgrowth of S.S. Kresge's "five and dime" stores) quickly moved to fill. In 1962, Wal-Mart came on the scene, with expansion remaining slow (only 15 stores) until the company went public in 1970. By 1980, the company had grown to include 276 stores in 11 states with revenues of US$1 billion. Rapid growth began in the 1980s at the end of which the company had grown to 1,400 stores with revenues of US$26 billion. Once it had such large buying power behind it, the company was able to introduce just-in-time ordering of merchandise. In its efforts to keep prices low, Wal-Mart established a computer-based inventory system that monitored sales of individual products and thus inventory. When inventory levels got low, the computer system would advise suppliers to ship out more product. Wal-Mart cut down on its storage needs and did not find itself faced with product consumers did not want. This was to revolutionize the retail industry and make it increasingly difficult for smaller companies to remain competitive as they did not have the ability to demand just-in-time delivery.
By the 1980s, department stores, per se, were suffering badly from their earlier marketing errors. Beset by newer department stores, specialty stores, discounters, and mail-order houses, the classic firms went through a testing time of leveraged buyouts, mergers, and acquisitions. Surviving stores adjusted in-house operations to reduce cost and broaden their customer bases and in doing so lost portions of their traditional market. This state of flux continued into the 1990s, when yet another new competitor was introduced—technology. By 2000 it became evident the survivors of the retail industry had recognized the potential of e-commerce.
Shifts in market positions during the first half of the 1990s prompted retailers to adopt several competitive countermeasures. They experimented with downsizing and consolidation, merchandise mix changes, more consumer services, and greater use of advanced technologies, such as quick response systems, to control inventory costs and increase...
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