DEPARTMENT STORES have their roots in the New York City business arena of the industrial era. Their success in the mid-nineteenth century created such retailing giants as Macy's, Gimbels, Marshall Field's in Chicago, and Neiman-Marcus in Dallas. Department stores indirectly paved the way for department/mail-order stores, smaller department/chain stores, and late-twentieth-century mass merchandising department/discount stores like Wal-Mart. The story of department store shopping is one that seemingly forever will be bound up in the transportation and travel patterns of Americans. At the beginning of the nineteenth century, subsistence growing and local handwork were the anchors of American buying. The limitations of foot travel or horse-drawn travel necessitated such an economy. Farmers grew what their families needed as well as what they could sell from the back of a wagon to people in nearby towns. In addition, handicraft artisans sold items such as furniture, candles, or tack to locals. Transportation advances began to change that economy. River travel by steamboat became practical after 1810; canal travel after 1825; rail travel after about 1832 in the East and from coast to coast after 1869 when work crews completed the Transcontinental Railroad.
Until the Industrial Revolution, however, production could not effectively utilize the potential of new transportation. Interchangeable parts, assembly line techniques, vertical integration of businesses, and urban industrialized centers made production of virtually all goods quicker and more cost efficient, allowing manufacturers to capitalize on transportation.
Yet merchandising outlets for mass-produced goods lagged behind the capabilities of industrialized production and transportation. Producers discovered that, without sufficient retail outlets, a large percentage of their goods could quickly become surplus, eating away at their bottom line. Industrialization also enabled companies to produce new goods that the buying public had never encountered and for which it had no need or desire. Wholesalers and brokers had already worked the agricultural produce system, taking grain and vegetables from farms to markets and profiting in the process. They were prepared to do the same for manufactured goods, but the cycle begged for some type of marketing or retail system to marry goods to consumers.
A new type of store filled the bill. City stores and shops specialized in specific goods, such as clothing or cookware. General stores had small offerings of a variety of goods, but neither could exploit what industrialized production and transportation could supply. Department stores could. From the beginning, department stores were large. Inside, owners divided them into "departments" which contained similar types of goods.
Although not the most famous of storeowners, Alexander Turney Stewart is the father of the American department store. An immigrant Irish schoolteacher, Stewart opened a small dry-goods store in New York in 1823. He prospered well enough to open a second store, Marble Dry Goods in 1848. In 1862 he built the huge Cast Iron Palace that claimed an entire city block and was the largest retail store in the world at the time.
Aside from creating the department store, Stewart started the practice of "no haggle" shopping. Haggling, the practice of buyers and sellers negotiating a price acceptable to both, was a tradition in American shopping. But Stewart saw that salesmen could conduct more business without the obstacle of haggling, and he also perceived that many shoppers did not like the haggling ritual. Instead, he settled on a price he could accept for every product he sold, then he marked the product with that price. His customers were free to pay the price or shop elsewhere. With little exception, they liked the policy and Stewart made millions of dollars.
The Philadelphia merchant John Wanamaker, as did all other department store pioneers, adopted Stewart's "one-price" policy, but he took it a step farther. Wanamaker, who first partnered with Nathan Brown in 1861, then worked alone after Brown's death in 1868, offered customers a "satisfaction guaranteed" policy that he backed with the promise of exchanges or refunds. While other merchants followed suit, Wanamaker was one of the first merchants to run a full-page ad in newspapers, and his endless advertising associated him most with the satisfaction pledge, something he called "the Golden Rule of business." Wanamaker branched out with stores in Pittsburgh, Memphis, St. Louis, Baltimore, Richmond, and Louisville. Ultimately he expanded into New York City, setting up business in one of Alexander Stewart's old stores.
Today, neither Stewart nor Wanamaker is a household name. R. H. Macy is. Rowland H. Macy founded the famous New York City department store that is known to most Americans as the annual sponsor of the Macy's Thanksgiving Day Parade and also because it is the scene of much of the story in the classic Christmas movie Miracle on 34th Street. The Macy's name is synonymous with American department stores.
R. H. Macy opened his first store—a sewing supply store—in Boston in 1844. He followed that with a dry goods store in 1846. Like thousands of other Americans, Macy followed the gold rush to California in 1849–1850. Unlike most of them, however, he did not mine for gold, but instead opened another store. In that Macy showed savvy, for most argonauts remained poor; those who serviced them did markedly better.
By 1851, Macy had returned to Haverhill, Massachusetts, where he opened the Haverhill Cheap Store, advertising a one-price policy. By 1858, Macy had moved to New York City, opening a dry goods store uptown. His business was remarkable, doing more than $85,000 in sales the first year. That same year Macy inaugurated the practice of setting up beautiful, fanciful toy displays in his store windows at Christmas.
Macy started buying up adjacent properties to expand his business. He also leased departments inside his store to outside retailers, which served to increase customer traffic. His sales volume enabled him to undercut other department stores, and he advertised the lowest prices of any store in the city. Macy entered mail-order sales in 1861. He inaugurated the now-traditional policy of clearance sales to liquidate merchandise and bolster cash flow. He also offered free delivery to nearby New York City boroughs.
Macy died in 1877, and management of the store passed through various hands until Isidor and Nathan Straus, friends who had previously leased a china concession inside Macy's, took over the management and ultimately bought controlling stock in Macy's. Later Macy's would become part of the Federated Department Store group.
Gimbel's was another famous New York City department store. Bavarian immigrant Adam Gimbel began his business career on the American frontier, establishing a trading post at Vincennes, Indiana, in 1842. There he brought the one-price policy to westerners. Gimbel prospered and opened stores in Milwaukee and Philadelphia. In 1910, Gimbel's son, Isaac, opened a store in New York City that successfully competed with Macy's. The Gimbel family later acquired the Saks company and, with Horace Saks, opened Saks Fifth Avenue for more affluent customers in 1924.
Department stores with one-price policies and satisfaction guarantees opened in urban areas across the nation. One of the most successful outside of New York City was Marshall Field's in Chicago. Marshall Field was a
young businessman working in Chicago in the late 1850s at the same time as businessman Potter Palmer was parlaying a dry goods store into a lucrative business and real-estate holding. In 1865, Palmer took in Field and Field's friend Levi Leiter to form Field, Leiter, and Palmer. By 1868, Field and Leiter bought out Palmer, then rented business space from him on State Street in Chicago. The pair survived the devastating Chicago Fire of 1871, but parted ways a decade later. Field bought out Leiter, and he formed Marshall Field and Company.
Field directed the store to annual profits of more than $4 million. Part of Field's success was that he practiced two policies that became the credo of American businessmen. First, "give the lady what she wants"; second, "the customer is always right." Field brought up John G. Shedd and Harry G. Selfridge, two former stock boys, to help with management. Shedd directed the store's change from a dry goods store to a department store like Macy's in New York. He became president of Marshall Field's after Field's death in 1906.
Department stores have always had to identify their niche with the public. Some, like Macy's, catered to all classes. Others, like Saks Fifth Avenue, appealed to a more elite clientele. One Dallas department store has always catered to customers with exotic tastes. In 1907, Herbert Marcus and his brother-in-law A. L. Neiman opened Neiman-Marcus with the intent of bringing the finest goods to customers in the West. While Neiman-Marcus was in some ways a traditional department store like Macy's, it always had a flair for the flamboyant. Nowhere but Neiman-Marcus could customers buy submarines, robots, or airplanes. Neiman-Marcus established a reputation, as Dallas citizens might say, "as big as Texas."
As the twentieth century progressed, some department stores consolidated into groups or "chains" for buying clout and protection from rival onslaught. Federated Department Stores formed in 1929 as a holding company for several department stores, such as Abraham & Straus and F&R Lazarus. For more than seventy years, Federated has offered the protection of consolidation to family-owned stores. It is one of the largest chains in the nation and includes such standards as Macy's and Bloomingdale's.
In big cities, department stores were seemingly unlimited in the products they could provide customers. But to many Americans—farmers in the Midwest, for example—those stores were out of reach. Some enterprising businessmen decided they would simply take the department store to the customer. While most department stores got into mail order at one time or another, none succeeded like Montgomery Ward, Sears and Roebuck, and J.C. Penney's.
The first man to capitalize on the mail order business was Aaron Montgomery Ward, a former salesman for Marshall Field's. In 1872 he began a mail order business, catering chiefly to Grangers at first. Grangers, or officially the Patrons of Husbandry, were groups of Midwestern farmers organized to protest the exorbitant freight and storage rates of railroads. They also protested the high mark-ups of goods at general stores, which, by location they were almost bound to patronize. Montgomery Ward capitalized on that Granger frustration and devoted itself to serving American agrarians at prices less than the general store. One of Ward's first catalogs, in fact, offered buyers an official Granger hat, a tall-crowned affair made of "all wool" and costing $1.25.
Of course, Wards could not have succeeded without the famous catalog. Its first issues were only four-to-six pages, crowded with pictures and price lists. Later issues were more organized. Ward updated them every year. It may have been to Ward's chagrin, or perhaps to his satisfaction that his business had made it another year, that out-of-date catalogs usually got relegated to the outhouse.
Montgomery Ward drew its chief competition from Sears, Roebuck and Company. By the mid-1890s, Richard W. Sears had teamed with Alva C. Roebuck to create Sears, Roebuck and Co. Sears had begun a career selling watches in 1886, but by 1895 he and Roebuck were making a lucrative living through catalog sales. Through diligent warehouse organization (which Sears hired out) and the establishment of regional fulfillment houses, Sears, Roebuck and Co. could promise quick turnaround on orders.
Perhaps more so than the Wards catalog, the Sears catalog, which by 1897 was running at more than 500 pages, became an American icon. Americans came to know it as the "Wish Book." From its pages customers could buy hammers and nails, dresses, hats, corsets, pots and pans, soaps, rugs. They could even buy—by ordering component parts and assembling them on site—a complete house with indoor plumbing.
Both Sears and Ward fared well through World War I, but the 1920s brought a new phenomenon. Just as Henry Ford's mass production of automobiles revolutionized freeway systems and suburban living, it impacted catalog sales as well. The catalog giants discovered that the automobile freed rural Americans from the nearby country store. On weekends they could drive to cities and partake of the big department stores, which was infinitely more exciting than leafing through catalogs. Almost simultaneously, both Montgomery Ward and Sears, Roebuck decided to get into the retail department store business and attract their share of urban trade. That business served as a complement to continued catalog sales.
Another catalog giant, J.C. Penney, entered mail-order sales in the reverse way. In 1902, with the backing of two silent partners, James Cash Penney opened a dry goods and general store in the mining town of Kemmerer, Wyoming. Penney was the son of a Baptist preacher, and he practiced his religion through business. He called his store the "Golden Rule" store (photos of which grace almost any modern Penney's store), and he offered fair prices, good service, and late store hours. He immediately made a profit, which enabled him to open more stores in the next few years. In actuality, J.C. Penney became one of the first multi-store companies, totaling 1,600 stores by 1950. Larger Penney's department stores became mall anchors, and in the 1960s began to draw fire from such companies as Dillards, Brown-Dunkin, now simply Dillards. J.C. Penney lived until 1971. He saw the company's move into catalog sales in the preceding decades. Ironically, at the turn of the twenty-first century Sears is out of the catalog business and Montgomery Ward is out of business altogether, leaving J.C. Penney as the major American catalog retailer.
Chain stores are the little siblings to big department stores. While in fact they contain departments, they are usually located on one level and are much smaller than urban multi-floor department stores. As such the U.S. Census bureau does not officially recognize them as department stores. Their rise, however, has impacted traditional department stores.
The grandfather of American chain stores was Frank W. Woolworth. In 1878, while clerking in the Watertown, New York, store of Moore and Smith, Woolworth learned the value of selling special goods at five cents or less. With money borrowed from one of his employers, Woolworth opened his own five-cent store, and made more than $200 profit before closing it. He periodically opened and closed stores, amassing a personal wealth of more than $2,000. In the process he realized that customers would also buy "more expensive" items for ten cents. Thus Woolworth created the purely American "five-and-dime" stores.
By 1895, Woolworth had more than twenty-five stores garnering more than $1 million in annual sales. Realizing the potential of five-and-dimes, other stores followed suit: Kress, Kresge, T.G.&Y., and Ben Franklin to name a few. Most of those stores, however, were regional. Only Woolworths had a national base and widespread recognition.
By the 1960s, with suburbia rapidly eclipsing established cities, malls were becoming the fashionable place to shop. And few malls could survive without at least one full-fledged department store, a chain store, and a five-and-dime to anchor them down. But, like early department stores, malls were the provinces of large cities. Retailers soon saw a need for mid-range, hybrid stores that blended the departmentalization and variety of department stores, the accessibility of chain stores, and the relative value of five-and-dimes. Into that void stepped discount stores, direct forerunners of the superstores of the 1990s. Those stores include Kmart, the upscale Target, and Wal-Mart.
Wal-Mart originator Sam Walton got into the retail business in the 1950s, leasing a Ben Franklin store in Arkansas, making it turn a nice profit, then going into business for himself. Based on his experience working in five-and-dimes, Walton was able to negotiate good deals from producers by buying merchandise in bulk, then selling to customers at discount prices. Walton's target competition was Kmart, which had grown from the Kresge five-and-dimes. Walton opened his first Wal-Mart store in Rogers, Arkansas, in 1962. By 1985 he had 859 stores in twenty-two states. By the early 1990s, Wal-Mart was pioneering "supercenters"—extra-large stores that included full-size grocery stores, photography studios, McDonald's franchises, hair salons, and other specialty shops. Sales clerks and shift managers frequently got around the huge stores on in-line skates. In an unusual social phenomenon, Wal-Mart stores, with their toy aisles, arcade rooms, and fast food shops, became substitute amusement parks for millions of kids in rural America.
Walton died in 1992, but his chain continued to grow. By 1998 Wal-Mart boasted more than 3,000 stores in the United States, Canada, South America, and Europe. Wal-Mart critics have charged that the discount/ department stores have caused the death of many small downtown areas by attracting business to peripheral locations. Some chambers of commerce have refused to let Wal-Mart open in their town unless it did so in or near downtown. Other critics have charged that Wal-Mart has marketed goods made by child labor in foreign sweat-shops, even as the store advertised its "Made in America" campaign.
Author Bob Ortega has said, however, that Wal-Mart's legacy runs deeper than a chamber of commerce fight. By targeting the bottom-line—both his own and the consumer's—Sam Walton revolutionized department/ chain-store style shopping. He had done nothing less than Henry Ford had when he married the assembly line with automobile production. Now all types of stores, from booksellers to video-rental stores, practice bulk buying, offering large selections and discount prices, all packaged in attractive, easily accessible stores. Wal-Mart stores have also forced traditional department stores to rethink marketing strategies to keep middle-class shoppers spending money in their stores and not at Wal-Mart.
Nevertheless, discount and discount/department stores have severely cut into the profits of traditional department stores. The fact that they are still centered in urban centers and rarely in the suburbs and even less frequently in rural areas has isolated department stores even in the age of the automobile. When department stores were novel and automobile travel special, a trip to the city was fun. Now, increased traffic in urban areas and consumers having less time to shop has contributed to the decline in the popularity of the department store as a destination. Customers report a preference for specialty stores, like Toys-R-Us or Barnes and Noble, and discount/department stores in strip shopping centers. They prefer to drive to a store, immediately get what they want, and leave, rather than face parking problems or a maze of poorly marked sales areas in department stores.
Department stores are responding, however. Some of the major companies are experimenting with centralized checkouts for customer convenience, better signage, and relocation of popular departments close to entrances. Sears has started focusing more on marketing the sale of tools and appliances, longtime strong sellers for the company, and less on clothes and soft goods. Other department stores have cornered higher-end brand names, especially in clothing, that are unavailable at discount supercenters.
Department stores began in the mid-nineteenth century when transportation enabled wholesalers and retailers to offer a wide variety of goods to urban buyers. Catalog sales did the same thing for isolated rural Americans. When individual transportation became widely available to all Americans in the 1920s, retail stores, even those built on catalog empires, had to find new ways to vie for business. In the 1960s and 1970s, Wal-Mart and Kmart brought a low-end, discount/department store alternative to middle America. Those supercenters offered busy shoppers an effective alternative to driving to department stores.
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Ortega, Bob. In Sam We Trust: The Untold Story of Sam Walton and How Wal-Mart Is Devouring America. New York: Times Business, 1998.
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"Department Stores." Dictionary of American History. 2003. Encyclopedia.com. (August 29, 2016). http://www.encyclopedia.com/doc/1G2-3401801198.html
"Department Stores." Dictionary of American History. 2003. Retrieved August 29, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3401801198.html
Department stores emerged in the mid-1800s and offered a wide variety of goods for sale in various categories. Many were transformed general stores (which offered a variety of goods but were not divided into departments), while others evolved out of dry goods stores (which sold textiles and related merchandise). The first bona fide department store was established in Paris: the Bon March (French, meaning "good bargain") opened its doors in 1838.
Between the 1850s and 1880s, numerous department stores opened in U.S. cities. The department store Jordan Marsh was founded 1851 in Boston, Massachusetts. R.H. Macy's was founded 1858 in New York City and was known for its creative advertisements. Wanamaker's, founded in 1861 in Philadelphia, successfully implemented fixed pricing so that customers no longer haggled over price. Marshall Field was founded in 1881 in Chicago, Illinois, and within twenty-five years it became the world's largest wholesale and retail dry goods store. These pioneer department stores, multi-storied buildings located in downtown areas, introduced many innovations to merchandising, including the policy of returnable or exchangeable goods, ready-made apparel, clearly marked prices, and window displays.
By the early 1900s department stores could be found throughout the country. The timing was right for their emergence: urban centers grew rapidly at the end of the century, giving department stores a ready clientele. Also the advent of the telephone, electric lighting, and billing machines helped retailers conduct business efficiently. Transportation improvements allowed for the shipment of large quantities of goods, a variety of finished goods were mass produced (which increased supply and lowering production costs and consumer prices). By the 1910s the stores were part of a new mass culture, which centered in U.S. cities. During the twentieth century, department store sales typically generated between six and twelve percent of total annual retail sales.
See also: Chain Store, Mail-Order House, Retail Industry
"Department Store." Gale Encyclopedia of U.S. Economic History. 1999. Encyclopedia.com. (August 29, 2016). http://www.encyclopedia.com/doc/1G2-3406400239.html
"Department Store." Gale Encyclopedia of U.S. Economic History. 1999. Retrieved August 29, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3406400239.html
de·part·ment store • n. a large store stocking many varieties of goods in different departments.
"department store." The Oxford Pocket Dictionary of Current English. 2009. Encyclopedia.com. (August 29, 2016). http://www.encyclopedia.com/doc/1O999-departmentstore.html
"department store." The Oxford Pocket Dictionary of Current English. 2009. Retrieved August 29, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1O999-departmentstore.html
department store: see store.
"department store." The Columbia Encyclopedia, 6th ed.. 2016. Encyclopedia.com. (August 29, 2016). http://www.encyclopedia.com/doc/1E1-X-deptstor.html
"department store." The Columbia Encyclopedia, 6th ed.. 2016. Retrieved August 29, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1E1-X-deptstor.html