Goodbye Department Stores as We Knew You

TUSCALOOSA, Ala. – Changes in the department store industry will accelerate next year, says Dr. Robert Robicheaux, Bruno Professor of Retail Marketing and director of the Hess Institute for Retailing Development at The University of Alabama.

“Department stores as we have known them are on their way out,” Robicheaux said. “Those that don’t change dramatically will be history. We will see in 2003 a fast-paced movement in America’s department stores away from service to even more self service, away from sales price promotion to every-day-low prices and away from capital intensive store expansion to retrenchment. America’s department stores are going to look and feel more like discount stores. To borrow a former Alabama politician’s famous phrase, “there won’t be a dime’s difference between ’em.”

Department stores flourished during the second half of the 20th century, Robicheaux said. “Their popularity hinged on broad merchandise assortments, deep inventories and high service levels. They also charged high prices to cover the high costs associated with expensive facilities, services and personnel.” These merchants were once the only places in mainstream America where one could buy clothing, furniture, home appliances, toys, books and apparel, he said. However, he said consumers are no longer dependent on them. “No longer can a consumer buy a contemporary suit or fashion outfit and then walk through the same store to shop appliances, home electronics, toys, best-seller list books, sheets and bedspreads, car tires and shop tools.”

To compete, Robicheaux said, the nation’s department store retailers have implemented Quick Response (QR), similar to supermarket industry-based initiatives like ECR and CPFR programs, to cut merchandise costs. “They tried to wean themselves off of famous label merchandise by developing their own private label goods. But, they continue to fall prey to their feared enemy — price competition.”

This year, 60 to 80 percent of all merchandise sold in America’s department stores was sold “on sale,” Robicheaux said. “Now, if more than 50 percent of a store’s merchandise is sold “on sale,” what does list price mean? Is a piece of luggage that is list priced at $120, but almost always sold for less than $75, really worth $120? And, is it really being sold at a discount?”

Americans buy satisfactory-quality merchandise increasingly from Wal-Mart, K-Mart and Target at very low prices. In 2002, the discounter Wal-Mart alone has had retail sales approach $250 billion — more than six times that of Sears, the largest department store.

“Americans will continue to shop at scores of specialty stores, limited-line retailers, off-price retail stores and home improvement centers in increasing numbers.”