The Decline of the Department Store

The golden age of the big department store began in the 1920s, about 70 years after Aristide Boucicaut founded the first department store, the Bon Marche, in Paris in 1852. Retail palaces known for their ornate design and their bewildering variety of merchandise were constructed by the leading architects of the day. Department stores, from Dillard’s and Belk in the South to Macy’s, Bloomingdale’s, Jordan Marsh, Filene’s and Lord & Taylor in the North and countless others in between, quickly became fixtures across the United States.

Sixty years after that golden age, department stores began to fall out of fashion. Contrary to popular belief, Wal-Mart is not the root of all their difficulties, though it has certainly exacerbated them over the past 10 years by making consumers so acutely aware of price.

But the real cause of department stores’ decline was the rise of “category killers”—superstores devoted to one category of merchandise, such as office supplies, hardware, books or sporting goods, says retail historian Robert Spector. “All these specialty retailers like the Circuit Citys and the Staples made it impossible for department stores to sell electronics and office supplies at competitive prices.”

Department stores haven’t found a reliable formula for success since then, so they’ve turned to mergers and acquisitions to show shareholders the growth they’re asking for. Kmart announced its intention to purchase Sears in November 2004 and finalized that deal earlier this year. Federated Department Stores acquired May this past summer. And Saks put its department store group up for sale this past spring. But some industry experts don’t think M&A activity is a strategy for long-term success. Says Paula Rosenblum, director of retail research for Aberdeen Group, “Merging a bunch of mediocre companies into one big one isn’t the solution.”