By the 1970s, discount department stores, shopping centers and large malls accounted for 35% of the entire U.S. retail market. Discount department stores in particular, represented the fastest growing part of this phenomenon with annual profits exceeded $20,000,000,000. Leading discounters, at that time, included Ames, Bradlees, Caldor, E.J. Korvette, Fisher’s Big Wheel, Jamesway, K-Mart, Kuhn’s-Big K, TG&Y, WalMart and Zayre’s. 
Some of the largest traditional department store chains tried to counter this competition by opening their-own discount outlets. For example, Montgomery Ward introduced Jefferson Ward, while Chicago-based Jewel unveiled Turn Style stores. Not to be outdone by their competitors, J.C. Penny opened The Treasury and Atlanta-based Rich’s debuted Richway. Marginally successful, the majority of national chains never ventured into these uncharted waters. Economists, in the 1970s, castigated the local department store industry for not readily changing with the times; however, few predicted its demise.
After all, large local department stores had ruled the retail industry for nearly a century and a half. Well-run organizations with a full range of affordable, quality goods and services, they served millions of shoppers annually. They represented a success story well worth talking about. The fact that many U.S. cities in the late 19th and early 20th century boasted two or more department stores illustrated their continued popularity. Customers loved buying there and these highly motivated retailers committed themselves to the cause. This is my new text.
Competing for the same customer-base within a specified market area never fazed these enterprising leaders. They relished any-and-all challenges. In their minds, fierce competition promoted innovation, this in turn, resulted in a steady flow of high quality goods and unmatched professional services. Most retailers began by selling nearly everything. With time, they discovered their particular retail niche and increasingly catered to customers who valued their specific products and services. Shoppers showed their loyalty to these shopkeepers through repeat business.
Additional buying incentives such as periodic sales on certain items along with valuable store services brought hordes of new shoppers into their premises regularly. Prized services, in particular, denoted one retailer from another. These services ranged from award winning restaurants and stylish beauty salons to exciting travel agencies and delicious wine and cheese shops. Such luxuries were new to late 19th and early 20th century retailing. Add into this favorable business mix, heightened one-on-one customer service, as demonstrated through competent salespersons and shrewd store buyers, and how could shoppers lose?
The public looked forward to the splashy window displays announcing different holidays and special store events. St. Valentine’s Day, Washington’s Birthday, Easter, Mother’s Day and Memorial Day followed by Graduation Day, Father’s Day, Independence Day, Thanksgiving and of course Christmas enticed thousands of customers to these establishments annually. Crowds often began their day’s shopping adventure outside the store’s main entrances where they gazed at the beautiful display windows showcasing the latest fashions, sports outfits and/or housewares. Once inside the premises, customers strolled leisurely through the store’s many levels. Some shoppers found themselves drawn towards the shoe department where they tried-on the latest sandals, shoes or slippers. Fashionable ladies often headed towards the cosmetic counters where they sampled the latest fragrances, many imported from Paris. Still others investigated the latest household appliances, kitchen gadgets or furniture ensembles. Those interested in the latest fashions hurried to the men’s and women’s departments, while children eagerly led their parents to the toy department. There was something for everyone.
Many retailers enhanced the shopping experience even further through their-own special incentives. Special events, such as annual white sales in January followed by spring fashion shows in February and March, brought thousands of customers out of their winter hibernation. The April arrival of colorful women’s blouses, knitted sport shirts, Madras shorts, floppy sun hats and dreamy swimwear meant that summer time was just around the corner. Sales on children’s clothes beginning in mid-August signaled back to school for the youngsters and the annual Christmas shopping rush after Thanksgiving rounded-off the year.
If those events were not enough in themselves to draw people into their stores, many shop owners offered their premier customers special private sales. Others furnished trading stamps, free glassware and/or towels. In-house raffles and professional demonstrations of the latest kitchen gadgets were equally popular. Retailers, with a strong sense of civic commitment, often sponsored community-service activities. They included American Red Cross blood drives, public forums, education classes and clothing drives. Some provided gala events honoring those who served in the Armed Services. Special appearances by celebrities along with Easter and Thanksgiving Day parades and free instructional sessions on such things as personal grooming and etiquette also appealed too many.
Department store owners continually added new amenities and services to existing ones. They hoped that customers would spend several hours, perhaps the entire day, in their store purchasing a wide array of everyday merchandise and luxury items. In-house services, in the form of supervised playground for children and low-cost secured parking, provided patrons with carefree, leisurely shopping. It also gave those customers wishing to purchase expensive items such as electronics, furs, furniture or bedding enough time to make wise decisions.
At the same time, it encouraged others, who intended initially to buy a few staples, to stay longer and explore the many unique departments. They might even watch product demonstrations, eat in the store’s restaurant or slip into the latest fashions. Such an adventure provided a nice escape from the hectic world surrounding them. Unlike earlier dry goods establishments in which a limited selection of high priced merchandise predominated, these new department stores offered a multitude of affordable goods and services. Astute retailers symbolized master showmen who could convince customers that they could find anything they needed or wanted within their emporiums.
However, for these same local retailers to remain profitable their annual profits had to well exceed overhead costs. That axiom, so true today, was equally cogent then. Lower operating costs based on limited technology and less complicated customer demands distinguished 19th century department store owners from modern-day retailers. That being said, it did not mean that competition among shopkeepers, in the past, was less cutthroat than it is today. In fact, fierce competition characterized by a highly competitive market ruled that day. With a smaller customer-base to draw upon, local retailers in the late 19th and early 20th centuries knew the economic importance of remaining abreast of the latest fashion and shopping trends. That also meant adopting the latest methods of accounting. By the late 19th century, the vast majority of major downtown establishments relied on highly-trained store buyers and competent accountants to keep their businesses financially afloat.
Store buyers played a crucial role throughout. Not only did they kept abreast of the latest fashion trends, but also, negotiated the best possible prices for the items they sold. Well-trained accountants helped by performing two invaluable services. First, they balanced the store’s ledger on a daily basis. Second, they relied on the latest accounting methods to insure financial stability and promote future growth. This kind of scrutiny not only enabled retailers to remain on top on recent financial gains and losses, but also, make crucial adjustments to policies to better suit new customer demands. Cost accounting became the new byword for economic success.
Several retail determinants played major roles in defining long-term growth and prosperity for department stores in cities such as Cleveland. At the top of this list was pricing. Determining appropriate pricing for merchandise required managerial finesse. As everyone soon learned, the cost of goods and in-house operating expenses defined pricing. The amount allocated for specific items, in conjunction with the incurred costs resulting from shipping and handling set products, served as the basis for cost analysis. A precarious balance existed between mounting payroll expenses and escalating overhead costs vs. changing market needs and increasing in-house administrative requirements. Store owners knew that the retail price of merchandise must exceed the expenses of the items, in question, and any additional incurred overhead costs. To do otherwise over an extended period of time would result in bankruptcy.
Basic accounting principles, such as these, were easy enough for most retailers to understand. Unfortunately, they became hazy over time as the business and financial complexities of successfully operating mammoth stores intensified. As downtown department stores diversified the need for more accurate methods of measuring profits and loses became acute. This led enterprising retailers to adoption new, far-reaching technical approaches to accounting especially in regards to cost-related issues. This resulted in such things as mark on costs, mark ups and profit margins. Store owners determined mark on costs by adding pre-set costs and/or percentage increases to the basic prices of the merchandise in question. Those within the retail industry established the criteria for any-and-all pre-determined costs.
Mark ups represented the percentage added to the initial cost of items to determine their actual selling prices. Using mark ups prevented retailers from deliberately underestimating the final costs of the items in question. Profit margins enabled store owners to measure all their earnings from individual dollar levels. This method also created a profitability ratio. Taking current store earnings and dividing them by the generated revenues produced this ratio. Store owners used this method of accounting to assess the present ability of their businesses to generate more earnings and less overhead expenses for a specific period. In particular, they measured their store’s current performance in relationship to present sales. A higher ratio meant that the store’s profit exceeded its competitors at least for the moment.
Other price variables, developed at the turn of the last century, ran the gamut from competitive and prestige item pricing to psychological and keystone pricing. Multiple pricing and discount pricing also played pivotal roles in separating leading companies from others. Competitive pricing, unlike other price variables, truly leveled the playing field by encouraging customers to engage in comparative shopping. Under this scenario, two department stores in the same market area sold the same popular toaster for $8.00. Each hoped that customer loyalty would result in more sales for them, and, in many cases, that happened with one store a clear winner. However, if that did not occur, then individual department store owners would often sweetened the deal even further through price reduction.
In this instance, competitive pricing strategies reduced the cost of these toasters to $6.50 each. In lowering the cost and taking the financial loss, those retailers counted on their customers to buying many things in their stores including the specially priced toaster. Those additional items sold at full price. The more these shoppers bought, the less the loss incurred by selling these toasters at a rock bottom price. These same enterprising shopkeepers might sweeten their deal even further by including a special protective plastic toaster cover for free or providing an extended warranty. This kind of sales practice worked especially well when the sale items in question had been sitting on the shelves for months or when cheaper substitutes flooded the market.
Prestige pricing symbolized another successful late 19th century retail practice. In this case, storekeepers intentionally raised the price of certain items to advertise their high quality. Sometimes the high price tag was legitimate especially if the item, in question, was a labor-intensive, limited distributed product made of top quality materials. The fact that a prestigious company manufactured the item may have further justified this approach. Whatever the reasons cited at that time, high priced articles conveyed status whether they warranted or not.
In the case of psychological pricing, many retailers sold their merchandise at slightly below round numbers. This meant charging $0.99 or $3.99 for certain items rather than $1.00 or $4.00. This business maneuver often increased sales. In fact, many customers jumped at the chance to purchase items at $0.99 and $3.99; however, they showed reluctance in purchasing those same items at $1.00 and $4.00 respectively. In their minds, that one penny savings made all the difference. A great many local retailers also relied on keystone pricing. Under this arrangement, department store owners sold their merchandise at double the wholesale price. This method of pricing represented a very easy way to maintain sound records. However, customers frequently complained claiming that it raised the price of products appreciably.
Multiple pricing represented yet another clever way to promote sales. In this case, local retailers sold several of the same items as a bunch at a slightly lower price. Buying them individually raised the cost no matter the amount purchased. Under this arrangement, a store might have sold five men’s dress shirts worth $2.50 each for $10.00, or two women’s scarfs regularly priced at $3.10 a piece for $6.00. Multiple pricing often served to unload overstock or outdated merchandise.
Large downtown department stores in cities like Cleveland dominated retailing well into the post-war era. In the 1950s, over 4,000 department stores operated nationwide. The proliferation of new suburban stores at that time had little direct impact in downtown sales. In fact, it often increased activity. Downtown anchor stores retained their pre-eminence in local retailing by giving customers the greatest selection of products and services under one roof. Regrettably, they soon lost their economic edge to outsiders.
Prior to the Second World War, the majority of urban residents lived and worked within the central city. This dedicated group depended on public transportation to transport them everywhere. Since the majority of public transportation systems originated from the heart of the downtown and most quality stores were located there, logic dictated that the majority of people would shop at those stores. With the advent of affordable, easy to reach suburbs with their abundant housing choices, modern industrial areas, office parks and top quality shopping centers, the economic advantages once enjoyed exclusively by downtown retailers soon vanished. In their wake another kind of retailer emerged.
By the mid-1960s, over half of the post-war department stores had closed their doors. This was especially noticeable in medium-sized U.S. cities many of which only had one or two downtown stores. The next three decades prompted further department store closings. This included some prominent retailers. To illustrate this last point, New York City lost major stores over those 30-years. They included Abraham Strauss; Arnold Constable, B. Altman & Company, Best & Company, Bonwit Tellers, Gimbel’s, and Ohrbach’s. By the 1990s, only three traditional department store chains remained in New York City and that number soon dropped to one.
Another force to emerge in the late 1960s and early 1970s played an equally crucial role in their demise. The arrival of a new generation of customer called Baby Boomers changed retailing forever. Not satisfied with the status quo, this latest generation of shoppers demanded a whole new range of items and services not previously provided by department stores. In particular, they insisted upon affordable, high quality products and services within less formal shopping settings. Unlike their parent’s generation, Baby Boomers were happy to travel great distances to get the best possible bargains.
Customer loyalty soon became a relic of the past. Savvy new shoppers were more than willing to sacrifice the amenities of downtown department store for cheaper prices. It was always the price. Self-service stores with long check-out lines, indistinguishable departments and aisle upon aisle of items of picked-over garments became the norm, not the exception to the rule. This new retail experience was more reminiscent of the local A&P Food Store and not a bustling department store. Yet, in spite of these obvious limitations, new discount chains such as Bradlee’s, K-Mart, Korvette’s, Target, Woolco and Zayre’s thrived.
Cleveland, Ohio was no exception to this rule. Like many other cities, Cleveland witnessed the demise of its downtown department stores over a forty year period beginning in the 1960s. New discount stores such as Clarkins, Gold Circle, Fisher’s Big Wheel, Gaylord’s, Giant Tiger, and Uncle Bill’s replaced them. Crowds also flocked to the new shopping centers and malls where national retail chains such as Montgomery Ward and Sears & Roebuck often predominated. Critics wondered how could this have happen? More specifically, how could this once dominant regional economic force disappear overnight without a trace? What business contributions did downtown Cleveland retailers make to this phenomenon, and how did these venerable institutions lose their competitive edge to others? In the final analysis, what lessons might modern-day retailers learn from this experience?
- Defunct Discount Stores of the United States. General Books, 2010. ↵
- Frost, Shelly. “What is Psychological Pricing?” Houston Chronicle, 2004. http://www.smallbusiness.chrom.com. ↵
- “Multiple Pricing.” http://www.commerce.wa.gove. ↵
- chs.org.finding-aides/fox/welcome.html. ↵
- http://www.departmentstoremuseum.blogsopt.com/2010. ↵