SIC 5311

This category includes retail stores carrying a general line of apparel, such as suits, coats, dresses, and furnishings; home furnishings, such as furniture, floor coverings, curtains, draperies, linens, and major household appliances; and housewares, such as table and kitchen appliances, dishes, and utensils. These stores must carry men's and women's apparel and either major household appliances or other home furnishings.

NAICS Code(s)

452110 (Department Stores)

These products and other merchandise are normally arranged in separate sections or departments with the accounting on a departmentalized basis. The departments and functions are integrated under a single management. The stores usually provide their own charge accounts, deliver merchandise, and maintain open stocks. These stores normally have 50 employees or more.

Establishments that sell a similar range of merchandise with less than 50 employees are classified in SIC 5399: Miscellaneous General Merchandise Stores. Establishments that do not carry these general lines of merchandise are classified according to their primary activity.

Industry Snapshot

Part of the early allure of department stores was their atmosphere and decor, making the shopping experience a form of entertainment. At one time, these stores were the fashion monitors of the day and led the way with new trends in retailing. They were the first to provide consumer credit and to create mass-produced clothing, and they became the home for national fashion designers. They also were influential in the development of many American holiday traditions still celebrated today.

By the early 2000s, department stores had lost their cutting-edge appeal to specialty shops and brand-specific stores that could move in and out of fashion trends quicker and more efficiently than departments stores. Department stores were also steadily losing customers to big discounters, especially Wal-Mart and Target. Wal-Mart has the ability to "out-discount" all other retailers, and Target effectively combined chic fashions with discount prices by striking deals with several designers. By the twenty-first century, department stores' market share was steadily eroding, and management teams were scrabbling to reinvent their stores to attract and retain new customers.

Approximately 10,400 department stores existed throughout the United States in 2001. Most operations began as a single store located within a downtown district. When customers moved to the suburbs, so did the department stores; soon branch outlets appeared throughout the country. Ownership of most department stores reverted to publicly held conglomerates. Many of these companies also owned or held interest in discount retailers or general merchandisers.

The top department stores ranked by 2002 sales and number of employees are: Sears Roebuck & Co., with sales of $41.4 billion and 289,000 employees; J.C. Penney Corp., with sales of $32.3 billion and 228,000 employees; Federated Department Stores Inc., with $15.4 billion in sales and 118,800 employees; May Department Stores, with sales of $13.5 billion and 116,000 employees; and Dillard's Inc., with sales of $7.9 billion and 55,208 employees.

Organization and Structure

Department stores, along with other retailers, were quick to embrace advanced computer technology. The ability to centralize operations, have a complete and upto-date status of inventory, and get an exact reading of items purchased are but a few pieces of information that can be generated by computerized point-of-sale systems. Retailers were also able to reduce paperwork and lead time in updating stock.

The usage of computer technology has moved from a luxury to a necessity in order for any retailer to survive in the competitive market characterizing the early 2000s. Included in this technology is Internet retailing. In Chain Store Age, Stephen Finn, an Ernst & Young partner, commented that: "For sure, the Internet is changing how retailers will distribute their goods and services and interact with customers." The department store sector of the retail industry is taking this issue seriously, with Internet sales projected to increase to more than $40 billion by 2002. For example, Federated Department Stores put its plan in motion to buy Fingerhut Companies Inc., a catalog retailer, in spring of 1999 in a multi-billion dollar deal. The purchase was expected to ease Federated into a multi-distribution platform on which it could handle Internet sales, warehousing, and shipping.

Retail establishments primarily selling merchandise for personal or household consumption played a major role in the U.S. economy by providing nearly 20 percent of all jobs in the private sector in 1998. Department stores had always held a leadership position among "traditional" retailers. However with discount mass merchandisers chipping away at market share, department stores have seen increasing competition. The very definition of department stores changed within the industry as well, as many stores eliminated some individual departments. This new definition covered the traditional department stores, but also included the "multi-department soft goods stores with a fashion orientation, full-markup policy, and operating in stores large enough to be a shopping center anchor," Penny Gill stated in Stores. Such stores included Lord & Taylor, Neiman-Marcus, and Saks Fifth Avenue.

Changes in how merchants sold products and in how consumers shopped led to the creation of this new division of retailers—discount mass merchandisers. This category included superstores and price clubs, which both cut into the market share of traditional retailers. Also known as off-price retailers, these stores featured a specialized merchandise line at discount prices. Superstores were large retail establishments offering discount prices on a limited product line with extensive complementary merchandise. Examples of superstores included Toys 'R' Us and Wal-Mart. Price clubs were a new type of superstore with more retail floor space and a more extensive line of merchandise at more sharply discounted prices.

Background and Development

The department store became one of the most durable creations of modern American life. Created in the heart of emerging business districts, department stores gradually became part of the landscape. The first department stores opened as early as 1846 in New York City. Although they primarily catered to the city's elite, early merchants also wanted to make themselves accessible to women of all classes. So instead of keeping goods behind the counter, they openly displayed merchandise on the floor to encourage browsing.

Stores with elaborate decor and fancy window displays created a new variety of entertainment for the masses. Even if people could not afford to buy the merchandise, they still came to the department store to peer in the windows to see what they might attain someday. The traditional department stores sold "soft goods," such as apparel and linens, as well as "hard goods," including furniture, appliances, and housewares. The now defunct "notions aisle"—the place for buttonhooks, thread, sewing needles, linens, laces, and silks—was the original foundation of the department store. Notions first were sold by peddlers, who traveled by foot through the rural South and Midwest. Eventually, these peddlers obtained a horse and buggy and then graduated to a small storefront, the prototype department store.

Another innovation that emerged in the late nineteenth century was the budget floor. Filene's obtained legendary status with its Automatic Bargain Basement—selling cashmeres salvaged from a fire at Neiman-Marcus and Schiaparelli and Chanel gowns evacuated from Paris showrooms at the start of World War II. Credit began in 1911, when Sears Roebuck offered payment plans to farmers for large mail-order purchases. By the 1920s, "layaway" installment plans were common. The introduction of department store charge plates encouraged customer loyalty since that was the only form of consumer credit available at the time.

From the earliest days, merchants catered to women. By 1915, nearly 90 percent of all department store customers were female. Women also began to take the place of men on the selling floor, offering fashion advice and fittings.

Department stores were considered a fantasyland for toy vendors and children alike. Stores became famous for elaborate Christmas decor. No one knows exactly when Santa Claus began to show up on the scene, but in 1939, Montgomery Ward's started to give away a book featuring a character first called Rollo, then Reginald, and finally Rudolph, a reindeer with a red nose. Gene Autry recorded Rudolph's signature song in 1949, and the famous reindeer became a Christmas icon.

Department store managers also influenced other major American holidays. In the past, Thanksgiving was held on the last Thursday in November. In 1939, the holiday fell on the 30th, leaving only 24 days for Christmas shopping. Ohio merchant Fred Lazarus Jr. led a campaign to move the holiday to the fourth Thursday in November. President Franklin D. Roosevelt complied, and Thanksgiving remained on that date ever since.

After World War II, department stores began expansion into the suburbs, following the flight of their customers. By the 1950s, most department stores turned to upscale clients and merchandise, doing away with the low-end, bargain basement sales. This decision opened the way for discount operations like Kmart to enter the market. Customer loyalty quickly dissipated as the arrival of bank credit cards in the 1960s allowed consumers to shop on credit virtually anywhere. In due time, the costs of suburban expansion plus the lack of experience or interest on the part of third- or fourth-generation family members drove many department store owners to sell their operations.

By the 1980s, many department stores were in fairly poor shape. Although consumer spending was up, the stores found fierce competition from discounters, specialty stores with numerous outlets, and mail order houses, which sent out 14 billion pieces of mail annually. In an attempt to lure back customers, department stores engaged in competitive price-cutting. The result was a frenzied period of leveraged buyouts (LBOs), mergers, and acquisitions. Of the eight companies that composed the Standard and Poor's index at the beginning of 1986, four were acquired or taken private, while a fifth company undertook major restructuring.

One negative fact hanging over the industry—as well as the rest of the $3.2 trillion retail market—was that for the last 25 years, the amount of retail space per person in the United States increased by 450 percent. "It generally is agreed that the country is already over-stored, so successful operators are the ones taking market share from others. The battle for market share continues to be fought largely on the pricing front," William G. Barr reported in Value Line Investment Survey.

By the mid-1990s, department stores changed the product mix somewhat. "White goods"—appliances such as stoves and refrigerators—were less emphasized to make room for more apparel items. Sears adopted the slogan, "Come see the softer side of Sears," emphasizing that power tools and lawn equipment were not the only items you would see in the store. J.C. Penney upgraded store merchandising, also emphasizing more apparel.

However, the departure of the shop-weary consumer continued to hurt department stores' sales. In sharp contrast to the retail heyday of the 1980s, consumers in the 1990s became thriftier. Feeling financially strained, people tried to maintain their lifestyles on a smaller budget. Since consumer confidence remained relatively low, many retailers kept markups just high enough to maintain market share. As general economic conditions improved in 1996, confidence and consumer spending increased.

Changes in demographics in the early 1990s also posed challenges to department store retailers. The rate of household formations slowed dramatically in the early 1990s, and in the next two decades the percentage of young adults was projected to decline. The fastest-growing segment of the population, people between the ages of 45 and 54 years, was marked to grow 46 percent between 1990 and 2000. In other words, the baby boomers, who "shopped till they dropped" during the 1980s, would reach middle age by the year 2000. This age shift was forecast to have far reaching ramifications for the marketing and merchandising direction of department stores. In addition, the 65 and older segment of the American population continued to grow quickly. This group tended to spend more on health care and leisure activities and less on goods like apparel.

To top it off, research indicated that consumers no longer considered shopping "fun." According to the Lieber/Yankelovitch Monitor, the number of consumers who described shopping for clothes as fun dropped 4 percent from 1991 to 1992. Shopping was regarded as time consuming and frustrating. However, as economic conditions improved, interest rates trended downward, and personal income slowly rose, more shoppers extended themselves on credit, bucking the earlier trend of frugal shopping. The key for retailers during the 1990s was their ability to attract new customers, regain old customers, and make existing operations more productive. Creative merchandising and keeping up with the fashion trends of the day was a crucial component to gaining sales.

There was finally a break in 1996, when department stores saw the business environment improve from the previous two years. The department stores placed more emphasis on sales of women's clothing, which was always an important item to increase store sales. The combination of better quality, higher fashion women's wear, and increased demand due to improved economic conditions in 1996 helped spur sales for department stores. Regionally, the increased economic activity in California and the Pacific Northwest also aided sales. Most large department stores also placed more emphasis on meeting the new purchasing trends—namely, that apparel, jewelry, and quality home furnishings play more of an important share of department store sales than the home improvement hard goods and home electronic products did in the past. Many department store retailers were also emphasizing their own private label brands, which had significantly improved in quality and marketing. On the operations side, these companies generally had also taken advantage of improvements in retail automation that made merchandising, accounting, inventory, and logistics functions more efficient and accurate.

The correct combination of service, customer responsiveness, and merchandise presentation was critical to the future growth of department stores. The stores would have to recreate the original pleasant, almost entertaining experience for shoppers if they were to find their space among the crowd of discount mass merchandisers.

Many retailers in 1998 had a favorable year with sales in U.S. retail operations up 5.1 percent, and as they entered 1999 the retail outlook was expected to remain stable. The economic conditions in 1994 and 1995 that left concerned retailers and resulted in price cutting, higher interest rates, and a general economic slowdown, were worries of the past. As the retail industry rebounded, consumer spending and confidence rose. As 1997 began, overcapacity of retail space in comparison to the general U.S. population was not estimated to grow as fast as it did in the early 1990s. By 1999, there were 20 square feet of retail space for each person in the U.S, a decrease from past figures. This industry should see positive increases in sales growth into the early 2000s, especially with the increasing popularity of online retailing. However, consumer spending is expected to slow eventually and the Asian economic crisis will also play a factor in international retail sales.

The department store division of the retail industry was hit particularly hard in the early 1990s by discount retailers siphoning market share away and by a drop in consumer spending. It rebounded, however, in the late 1990s with sales growth of just over 6 percent since 1988, and department stores slowly benefited from the rise in consumer spending. However, this division faces many barriers including the rising popularity of discount mass retailers. For example, Sears—one of the oldest and best-known department stores—was ousted from its number one position in sales by Wal-Mart, which had over three times more revenue in 1998. In an attempt to regain their leadership position, many department stores tried to create a new identity that would attract new customers, as well as keep existing customers happy.

The entire retail industry realized gains in 1997, 1998, and into 1999. Department stores continued to see increases in sales and profits, although many factors deterred from those increases being even larger. The Internet, mass discount retailers, specialty retailers, and catalog shopping were competing with the traditional department store for consumer loyalty. Chain Store Age reported that in October 1999, "The department store sector continues to be hot for some chains and cold for others." Federated Department Stores, Dillard's, and May saw increases in same-store sales, while J.C. Penney saw a slight decrease in sales and Sears remained stagnant.

In order to keep existing market share and boost sales, many department stores have adopted new ad campaigns, revamped stores, focused on high margin profit mixes, and began online retailing. Montgomery Wards, for example, updated the floor plans of its existing stores and focused on higher end merchandise. Sears, with its "softer side" campaign, targeted a younger, trendier crowd with its apparel line. Although this line had a negative effect on profits from 1996 to 1998, sales in 1999 began to show signs of life. Sears also jumped aboard the Internet wave and began to sell appliances online. By the 1999 holiday season, it also planned to sell tools. Eventually, will offer home furnishings, lawn and garden products, and consumers will be able to request repair service online. An October 1999 Chain Store Age article stated that by the year 2010, at least 15 percent of all retail sales would stem from online purchasing. This apparent fact has department stores scrambling to provide the type of products that Internet savvy consumers want both online and in the stores.

Consolidation has also been a trend in the department store sector. Proffitt's, a Birmingham, Alabama-based company, purchased Parisian in 1996, and had a bid on the table for Saks Fifth Avenue in August 1998. Dillard's also bid for Mercantile Stores, an Ohio based department store chain, in 1998. Elder-Beerman took over Stone & Thomas as well. This trend has left the department store industry with a handful of larger, powerful competitors whose focus in the late 1990s was growth through acquisition.

The long-term forecast for department stores showed continued slow growth into 2000. This projection was based largely on the simple fact consumer spending would eventually slow or decline. According to a U.S. Department of Labor projection, retail sales adjusted for inflation should show an average annual growth rate of 2.5 percent from 1990 to 2005, compared with a 3.5 percent annual rate posted during the preceding 15 years. The key for retailers entering the next millennium would be the ability to attract new customers, regain old customers, and make existing operations more productive. Creative merchandising and keeping up with the fashion trends of the day would be a crucial component to gaining sales.

Whatever approach department stores decided to take with regard to merchandise mix, industry executives agreed that department stores also needed to differentiate themselves from each other.

Current Conditions

National department store chains (without considering discount chains) had total revenues of $92.3 billion in 2001, down from $97.3 billion and $97.4 billion in 1999 and 2000, respectively. Department stores were already struggling with an economy that was moving toward recession when the terrorist attacks of September 11, 2001 occurred. Following the attacks, the U.S. economy stagnated and, after several unfulfilled attempts at recovery during 2002, remained slow into 2003. The forecast for a reinvigorated retail market was cautious at best for the remainder of 2003. Retail sales rose 4.6 percent overall in 2002 and were expected to rise just 3 percent in 2003.

The economic outlook does not present an optimistic picture for department stores. According to Jim Ostroff of Kiplinger Business Forecasts, some department stores will suffer: "Several department store chains are going to hit hard times in 2003. Sears, Federated Department Stores, May Department Stores Co., Dillard's and Marshall Field's will suffer sales declines of as much as 5 percent as they vainly attempt to beat mass marketers such as Wal-Mart and Target at the discounting game." Ostroff sees better days for chains, such as Nordstroms, that focus on higher quality merchandise and better customer service.

Department store chains have bigger problems than a gloomy economic forecast. Once the premiere centerpiece of the American shopping experience, mall-based department stores have become antiquated, offering too much sameness in products. They have also grown a sizable reputation for poor customer service. The modern attitude toward department stores was expressed by Barbara Ashley of Retail Ventures, who told Real Estate Finance and Investment, "Department stores are overpriced, the merchandise assortment is redundant and prices change frequently. Shopping is abysmal with untrained sales assistants."

With large discounters beating them on price and trendy specialty shops beating them on up-to-date fashions, department stores are trying to remake their image and revamp their offerings. To start, department stores are focusing less on "departments" and much more on brands. Sears jump-started its apparel division in 2000 with the purchase of catalog specialist L.L. Bean for $1.9 billion. At the end of 2002 J.C. Penney inked an exclusive deal to offer Bisou Bisou apparel, a line of contemporary sportswear previously available at upper-end retail outlets. J.C. Penney has also benefited from contracting with brands Mudd and l.e.i., both of which specialize in the trendy fashions of the teenage crowd. As profit margins continue to narrow, the industry is expected to see increased merger and acquisition activities through the 2000s as the industry plays out the adage "bigger is better."

Industry Leaders

Sears, Roebuck & Co. Headquartered in a Chicago suburb, Sears, Roebuck & Company was the second largest retailer in the world in the late-1990s—based on its sales of merchandise and service—behind Wal-Mart. In 2002, Sears operated more than 870 department stores and 1,750 off-mall format and specialty stores across the nation, and employed approximately 289,000 people. Sears' revenues totaled $41.4 billion, with net income of $1.4 billion.

Richard Sears opened R.W. Sears Watch Company in 1886 in Minneapolis. The following year, Sears moved his business to Chicago and joined in a partnership with Alvah Roebuck, another watchmaker. In 1893 they created the corporate name Sears, Roebuck and Co. Sears began as a mail-order company, primarily providing farmers with low-cost goods delivered via the railroads and postal service. In 1895, Chicago clothing manufacturer Julius Rosenwald bought the company, and in 1906 Sears went public.

Sears' customers soon began to move from the farm into the city, so in 1925 the company decided to open a retail store. Robert E. Wood, then a vice president of Sears and later president and chairman of the board, became known as the father of Sears' retail expansion. He started with one store located in a Chicago mail-order plant, and by 1927 had 27 stores in operation. Company records indicated that during one 12-month period in the late 1920s, Sears stores opened at an average rate of one every other business day. Soon Sears began selling merchandise under its own brand names, creating the still popular brands of Craftsman, Kenmore, and DieHard.

In 1931, the retail side accounted for 53.4 percent of Sears' total sales, topping mail order for the first time. Sears continued to open stores during the 1930s despite the Depression. By the start of World War II, more than 600 stores were in operation. During the 1940s and 1950s, Sears expanded internationally with stores in Cuba, Mexico, and Canada.

In 1931, Wood also launched Allstate Insurance Company as a wholly owned subsidiary of Sears. At first, Allstate operated only by mail, but by 1933 Allstate sales booths were installed within Sears stores. In 1973, Sears completed its new headquarters in Chicago—the world's tallest building at 110 stories and 1,454 feet tall.

To combat declining market share in the 1980s, Sears initiated a restructuring of its retail division. The company acquired the 405-store Western Auto chain in 1988, introduced a new pricing policy, and added non-Sears brands in 1989. Sears also announced it was relocating from the Sears Tower to a northwestern Chicago suburb in 1992. In January 1993, Sears announced another major restructuring program to streamline its Merchandise Group. The company discontinued its U.S. catalog operations, closed unprofitable retail and specialty stores, and offered early retirement to employees. Completed in early 1994, the restructuring improved the company's net income by $300 million annually, increased cash flow, eliminated roughly 16,000 full-time and 34,000 part-time positions, and positioned Sears to compete with its discount rivals.

The company displayed a strong year in 1996—same-store sales increased 5.4 percent. Apparel, softlines, hardware, computers, and electronic product lines all recorded double digit increases. The firm achieved these increased sales while maintaining stable selling and administrative expenses. The company has successfully updated the look of the firm and its product lines. The home service businesses—along with the cosmetics, jewelry, and footwear areas—were expected to receive more attention in 1997, as well as the credit levels of Sears' 27 million cardholders. Delinquencies of cardholders rose substantially in 1996, and increases in interest rates placed demands on cardholders to watch their debt levels. Successes by Sears in "off-mall" areas such as Sears Hardware, Western Auto, Sears Tire, and HomeLife Furniture were also evident in 1996.

In 1997, Sears opened 275 National Tire and Battery stores across the nation. Credit operations continued to deteriorate, although fourth-quarter revenue increased 9.2 percent in comparison to 1996 figures. In 1998, the company's profits fell 12 percent from 1997. In 1999, Sears' appliance and electronic sales were strong, as well as home fashions and apparel. In October of that year, total revenues were down 2.7 percent from 1998. Sears was also named one of the "Retailers of the Century" by Lebhar-Friedman Publications.

J.C. Penney Company. In 2002, J.C. Penney operated 1,050 department stores in all 50 states and Puerto Rico. J.C. Penney also owns Eckerd Drugstores. The company started off the twenty-first century by cutting costs, including more than 100 underperforming stores. Annual sales for the company reached approximately $32.3 billion, with net income of $405 million in 2002.

In 1902, after working for many years as a sales clerk for the Golden Rule Mercantile Company, James Cash Penney opened his first store as part owner and store manager in Wyoming. Buying out his two partners in 1907, Penney launched his own Golden Rule stores. To consolidate operations, Penney established headquarters in Salt Lake City in 1909. Although Penney moved his headquarters to New York the following year, the company's growth continued in the western portion of the United States.

J.C. Penney exploded into a nationwide organization from 1917 to 1929—growing from 174 stores to 1,395—while sales skyrocketed from $14.9 million to $209.7 million. By the 1930s, a J.C. Penney store could be found in nearly every town with more than 5,000 people, and the company continued to expand from the west to the east coast. By 1951, a J.C. Penney store existed in every state, and sales passed $1 billion for the first time.

The company entered the catalog business in 1962 and built its volume primarily through catalog sales centers located in stores. J.C. Penney Financial Services was created in 1967, including an acquisition known today as the J.C. Penney Life Insurance Company. The J.C. Penney National Bank was created in 1983 with the acquisition of the First National Bank of Harrington in Delaware.

During the 1980s, J.C. Penney closed many downtown locations or moved them to suburban malls. Stores were classified as metropolitan or geographic for those located outside metro areas. The company's real estate strategy produced hundreds of well-located stores in regional shopping centers throughout the United States.

In 1983, the company announced plans to spend more than $1 billion to modernize stores. To accommodate these changes, J.C. Penney eliminated auto service, major appliances, paint and hardware, lawn and garden merchandise, and fabrics from its stores. Upon completion, J.C. Penney began to focus on better serving the fashion needs of its customers—especially women, who accounted for more than 70 percent of apparel purchases in its stores. The composition of 1992 sales for the department store was 42 percent in women's, 29 percent in men's, 15 percent in the home division, and 14 percent in children's. The department store group accounted for nearly 75 percent of sales.

The J.C. Penney Company moved its headquarters to Dallas in 1988. J.C. Penney Telemarketing also was created that year to take catalog phone orders and provide telemarketing services for other companies. This network became the largest privately owned telemarketing system in the United States. At the start of the 1990s, J.C. Penney continued to expand stores and catalog services and also ventured into international markets such as China.

Seventy-three percent of 1995 sales was generated from department stores and 18 percent came from catalog sales. The company acquired Kerr Drug Stores and Eckerd in 1996, which placed the total number of drug stores at 2,600—accounting for approximately one-third of total company sales. About 12 percent of pre-tax income comes from insurance and banking subsidiaries. It is estimated that women comprise 80 percent of the firm's customer base. Sears, Wal-Mart, and Kmart have tried to attack this base by enhancing their own private label apparel brands. With the increased use of online retailing by people using the Internet to go shopping, the catalog business was made available online for Internet shoppers.

In 1999, J.C. Penney sold its credit business to GE Capital in an effort to reduce debt. Sales grew by 3.6 percent over 1998 and net income increased by 4.9 percent as well.

May Department Stores. The May Department Stores Company owned regional department store companies that operated more than 445 stores in 2002. These included Lord & Taylor headquartered in New York; Filene'sin Boston; Hecht's in Washington, D.C.; Kaufmann'sin Pittsburgh; Foley's in Houston; Famous-Barr in St. Louis; Robinsons-May in Los Angeles; The Jones Store; and Meier and Frank in Portland, Oregon. The May Company sold Payless ShoeSource Stores, accounting for 15 percent of sales and 16 percent of operating earnings, in May 1996; sold Caldor's in November 1989; and sold Venture in November 1990. May Department Stores' sales totaled $13.5 billion in 2002, with net income of $542 million, an increase of 4.8 percent over 2001.

Built on a series of acquisitions, May Department Stores Company became a leading U.S. department store operator, maintaining its independence and financial strength. German immigrant David May started with his first store in Leadville, Colorado, in 1877 and expanded into Denver in 1888. In 1892, he and the Schoenberg brothers bought The Famous in St. Louis, and in 1898 they purchased a store in Cleveland. David May moved the company headquarters to St. Louis in 1905, and in 1911 bought Barr's, creating the flagship store Famous-Barr.

While the May Company purchased other stores from 1912 to 1966, two other companies reorganized in 1916 to form Associated Dry Goods, whose principal businesses were Lord & Taylor in New York, Hahne'sin Newark, and Hengerer's in Buffalo. From the 1950s to the 1970s, Associated Dry Goods also acquired various other family-owned stores. In 1986, the May Company bought Associated Dry Goods for 70 million shares of stock. Foley's and Filene's were added in 1988, purchased from Federated Department Stores for $1.5 billion. Since then, May Department Stores Company consolidated some operations and closed or sold off others. Despite the 1991 recession, the company boasted its twenty-second consecutive year of record sales and earnings per share in 1996.

The May Company has a very strong track record of earnings and dividend increases, and its return on capital is above its industry competitors. However, Federated Department Stores and Target have recently moved into many of the Northeastern markets where May Company has been strong, and they present challenges to the firm. However, 1997 was still another strong year for the company and in 1998, the company achieved its twenty-fourth year of record profits and sales.


Approximately 10,400 department stores operated throughout the United States and employed more than 2.5 million people in the early 2000s. Many of the industry's employees were under the age of 25 and worked part-time, evenings, and weekends. More than 47 percent of the people employed by department stores were cashiers and retail sales associates—the people who "worked the floor" selling merchandise. Administrative support personnel were the next largest group with 23 percent of total employment. These employees provided general office skills and bookkeeping tasks, in addition to working as customer service representatives. No formal training was required for most sales and administrative support positions, although a high school education was preferred.

Management positions in department stores made up just over 2 percent of total employment. These positions included department managers, buyers, merchandise managers, store managers, and retail chain store area managers. A college degree became increasingly important for management positions, especially with large department stores. Companies preferred to hire people who earned a bachelor's degree in marketing or business to join management training programs.

Hourly workers in department stores earned twothirds the average pay of all workers in private industry. This lower wage might be due to the high proportion of part-time and less-experienced workers. Few employees belonged to a union, and those who did generally received the same pay as nonunion workers. Department store jobs were projected to increase nearly 23 percent over 1990 through 2005, nearly as fast as the average for all industries. Large numbers of job openings should result from the high turnover rate generally found in this industry. The mean annual salary of a retail sales associate in 2001 was $17,700.

Advancement in computer technology should not greatly affect employment figures. However, due to computerized operations, worker productivity in the retail industry should double from 1990 to 2005, according to the U.S. Department of Labor. Although some bookkeeping and inventory control positions might be eliminated, retail sales should continue to rely upon personal interaction, even as e-commerce trends continue.

America and the World

Most department stores had plans for some sort of international expansion by 2005. With the completion of the North American Free Trade Agreement (NAFTA) in September 1992, many stores sought opportunities in both Canada and Mexico. According to a Coopers and Lybrand survey, retailers had plans to open stores in Canada. However, those who wanted to expand in Mexico were more inclined to work through joint ventures or partnerships.

Canada has become an increasingly attractive market. The T. Eaton Co. of Toronto collapsed in the fall of 1999, leaving only Sears Canada and the Hudson Bay Co. in that market. With 64 outlets available on the auction block, players such as Federated Department Stores, J.C. Penney, Wal-Mart, and Target are expected to enter into the Canadian playing field.

Some stores have entered Mexico, and both J.C. Penney and Dillard Department Stores have anchor malls in Mexico City, Monterrey, and Guadalajara, Mexico. The Mexican malls were designed in a similar style to American malls, and Mexican retailers would occupy nearly half of the rental space. Sears also entered the Mexican market with its Homelife furniture stores.

Another possible entry into the international arena might come through catalog sales and telemarketing. In this scenario, merchandise would be sold through a partnership with a third-party national. A special catalog would be created targeting international markets, and operations would be set up similar to catalog service companies in the United States. A licensed catalog sales program would place U.S. goods in foreign markets through a licensee with little risk to the American company. All sales would be concluded domestically, with the licensee responsible for transporting goods across borders. J.C. Penney began such a program in Bermuda and Aruba, and negotiations were ongoing in Russia, Iceland, Brazil, Panama, and Argentina for additional licensed catalog sales.

"Going global", as retailers call it, is an important issue in international commerce, especially as technology increases and trade barriers are broken. However, the Asian economic crisis is making several retailers think twice. Stores magazine reported in its February 1999 issue that, "The economic turmoil in Asia left most of that region in recession, and, as a result, consumer spending contracted sharply. In rapid succession, worrisome news from Russia and several South American countries gave rise to talks of global economic meltdown." However, European spending was steady due a strong economy, and with the Euro expected to become the Continental currency in 2002, entering that market will appear more attractive to stores.

Research and Technology

Despite the sluggish retail forecast in the mid 1990s, department store companies continued to invest in technology. Using computer technology, such as inventory management systems and point-of-sale bar code scanning, provided a tremendous advantage for stores trying to regain their competitive edge. Many stores gathered data from scanners at the point-of-sale (POS), which identified for managers peak selling periods and allowed them to better shape work schedules. This data also showed managers exactly what products were selling, which helped in keeping the stores fully stocked and in forecasting upcoming selling trends.

For example, J.C. Penney implemented a state-ofthe-art, automated, merchandise replenishment system. This computerized program triggered orders based on projected sales demand so that stores were constantly stocked with basic merchandise items. Orders were processed every week instead of every two to four weeks. J.C. Penney also operated an information network based on seven large mainframe computers and 120,000 terminals, which processed about 700 million retail transactions annually.

With that technology in place, most industries, including the retail industry, came face to face with the pressures of the Internet. With the advent of online retailing—e-tailing—Internet sales are predicted to reach astounding numbers in just five years, and many department stores have begun to implement some form of online purchasing. J.C. Penney now has its catalog available for online shopping, Sears offers many products available on its site, and the May Company offers gift card purchase on its division's Web sites. Tom Reynolds, an Ernst & Young director, stated in a Chain Store Age article that, "There will always be a need for brick-and-mortar retailers with improved buying experiences. But to succeed into the next century, they'll have to respond to what's emerging on the Internet, and even consider it as a primary way of doing business."

Retail information technology professionals are becoming more in demand as well. As international expansion is forecast, these professionals will be called upon for technology guidance and telecommunications expertise. POS systems, among other computer systems, will have to be updated to handle foreign currency and tax issues. Their knowledge will also be required for Internet business. As technology changes quickly, stores will be faced with challenges to keep up pace with other retailers and increased competition.

In a news release from PR Newswire, J. Roger Friedman, CEO of Lebhar-Friedman, commented: "We began the 20th Century with quaint downtown shops and we finish it with huge shopping malls, e-tailing and international chains featuring uniform quality standards and high customer service."

Further Reading

"Are Department Stores Cruising for a Bruising?" Real Estate Finance and Investment, 14 January 2002, 7-8.

Benston, Liz. "Montgomery Ward's Completes Renovation." Centre Daily Times, 1 November 1999.

Berner, Robert. "Dark Days in White Goods for Sears." Business Week, 10 March 2003, 78.

"The Best of Century." PR Newswire, 29 October 1999.

"Big Business Meets the E-World: Sears? Whirlpool? Now Even These Guys Want to Create E-business." Fortune, 8 November 1999.

"Boom Time." Daily News Record, 16 December 2002, 40.

"Braving New Worlds." Chain Store Age, September 1999.

Clark, Evan. "Lands' End Growth Continues at Sears." WWD, 11 March 2003, 11.

"Department Stores: Market Share Erosion Continues." Standard & Poor's Industry Surveys: Retailing, 28 November 2002, 8-9.

Finn, Stephen. "E-Commerce Will Lead to Fewer New Physical Stores." Chain Store Age, September 1999.

Jones, Sandra. "Big Layoffs to Hit Big Store." Crain's Chicago Business, 24 March 2003, 1.

Larson, Kristin. "Cracking the Matrix: Stores Seek Diversity with New Vendor Mix." WWD, 12 June 2002, 1.

Lillo, Andrea. "Department Stores Show Biggest Comp-Store Drop." Home Textiles Today, 16 July 2001, 45.

Lipke, David. "Critical Mass: As the Market Shrinks, Mass Merchants Continue to Win Apparel Dollars from Department Stores." Daily News Record, 2 December 2002, 19.

"Major Stores Spread Out." WWD, 19 March 2003, 18.

Moin, David. "Penney's Big Kiss: Signs Bisou Bisou in a Bid for Brands." WWD, 4 December 2002, 1.

Moin, David, Arnold J. Karr, Evan Clark, and Jennifer Weitzman. "Consolidation Fever: Which Store Logos Could Vanish Next?" WWD, 11 February 2003, 1.

Ostroff, Jim. "Peace Won't Erase Retailers' Problems." Kiplinger Business Forecasts, 1 April 2003.

Palmieri, Jean E. "Radice the Radical." WWD, 18 November 2002, 14.

"Penney's Sells Credit Card Division." HFN, 25 October 1999.

Reynolds, Tom. "Retailers Must Speed Ahead With Emerging." Chain Store Age, September 1999.

Scardino, Emily. "Battling for the Middle Ground." DSN Retailing Today, 16 December 2002, A3-A5.

Schultz, David. "The Nation's Biggest Retail Companies." Stores, July 1999.

"The Shifting Global Marketplace." Stores, February 1999.

"Stellar Gains Weaken Slightly in August." Chain Store Age, October 1999.

Tucker, Brian. "Change Must Come at Department Stores." Crain's Cleveland Business, 30 September 2002, 10.

U.S. Census Bureau. Statistical Abstract of the United States: 2002, 2002. Available from .

U.S. Department of Labor, Bureau of Labor Statistics. 2001 National Industry-Specific Occupational Employment and Wage Estimates, 2002. Available from .

Vincenti, Lisa. "Open-Door Policy: Target Canada." HFN, 13 September 1999.

"Warm Weather Thaws Retail Freeze." WWD, 15 April 2003, 2.

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