Tag Archives: department store

On the pursuit of efficiency in different types of retailing

Many forms of retailing have experienced transformations aimed at increaising efficiency, especially increasing the size of stores and reducing customer service. As I thought about this, I realized that these changes happened at very different times for differnet types of retailing. I decided it would be interesting to look at the differences in timing.

For general merchandise, the department store came as the very early innovation in the mid–19th century, with large stores offering very broad ranges of goods. But it took a century before the self-service discount department store emerged with very limited assistance within the store and customers paying up front. I looked up some dates and found an amazing coincidence: Walmart, Kmart, and Target were all founded in 1962.

For groceries, the order of innovation was reversed. Piggly Wiggly was established as the first self-service grocery in 1916. But like other grocers at the time, it did not carry items such as meat and produce. The first “true” supermarket, King Kullen, did not arrive until 1930. (This was established by research conducted by the Food Marketing Institute and the Smithsonian!)

Looking at more specialized forms of retailing, Toys “R” Us was early, having been founded in 1957. Home Depot opened its first two home improvement superstores in 1979. Lowes, their largest competitor, was founded decades earlier but did not adopt the big-box format until forced to by the competition from Home Deport.

The coincidences of several large-format retailers being founded at about the same time was not limited to discount department stores. Office Depot and Staples were both established in 1984, with Office Max coming only two years later. Best Buy was originally formed as a specialty audio retailer. It changed to its current name, expanded into other types of consumer electronics, and opened its first superstore in 1983. Circuit City followed a similar evolution, changing its name and expanding to become a general consumer electronics retailer a year later. PetSmart was founded in 1985. Petco started much earlier as a mail-order business. I could not find when they first opened physical stores.

I find it fascinating that the big box stores in so many categories started around the same time in the 1980s. Why then? The efficiency of large self-service stores had been established far earlier with supermarkets and discount department stores. Toys “R” us started as a specialized “category killer” retailer over two decades earlier, and the example of Home Depot had been around for a number of years. And suddenly retailers in very different categories moved in that direction at about the same time.

Segregation of land uses is not new

A great deal of (negative) attention has been devoted to the segregation of land uses in newly developed suburban areas in recent decades. The critique is that the development of exclusively residential neighborhoods and the segregation of commercial activities reduces opportunities for walking, requiring increased automobile use. This is sometimes portrayed as a recent phenomenon, bought on by the widespread use of the automobile.

Some perspective is in order, however. Land use segregation is hardly a product of the latter part of the 20th century. The original cause was not the use of the automobile (though transportation was critical). Rather, the initial separation of land uses in American cities dates to the 19th century.

The pre-industrial walking city at the start of the 19th century had very limited separation of different land uses. Given that interaction was limited by reasonable walking distance, different activities just could not be located that far apart.

As the industrial city emerged in the 19th centure, this changed as enterprises sought to capture the advantages of economies of scale and was made possible by improvements in transportation within the city. First the omnibus, then the horsecar, and then electric streetcars and mass transit increased the distances people could travel to work and shop. Factories increased in size and formed increasingly large industrial areas. Larger enterprises required management by concentrations of office workers. The department store emerged to provide a previously unseen variety of goods to shoppers from throughout the urban area. The offices, department stores, and related retail formed the new central business districts, another area of largely segregated land uses.

Of course not all types of establishments saw these increases in scale in the 19th century. For grocery stores, the changes came later. But this was the start of increasing sizes of enterprises, made possible by improvements in transportation, forming areas of segregated land use.

Transportation and economies of scale in retailing

The automobile may be blamed for the evolution of big-box retailers, but the effect of improvements to intraurban transportation on retailing began much earlier. This can be seen clearly with the development of the department store in the latter part of the nineteenth century.

In the walking city of the early nineteenth century, most urban residents could only move around on foot. This necessarily limited the distances they could travel and the amounts of goods they could carry. Stores tended to be small and rather limited.

Transportation improvements–horsecars, cable cars, electric streetcars, and more–dramatically increased mobility in urban areas. Cities greatly expanded as residents took advantage of the greater ease of travel. Going to the developing central business districts several miles away became feasible.

A larger number of potential customers could travel to a store located in the downtown area, creating a greater market. This allowed the emergence of the modern department store carrying a far larger range of goods with greater selections. More volume provided greater economies of scale to the store in the sale of its merchandise. But these were also economies of scale from the perspective of their customers, who benefited from the convenience, wider selection, and lower prices.

Coming to shop at the department stores via public transportation did have one limitation, however. Customers purchasing large numbers of items or very large items could find it difficult or impossible to carry their purchases back home with them. The stores recognized this problem and offered delivery of merchandise purchased in the various departments of the store.

This evolution depended solely on the transportation improvements made in the late nineteenth century. It had nothing to do with the automobile. Indeed, at least some department stores continued to assume that significant numbers of their customers would come to their downtown stores using public transportation at least into the 1950s. When growing up and shopping at the large downtown department stores in Milwaukee during that decade, the stores were continuing to offer their delivery services. Of course now, the assumption more often is that customers will be arriving by automobile and can take all but the largest items home themselves.