Mass Distribution: The Department Store

Modern department stores appeared almost simul- taneously in many American cities, growing most profusely in New York City—the largest urban market in the nation. In all cities they evolved from much the same sort of background, carried on much the same strate- gies of expansion, and adopted much the same type of internal operating policies and administrative procedures.

Many of the first major department stores in New York and Chicago began as less profitable and smaller adjuncts to a wholesaling establish- ment. During the 1870s Marshall Field’s palatial retail store accounted for only 15 percent of Field’s total sales and about 5 percent of its profits. The same was reportedly true of Stewart’s in New York. Throughout his life- time Alexander Stewart concentrated on his wholesale activities. As late as 1876 his firm built a branch wholesaling establishment in Chicago. In Philadelphia John Wanamaker, after developing a highly successful retail store, considered wholesaling at least as promising. Wanamaker purchased Hood, Bonbright & Company, the largest wholesaler in that city and two other wholesale dry goods houses.47 Nevertheless, after the 1880s retailing became more profitable than wholesaling. Stewart’s venture in Chicago failed; retailing remained the center of Wanamaker’s activities; and retailing became increasingly important to the prosperity and profits of Marshall Field.

The department store appeared when an establishment which retailed dry goods or clothing began to add new lines such as furniture, jewelry, and glassware.48 Alexander T. Stewart built the first large dry goods retail store in 1846—the famous Marble Dry Goods Palace. Although he may have added a few lines, until 1862 the Palace remained essentially a store for selling cloth, thread, sheetings, ribbons, and other dry goods. Then when Stewart constructed a still larger establishment up Broadway between 9th and 10th Streets, he added other lines and became a full- fledged department store. While Stewart’s business did not survive many years after his death in 1876, most of his imitators are still in operation over a century later. Arnold Constable built its Marble House in 1857 and a larger department store in 1877. In 1858 Lord & Taylor was completing “a new and elegant marble structure,” and in 1872 it too moved further uptown above 20th Street and built a still more massive building to house a department store. Rowland Macy began as a retailer of fancy dry goods in New York in 1858 and expanded during the 1860s by taking over adjacent stores and adding new lines. Macy’s had become a department store before 1870.

Macy’s represents a second department store lineage, those that grew out of small retail clothing or dry goods enterprises rather than from large wholesaling establishments. Others to grow in this manner included Bloomingdale’s, which became a full department store in the late 1870s, and Abraham & Straus, which began to do a thriving business in Brooklyn after 1883 when the completion of the Brooklyn Bridge gave that borough direct access to Manhattan. Still other New York department stores to open in this period included B. Altman & Company (its large store was built in 1876), Best & Company (store built in 1879), and Stern Brothers (store in 1878). All of these survived into the second half of the twentieth century. Two that did not were John A. Hearn and Sons, and Bowen, McNamee & Company.49 In a very short time—less than two decades—the largest department store complex in the world had been created in New York City. The stores founded in the 1860s and 1870s account for almost half of the leading department stores in New York a century later. Most of the others—Peck & Peck, Henry Bendel, Bonwit Teller, Franklin Simon, Bergdorf Goodman, Lane Bryant, and two branches of out-of-state stores, Wanamaker’s and Gimbel’s—were in operation by the first decade of the twentieth century.

The swift growth of the department store in the years immediately following the Civil War came first in New York precisely because it had become the largest concentrated urban market in the nation and one of the greatest in the world. In 1870 the population of New York (including Brooklyn) was 1,338,000, as compared to 674,000 for Philadelphia, 251,000 for Boston, and 299,000 for Chicago.50 In these and other American cities, the timing of the coming of the department stores and the number established correlated closely to the growth of the city.51 In Philadelphia, dry goods merchants Strawbridge & Clothier, and a men’s clothing retailer, John Wanamaker, opened department stores in the years immediately after the Civil War, as did Jordan Marsh and R. H. White in Boston. At this same time Carson, Pirie, Scott & Company and the Mandel Brothers began to compete with Marshall Field in Chicago. In the late 1870s Hutzler’s began operations in Baltimore and Woodward and Loth- rop in Washington. In 1879 E. J. Lehman opened The Fair in Chicago which, with San Francisco’s Emporium, was among the few major department stores that did not come out of the dry goods and clothing trades. In the 1870s and the early 1880s J. L.Hudson had its start in Detroit, F. & R. Lazarus in Columbus, and John Shillito in Cincinnati. In 1887 Adam Gimbel, who had built a Palace of Trade in the 1870s in Vincennes, Indiana, began his move to more profitable territory by building a similar store in Milwaukee, then in 1894 in Philadelphia, and finally in 1908 in New York. The Emporium and I. Magnum came to San Francisco, and the J. W. Robinson & Company to Los Angeles in the 1890s. The first decade of the twentieth century saw the opening of Bullock’s in Los Angeles, Rich’s in Atlanta, and Nieman-Marcus in Houston. In nearly every large city, and indeed in many smaller ones, the story was then much the same as New York. The first comers rarely faded away, but as the city grew, room was available for newcomers.

These establishments, which became department stores by adding new lines to their original ones, continued to grow by putting in still more lines and expanding the volume of existing ones. Their offerings remained, however, largely in clothing, dry goods, and household goods. Those that continued as wholesale houses moved more slowly into new lines than those that grew out of small retail shops. Thus Marshall Field, Chicago’s largest mass retailer, carried only dry goods and ladies’ clothing until 1872, when the firm added furs, men’s clothing, carpets and rugs, and upholstered goods.52 No more lines were added until 1889 when the able and innovative Harry Selfridge took charge of the enterprise’s retail operations. On the other hand, Macy’s was carrying, by 1869, all the lines that Field came to handle (except men’s clothing), and also furniture, silverware, parasols and umbrellas, jewelry, hats, shoes, and toys. By 1877 books and stationery, china, glassware, crockery, flowers and feathers, and men’s clothing had been added.53 These were much the same lines of goods that came to be carried by the new department stores in New York and other American cities. Thus, in addition to selling directly to the ultimate consumer, the department store also differed from the wholesaler in carrying a much wider variety of offerings.

The internal policies, like the external strategies, were much the same from store to store.54 They were aimed at maintaining the high volume, high turnover flow of business by selling at low prices and low margins. Profits were to be made on volume, not markup. All adopted a “one price” policy. This was, of course, the only feasible policy for an enterprise making thousands of sales by hundreds of sales people. Most followed the policy of accurate descriptions of goods advertised with money-back guarantees if the customer was dissatisfied. Some, like Macy’s, for many years had no charge accounts at all. Others billed monthly, occasionally giving discounts for cash. With large and regular incoming cash flows, they bought, as did the wholesalers, on a cash basis. As they had less incentive to give credit to their customers than did the wholesalers, they probably had lower credit costs. Above all, the mass retailers concentrated on maintaining a high level of stock-turn. This they did by marking down slow-moving lines, by extensive local advertising, and by creating a clearly defined management structure.

Because they sold directly to the final consumer, the department stores spent more thought and more money on advertising than did the largest wholesalers. This need encouraged the growth of still another ancillary distribution institution, the advertising agency. Such agencies, which had their initial growth in the 1850s, concentrated, until the 1880s, on local rather than national advertising. They purchased advertising space and prepared copy for local newspapers and periodicals. They relied heavily on the patronage of the mass retailers. For example, the John Wanamaker account helped to give N. W. Ayer & Son its start in becoming one of the country’s leading advertising agencies.55

The internal organization of a department store differed from that of a large wholesaler only in its selling activities. Because sales were made on the stpre’s premises rather than through traveling salesmen, buyers had an even larger role than they did in the wholesale houses. They not only controlled the buying of different lines—that is, setting price and amounts and specifications of the goods they handled—but also had direct charge of the sales personnel who marketed their lines over the counter. They set up the displays and supervised the writing of advertising copy. Other operating divisions did little more than maintain the building; supervise employees, such as floorwalkers and janitors, who were not directly involved in selling; handle the delivery to customers’ homes; process the advertising; and keep the accounts. Many of the new retail enterprises became, in the words of Edward A. Filene, little more than “a holding company for its departments.”56 Others, like Macy’s, gave the store superintendents more authority. They were responsible for the employment of store personnel, for receiving and marking goods, and for returns and adjustments.

Yet even at Macy’s, as its historian Ralph Hower points out, the purpose of the central organization was “to permit the department heads [buyers] to concentrate upon buying and selling of goods.”57 These department store buyers had, as did buyers in the wholesale houses, full responsibility for the performance of their departments. So “they generally arrogated to themselves complete command within their own bailiwicks and acknowledged no authority except the proprietor’s.”58 At Macy’s too, some of the newer departments—silver, china and glass, and shoes—were leased out. Indeed the lessee of the first two departments, L. Straus & Sons, wholesalers in china and glassware, handled similar departments at Wanamaker’s, R. H. White’s, Woodward & Lothrop’s, Abraham & Straus’s, and J. H. Walker’s in Chicago. (They would become by the late 1880s senior partners at Macy’s and in 1896 its sole owners.)50 At Marshall Field’s the buyers in the retail store differed from the heads of the wholesale departments because they were on straight salary rather than receiving a percentage of profit in addition to a small salary, and they had full responsibility over the sales force.60

For the stores which evolved, as did Field’s, from wholesaling estab- lishments, retail buyers bought through the wholesale organization.

Others like Macy’s, with no wholesaling organization, built up comparable, though smaller buying networks with agencies abroad.61 Again, as in the case of the wholesaler, the department stores often came to manufacture a portion of the clothing, upholstering, and other needlework products they sold, but they rarely took over the control and management of any other types of shops or factories.

The primary test of performance for the department store was exactly the same as it was for the wholesaler. Besides the ratio of gross margins to sales, stock-turn was a basic criterion. Monthly departmental stock-turn figures were compared to those of other lines and to those of the same departments for past months and years. By this test of the velocity of the flow, Field’s retail stock-turn began to rise to about 5 in the late 1870s and 1880s. It fell to somewhat below 5 in the latter part of the decade and then rose and remained above 5 during most of the twentieth century. After 1890 retail stock-turn stayed consistently above that of Field’s wholesaling business.62 At Macy’s the turn was higher, running 6 times for a half a year in 1887, indicating an impressive rate of stock-turn for the year of 12. That record doubled the average rate of stock-turn for department stores in the twentieth century.

Such velocity of stock-turn permitted mass retailers to take lower margins and to sell at lower prices and still make higher profits than small specialized urban retailers and the wholesalers who supplied them. In New England and comparable urban, industrial areas, department stores quickly made serious inroads into the trade of the jobbers and retailers. By the end of the century these stores had almost eliminated the middleman. One witness before the Industrial Commission of 1899 reported that, where there had been dozens of dry goods jobbers in the wholesale section of Boston in the 1880s, only four remained.63 Not surprisingly, in the 1880s and 1890s such competition brought a strident protest from small urban retailers and their suppliers.64 They demanded state legislation to protect them from the department stores’ lower prices.

But they met with little success. The urban retailer was not yet a significant political force. In 1900 the rural population still outnumbered those living in towns and cities with over 2,500 inhabitants. Nor did the retailers have more than sporadic support from their suppliers, for the rise of the department store did not affect what was still the wholesalers’ major market—the country store. As late as 1900, 60 percent of Marshall Field’s profits and 75 percent of its sales still came from wholesaling primarily to the rural market. At the end of the century, however, the country store- keeper and the wholesaler who stocked his shelves were beginning to feel vigorous competition from another type of mass retailer, the mail-order house.

Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.

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