Why Did The Department Store Format Come To Be?

My previous posts (A Million Little Pieces and The Mall Effect) postulate product categories sold through department stores will eventually migrate online and that the online channel will soon become their biggest revenue source. But in order to understand this migration lets also explore the birth of the department store. Department format came about as a solution for efficient retail:

– Stores such as Nordstrom act as filters. Their customers can look at the 30 watch varieties carried by the store and be relatively confident about value, quality and style. Nordstrom liked this format.

– An entrepreneur with a new idea needs help with marketing and Nordstrom helps them build exposure. Therefore entrepreneurs with new product ideas like Nordstrom.

Customers enjoy the idea of doing all their shopping at one location.

The convergence of these three preferences makes the department store format a win win solution. But now, with the growing use of ecommerce by the general shopper, brands can start existing independently online. And this change has a far reaching effect. The biggest change is that now entrepreneurs with smart ideas don’t have to get approval from buyers at department stores. They can relatively inexpensively identify their core audience, market to them and see if those early adopters decide to buy online. For products with a more mass appeal department store format will continue to serve as an awesome distribution network but those that demonstrate appeal through their independent online channel should be able to negotiate well (and hard) with department store buyers. Without this change ideas like SLEEPTRACKER might never have seen the light of day (literally).

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