Experts say that the recent closing of Bon-Ton and ongoing struggles of department stores are linked to the death of the middle class in the United States.
As the middle class has shrunk, high-end and budget stores have become the most successful areas of the retail sector.
According to a Deloitte study, revenues have grown 81% and 37% at high-end and budget stores, respectively, in the last five years. Meanwhile, stores in the middle range have seen a 2% increase in sales.
It was widely considered that the department store was the latest victim of the retail apocalypse, suffering from an industry-wide issue of sales increasingly shifting online while foot traffic to malls has slowed.
The rise and fall of department stores
The rise and fall of department stores
Founded in 1858, Macy's was one of the first American department stores. It started as a small dry goods store in New York City, but later expanded to 11 adjacent buildings to form a department store.
On its first day in October 1858, Macy's made $11.06, equal to around $300 today.
Before Sears opened a fully air-conditioned, retail store in 1925, it sold products through mail-order catalogs for 40 years. By that time, Sears was already a household name, known for its affordable prices.
By 1927, Sears had launched 27 stores, mostly in Chicago.
James Cash Penney launched his first store, called the Golden Rule, in 1902 in Kemmerer, Wyoming. By 1913, he had opened 34 (non-mall) stores, which he consolidated under the JCPenney Company name that year.
In 1874, Macy's opened its first holiday window display in NYC, which featured porcelain dolls from around the world and scenes from Uncle Tom's Cabin. Shoppers traveled in droves to see the display.
A half century later, Macy’s employees started its famed Thanksgiving Day Parade (originally called the “Macy’s Christmas Parade”), which featured live animals from the Central Park Zoo and attracted 10,000 people.
Macy's spearheaded the one-price system that most American stores use today (which eliminated the common practice of bargaining). It was also the first department store to advertise full refunds when it opened.
Additionally, Macy's was the first clothing store to have a liquor license (which it acquired in 1862) and a Santa Claus during the Christmas season.
(Photo by NBC/NBCU Photo Bank via Getty Images)
Sears had more than 600 stores when World War II began in 1941. The chain ventured outside the US for the first time when it launched a store in Havana, Cuba in 1942. That store was followed by others in Europe, Central and South America, and Canada.
By 1941, JCPenney Co had expanded to 1,600 stores in 48 states (all except Hawaii and Alaska). Most of the stores were in outdoor shopping centers.
The State Historical Society of Missouri
In the 1950s, the three chains began anchoring indoor shopping malls, many of which moved from American cities to the suburbs.
Sears was the nation’s largest retailer by revenue until the late 1980s, when Walmart surpassed it.
Online shopping became popular in the 2000s, and department stores started experienced a slow decline. In 2008, retail sales decreased by a record 4.1%, and as much as 28% for some department stores.
From 2007 to 2009, at the time of the Great Recession, department store employment also fell by 132,000 jobs.
(Photo by James Leynse/Corbis via Getty Images)
Due to declining sales, Macy's, Sears, and JCPenney have collectively closed hundreds of stores in the past decade.
"We've reduced risk by eliminating a lot of our pension liability, reducing the size of our bank facility, we reduced the risk by closing stores and reducing the size of the company," Sears CEO Edward Lampert told The Chicago Tribune in March 2017.
"We're fighting like hell to change the way people do business with us."
Today, Macy’s still anchors Herald Square as the world’s largest store, and an upcoming renovation will bring its total retail space to 1.1 million square feet. At the same time, the chain plans to close at least 100 stores across the US.
Since a department store often pays a large part of its mall's lease, a closure can cause smaller shops throughout a mall to shutter. Some analysts project that nearly 25% of American malls are in danger of losing their anchor stores.
America's department stores could rise again if they manage to adapt to today's shoppers, many of whom want to shop online.
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However, some experts say that there may be more to the story, and that its decline could also be attributed to larger social changes.
"The middle is disappearing — low and middle-income customers increasingly shop at discounters and dollar stores, forcing retailers that once served these customers, like Bon-Ton and its subsidiary brands, to close shop," analysts from intelligence firm GartnerL2 wrote in a recent report on department stores.
The slow decline of the middle class in America has had an impact on retailers that haven't adapted to the change. Increasingly, the most successful businesses in the sector have become more distinctly split into two sections: luxury and budget stores.
A recent report released by Deloitte titled "The Great Retail Bifurcation: Why the retail 'apocalypse' is really a renaissance" argued that consumers' shifting attitudes towards finances and social issues are at the core of the recent upheaval in retail.
"The vast majority of retail sales — 91% — still take place in brick-and-mortar stores, which means that online shopping represents just 9% of total retail sales. Even though the online channel is projected to grow 11.7%, in-store sales are also projected to grow 1.7% — hardly the stuff of apocalypse," Deloitte analysts wrote.
Instead, retail is changing in line with consumer income divides, meaning that high-end and budget retailers are seeing revenues soar, growing 81% and 37%, respectively, in the last five years, according to Deloitte.
Meanwhile, the middle is being squeezed out and has only seen a 2% increase in sales in the past five years.
For this reason, high-end retailers and discount retailers have become some of the biggest bright spots in the sector, while companies that rely more on middle-class spending, such as department stores Bon-Ton, Macy's, Sears, and JCPenney, have had to close hundreds of stores.