Retailing's dinosaurs: department stores and supermarkets

Business Horizons, Sept-Oct, 1991 by Richard A. Rauch

The two great institutions of American retailing, the department store and the supermarket, are slowly slipping into extinction. The glorious histories of these two venerable institutions--introduced to the American marketplace by Macy's and Wanamaker in the 1860s as traditional department stores and by King Kullen in the 1930s as conventional supermarkets--are highly significant in retailing's development.

At typical department stores, American shoppers have been pampered with average to quite good quality merchandise, customer service levels from medium to high, and pricing from moderate to above average on their clothing, home furnishings, and household goods purchases. The supermarkets have offered low-cost, low-margin, high-volume, self-service operations to satisfy the consumer's total requirements for food and household maintenance products. Both of these establishments presented to the American consumer the convenience of one-stop shopping.

However, changes in the demographic, economic, physical, technological, political, and cultural environments have rendered these institutions obsolete as the American shopper's life-style has changed. Perhaps the size and distribution complexities required to completely operate these impersonal mammoth department stores and supermarkets have contributed to their impending demise. In recent years, both of these institutions have radically altered their physical formats to accommodate the changing needs and wants of the American consumer in an environment of evolving technologies. The proliferation of store formats has paralleled the advent of increasingly intricate technologies and expertise required to efficiently operate the diverse departments of the department stores and supermarkets. They were added to satisfy the insatiable appetite of a more educated, affluent, and demanding marketplace.

The rugged individualists who created and developed the original department stores and supermarkets in the United States have left a heritage to which the retailing industry and the consumers of the world are forever indebted. Now, the vicissitudes of the retail market require an expertise that large store entrepreneurial operations, as well as chain organizations, for the most part do not possess. The very successful Nordstrom's Department Stores and Wal-Mart Stores, as well as the Giant Foods and Wegman Food Markets, are but a small fragment of the many less efficient, multi-outlet operators of department stores and food markets functioning today in the United States. Currently, most of the large retail stores are misusing or neglecting current technologies and available expertise. They are exacerbating the situation by utilizing poorly trained and motivated personnel who adversely affect their merchandising presentations, human interactions, and product logistics.

For a retail merchant to properly position a store today for maximum effectiveness, he or she is well advised to employ segmentation techniques. As an example, James Wood, President of the Great Atlantic & Pacific Tea Company, Inc. (A&P), introduced a matrix depicting different store formats according to their price and assortment/service image. Mr. Wood's store formats include convenience stores, warehouse stores, superwarehouse stores, conventional supermarkets, gourmet stores, and superstores (see Figure 1). I have added hypermarkets because of their importance to the present store format options available to retail food merchants. Wood also introduced a matrix indicating the relative positioning of brands he plans to offer in his future A&P retail food stores (see Figure 2). This indicated the relative price and quality image of generic, store, national, premium, and gourmet brands.

These diagrams could be useful as part of a delineating model for proposed new store or renovation feasibility analyses concerned with site and equipment selection, store size and layout, market analysis, and marketing mix strategies. The importance of "doing the right thing" is evident in this model and precedes the "doing the thing right" of operational efficiency. The use of segmentation resources such as Donnelley's Cluster Plus, Claritas' Prizm, Yankelovich's Monitor, and SRI'S Vals and Vals 2 in conjunction with store format and brand perception analyses can substantially improve the sales and profitability of a new or renovated store (Weinstein 1987). Presently the non-use of available expertise and technology by retail merchants is widespread and hence counterproductive.

A study of supermarket layouts and the resulting effects on sales of perishables conducted by this writer at the Foodtown Supermarkets in Deer Park and Oyster Bay, New York, found "a conclusive correlation between store layout and customer purchases" (Rauch 1986). Due to a store layout featuring diagonal grocery gondolas with a split in the middle of each of them, the perishable product mix was 6.46 percent higher than a comparable store with a traditional straight placement of grocery gondolas without a split in the middle. The study evidenced that "the diagonal layout tends to encourage perimeter shopping as indicated by the customer's shopping patterns." This research also pointed out that "through the placement of store fixtures, consumers may be influenced as to what departments they will shop."