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The Department Store Model – Brands As Brand Aggregators

January 23, 2017

Department store.jpgWhat a strange beast is the department store. A product of the industrial age, when the populations of cities suddenly grew at phenomenal rates, the department store was the small town general store on steroids. In 1886, Richard Sears started his mail-order business to compete with the general store for the rural customer – that is to say, most Americans. But, in 1920, the urban population surpassed the rural population for good. Mail order was no longer the most profitable business model. In 1925, Sears grudgingly opened his first retail store. It was an immediate success. In less than 20 years, there were more than 600 Sears department stores in the US. And not just Sears. Macy’s, Saks, Montgomery Ward, all manner of competing stores opened and succeeded in rapid order. Some catered to a luxury market, some to a discount market. It seems like every neighborhood had, nearby, a huge store where goods for the whole family could be readily purchased. But, now, with the advent of the internet, mail-order (Or should we say email-order?) is the convenient way to shop again. So what happens to these big stores?

The internet is wreaking havoc on retailers in general but on department stores in particular. We no longer need department stores to aggregate all sorts of products into a single location. We no longer need to leave home for items, like socks or frying pans, that do not need our personal inspection before purchasing – especially when returns are so easily managed.

Ironically, department stores online do make sense. There, it is useful to aggregate many items in one ecommerce site. Shopping can be done more efficiently, there’s only one checkout process and deliveries are more easily managed. So lost revenue from physical locations is, in part, being recovered online.

Department stores are downsizing, closing unprofitable locations and squeezing the wholesalers that supply them with goods to sell. According to Reuters, although department stores are seeing their revenues fall, they are still maintaining their profitability. So there’s hope the drop in revenue will bottom out soon.

Branding the department store itself presents a special challenge. No one shops for the store, they shop for what’s in the store. It is the amalgamation of specific brands and price points that defines the store’s brand. Here the stores are showing mixed results. Every shopper knows what to expect when walking into a WalMart vs. a Target vs. a Macy’s. But some, like J.C. Penny’s are less well-defined. As a result, J.C. Penny is struggling more than the others.

Hospital.jpgBut here’s something worth noting. The department store model of branding is employed by other kinds of businesses as well. Think of all the brands out there that are actually a collection of other brands. Shopping malls, for instance. If department stores are brand aggregators, what is a shopping mall that has two or three department stores as anchors, plus dozens more smaller retailers?

What about professional services firms? Most big law firms are named for founding partners who are long gone and whose reputations mean nothing to the firm’s current clients. Today’s clients are drawn to specific attorneys or practice areas within the firms that have brands of their own. The same can be said of CPA firms, financial services firms and others. Universities, hospitals, cities, they’re all aggregators, all defined by the brands they contain.

So if your brand is a brand aggregator, it could serve you well to take a look at today’s department stores and figure out which one is most like you. Is your brand a Macy’s, a WalMart or a Target? Then market accordingly. Is it a J.C. Penny, with no clear reason for being? Then time to start working on your brand.

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