Quicklinks: Summary, products and services | Data | Income and profitability | Expenses | History, strategy and challenges
Summary, products and services
Summary of the department store business: how do department stores work? And how do they make money?
Department stores are large stores that sell a wide variety of merchandise, including clothing, household items, furniture, and cosmetics. They are typically located in high-traffic areas, such as downtowns or shopping malls. Department stores typically have several floors, with each floor devoted to a different type of merchandise. Most department stores are privately owned and operated. They make money by selling merchandise at a higher price than they paid for it. They also make money from rental income, if they own the building in which the store is located. Department stores typically have a large staff of salespeople, who are paid commissions on the merchandise they sell.
What products or services are typically provided by department stores? Give examples.
Department stores typically provide a wide range of products and services, including clothing, footwear, cosmetics, home furnishings, and electronics. They may also offer services such as personal shopping, alterations, and gift wrapping. Some department stores operate restaurants, cafes, or food courts.
What industrial sector is the department store business part of? What is the market operating environment? Describe its market dynamics in different regions of the world.
The department store business is part of the retail industry. The retail industry is a highly competitive and fragmented industry. The market operating environment for department stores is characterized by intense competition, rapid changes in consumer tastes and preferences, and the need for constant innovation and differentiation.
In developed markets such as the United States, Europe, and Japan, the department store business is mature and highly competitive. Within these markets, department stores are facing challenges from specialty retailers, online retailers, and discounters.
Meanwhile in emerging markets such as China and India, the department store business is growing rapidly. In these markets, department stores are benefiting from the growing middle class and the increasing urbanization.
List and description of the five most successful companies in the department store business. How big are they and what is their market value?
The five most successful companies in the department store business are Macy’s, Nordstrom, J.C. Penney, Kohl’s, and Dillard’s. Macy’s is the largest, with a market value of $8.4 billion. Nordstrom is second, with a market value of $6.9 billion. J.C. Penney is third, with a market value of $3.4 billion. Kohl’s is fourth, with a market value of $2.9 billion. Dillard’s is fifth, with a market value of $2.4 billion.
Data
Income: typical streams and percentage of income for department stores
- Sales of merchandise: 70%
- Rental income from leased space: 20-25%
- Income from credit card operations: 5-10%
Expenditure: typical costs and percentage of spend for department stores
- Rent: 10-20%
- Employee wages and benefits: 15-20%
- Inventory: 10-15%
Pricing: Typical pricing of products and services for department stores
- Markup: Typically 100% markup on wholesale
Profit: Typical profit margins for department stores
- Bottom of range: 30%
- Top of range: 40%
Income and profitability
List of the top three sources of revenue for department stores (AKA how do they make money?) – including percentages of income and examples in US dollars for each
The top three sources of revenue for department stores are sales of merchandise, rental income from leased space, and income from credit card operations. Sales of merchandise account for the largest percentage of income for department stores, typically around 70%. In 2018, Macy’s generated $24.8 billion in revenue from sales of merchandise.
Rental income from leased space is the second largest source of revenue for department stores, typically accounting for 20-25% of income. In 2018, Macy’s generated $4.4 billion in rental income from leased space.
Income from credit card operations is the third largest source of revenue for department stores, typically accounting for 5-10% of income. In 2018, Macy’s generated $1.3 billion in income from credit card operations.
Pricing: What are average prices among department stores? How do the market and competition affect this?
Most department stores use what is called the keystone pricing method, which means that they double the wholesale cost of an item to arrive at the retail price. So, if a shirt costs the store $10 wholesale, they would charge $20 for it at retail. This is a very common pricing strategy for brick–and–mortar stores because it is easy for customers to understand.
For example, if a customer sees a shirt that is priced at $20, they know that the store paid $10 for it and is making a 50% profit. This is a simple way for customers to quickly assess whether an item is a good deal or not. Of course, department stores also use other pricing strategies from time to time, such as markdowns, clearance sales, and coupons.
What are the profit margins in the department store business? In a percentage range.
Profit margins in the department store business vary depending on the product mix and the store’s location. Department stores typically have a gross margin of 30-40%.
Expenses
What is the cost to build a department store business? With an example.
The cost to build a department store business can vary greatly depending on the size and location of the store. For example, a small department store in a rural area may cost around $500,000 to build, while a large department store in a major city could cost upwards of $5 million to build. Additionally, the cost of inventory and other operating expenses must be considered when starting a department store business.
What is the staffing cost for a department store business? With specific annual costs and examples in US dollars.
The staffing cost for a department store business can vary greatly depending on the size of the store and the number of employees. For example, a small department store may have an annual staffing cost of $50,000, while a large department store may have an annual staffing cost of $5 million. The following are some specific examples of staffing costs for department stores in the United States:
- Macy’s: $1.4 billion
- Walmart: $2.2 billion
- Target: $1.5 billion
- Kohl’s: $1.1 billion
List and description of the top three ongoing expenses for department stores. What percentage does each represent?
- Rent: This is typically the biggest ongoing expense for department stores, representing anywhere from 10 to 20 percent of their total operating costs.
- Employee wages and benefits: This is the second biggest expense for department stores, typically representing about 15 to 20 percent of their total operating costs.
- Inventory: This is the third biggest expense for department stores, typically representing about 10 to 15 percent of their total operating costs.
History, strategy and challenges
What is the history of the department store business? With examples for each continent of the world.
The department store business has a long and varied history. Department stores first appeared in Europe in the early 19th century, with the first one opening in Paris in 1838. Department stores quickly became popular, and by the late 19th century, they were present in most major cities in Europe and North America.
In Asia, the first department store opened in Tokyo in 1869. Department stores then spread to other major cities in Asia, such as Shanghai, Hong Kong, and Singapore. In Africa, the first department store opened in Cairo in 1896. And in South America, the first department store opened in Buenos Aires in 1899.
What business strategies are used by companies in the department store business?
There are a few business strategies that are commonly used by companies in the department store business. One strategy is to focus on customer service and creating a good customer experience. This can be done by providing helpful and knowledgeable staff, having a clean and well-organized store, and offering a good return policy.
Another strategy is to offer a wide variety of merchandise so that customers can find everything they need in one place. This can be accomplished by having a large store with a wide range of departments, or by partnering with other retailers to offer a wider selection.
Finally, many department stores offer loyalty programs and discounts to regular customers to encourage them to keep coming back.
The business secret some department stores use to make money is?…
One business secret that some department stores use to make money is by offering sales and discounts. This is a common practice among department stores in order to attract customers and get them to purchase items. Another business secret that some department stores use is by having a loyalty program. This is where customers can earn points or rewards for shopping at the store. This loyalty program can keep customers coming back to the store and spending money.
What recent challenges or dramatic events have been faced by companies in the department store business?
The department store business has faced several challenges in recent years. The most dramatic event was the bankruptcy of Sears, which was once the largest retailer in the world. Other challenges include the rise of online shopping, the growth of discount retailers, and the decline of malls. These challenges have led to the closure of many department stores, including Macy’s, J.C. Penney, and Nordstrom.
Interesting facts about the department store business
- The first department store in the United States was Wanamaker’s, which opened in Philadelphia in 1876.
- The first department store in the world was Harrods, which opened in London in 1834.
- The largest department store in the world is Macy’s, which has over 800 stores across the United States.
- The largest department store in Asia is Mitsukoshi, which has over 30 stores across Japan.
- The largest department store in Europe is Galeries Lafayette, which has over 60 stores across France.