Organizations and Markets

Economics of Department Stores

27 November 2006 at 11:12 pm Peter G. Klein 2 comments

| Peter Klein |

Speaking of diversification, decentralization, and the effective use of local knowledge, Lynne Kiesling offers some interesting commentary on the economics of department stores. Department stores have been doing well in the last few years. Notes Lynne:

A retail business model originating in the late 19th century, the department store for decades epitomized elegance, convenience, ubiquity of options. Then in the 1990s the department store fell on hard times as nimble, smaller retailers struck better production and/or procurement contracts, had more direct contact with the preferences of consumers, or were able to offer niche products to enable consumers to craft their own, individual, modern images. . . .

I am not convinced that the large department store that is managing many brands and a national image can be more nimble than a specialty store, and nimbleness is what a department store will require to become a successful complex adaptive system.

Again, we have a problem of selective intervention. Imagine a department store that operates like a shopping mall, providing space and transaction management for individual vendors, and centralizing particular functions (marketing, sales, customer support) only when doing so generates net gains. Amazon.com and Ebay have shown how such a model can work in virtual space. If equally decentralized, why can’t a department store be as good — as a complex adaptive system — as a set of specialty retailers?

Entry filed under: - Klein -, Management Theory, Strategic Management, Theory of the Firm.