Have you read about it? Store closings! Online retail is killing brick and mortar! Is this the end of malls? Another retailer files for bankruptcy! Is it the retail apocalypse? All of these claims have some validity, but is it really the end of certain retailers, or is it just a change of how retail is done? Let’s explore some of these possibilities in a historical context to give a better understanding of how to invest your money in the industry. This article series is a three-part series, providing a brief of the past, the present, and the future of retail.

The Beginning of Modern Retail: The Mom and Pop Shop

Most of the beginnings of the modern concept of retail stems from colonial times until about the mid 1800s with the establishment of “The Mom and Pop” shops. This would constitute the small business owner that would provide a variety of goods to the local community. A lot of times, the pharmacy down the street would not only have medicine, but also have ice cream, toys, and other treats for the kids. The barber may also be able to provide minor medical work, and the general store had a bit of everything to fulfill your needs. During our Western expansion, such shops (typically owned by a family) were very common.

The “Mom and Pop” shops are still fairly common, as there are millions of individual business owners, partnerships, or small business groups that own their own business. These are the providers of services and goods that may be as general as a coffee shop or fulfill a specific niche that only very few people master the trade.

The Beginning of the Department Store

During the 1850s or so, the industrial revolution, with the establishment of manufactured goods that were being made of a consistent quality, led to what would become known as department stores. These entities developed as a need for displaying goods for those who had more disposable income (due to economic growth because of the industrial revolution) which made the purchasing of goods to not only be based on necessity, but wants and desires.
The concept of shopping started to become more of an event, an opportunity for learning, developing tastes, and building of clients instead of customers. The idea of an experience instead of a necessity began. The department store highlighted customer service and social interaction over convenience. During this time, many said it would be the end of retail with Mom and Pop stores unable to compete with department stores, but retail merely changed.

The Invention of the Cash Register

In 1883, the concept of ringing up a customer, literally, was created with the invention of the cash register. This permitted an easier handling of money (and added security to it) and made the shopping experience easier for the customer, adding efficiency to the experience and eliminating a pain point for both customers and retailers.

The Sears Catalog

The best date to really put the Sears Catalog and how it revolutionized shopping was the mail order process and how pretty much anything (including homes!) could be purchased. In 1896, Sears, Roebuck, and Company provided free rural shipping, which made those hard to reach locations much easier to create a shopping experience for. Arguably, this could be considered the first major venture into omnichannel shopping, as Sears would later establish brick and mortar locations and rapid growth while diversifying its portfolio of goods and services provided. The Sears Catalog revolutionized how retail could be done at the time.

The Invention of Charge Cards

In the roaring 1920s, the concept of credit began. This trend began with exclusive cards that could be used only for specific locations (think of modern store credit cards) and were provided by those businesses where it was used. By the 1950s, the concept of the modern credit card being bank operated and funded was in operation. However, cash was still the primary method of payment during this time. This eventually led to some department stores creating their own banks to handle credit processes as well.

The Rise of the Shopping Mall

During the 1950s and 1960s, along with strong economic growth, the development and an increased government investment of infrastructure led to the development of shopping malls. Instead of going to multiple locations, why not go to one major hub that has a multitude of shops and perhaps some entertainment or places to eat as well? This led to the modern mall concept for major commercial developments that not only provided increased convenience for the customer but greater opportunities for businesses to benefit from the direct foot traffic of other businesses. Shoppers had the convenience of a warm indoor environment while avoiding the hustle and bustle of downtown traffic. During this time, many said it would be the end of retail with downtown businesses closing due to shoppers going to the malls, but retail merely changed.
This led to a new era of shopping, with department stores often being at the anchors of a mall, which would lead to foot traffic for smaller stores and shops to take advantage of during a customer’s shopping experience. Due to the nature and strength of most department stores, they were able to leverage better lease rates (or even ownership) of their specific square footage, further driving higher profit margins. The mall managed the facilities and infrastructure surrounding them and would benefit from the overall appeal of the department store bringing shoppers in. It was a mutually beneficial relationship.

Big Box Retail

During the 1960s, the establishment of our modern “big box” retail also began. It was during this decade that Kmart, Wal-Mart, and Target opened their first major locations and began selling all types of goods at a lower price. The concept of “big box” is to provide a variety of goods like a Mom and Pop store, but at a lower price, with a focus on self-service, convenience and a quick shopping experience. This was the alternative to the relationship building and social interaction appeal of the department store and provided an alternative to going to the ever growing development of the shopping mall.

The Usage of the UPC

The massive use of the Universal Product Code (all those wonderful barcodes you see on price tags) did not become commercially viable until the 1970s (it was invented in 1951 by Norman Woodland and Bernard Silver) when in 1973 George Laurer designed a barcode that created a Universal Product Code for each individual product. This permitted easier tracking of items for inventory control and data collection. This also made price adjustments, management and fairness easier to control. The first use of the UPC was on Wrigley gum in a grocery store in 1974.

The Usage of RFID Technology

Radio frequency identification technology had been around since the 1940s when used for tracking with military and government uses, but during the 1970s this technology began to have rewriteable tags and to be implemented in other ways. During the 1990s, with the development of ultra-high frequency RFID led to a much larger range for tracking. This made the possibility of implementation into retail more feasible, but expensive.
During the early part of the 2000s, the use of Electronic Product Codes (EPCs) led to growth of retail businesses using the technology to better track goods more efficiently. In part, the embracing of this technology helped foster the growth of Wal-Mart and Target. This technology is also utilized by the U.S. Department of the Defense. It drastically reduces inventory issues and helps maximize logistical efficiency. RFID is now finally taking off on a mass scale to help drive more efficiency logistics for most major retailers, while saving on labor via inventory management, asset protection, and fulfillment orders.

The E-Commerce Boom

Arguably the largest most recent influencer would be retailers utilizing the internet to create another potential revenue stream to make money, much like modern day bloggers, article writers, and investors.

Let us get the elephant of the room out here and mention about Amazon (AMZN) becoming an existing entity in 1994 and focusing as an online bookstore being run out of Jeff Bezos’ garage. This was one of the beginnings of a new type of retail that coincidentally coincided with the ending of most mail-order catalogs (including the infamous Sear Catalog). So, much like the Sears Catalog of the end of the 1800s, the Internet began to reshape and change how retail was done by the end of the 1990s. Even movies revolved around the concept of online interaction. So why not retail as well?

The mid and late 90s led to the formation of many online retailers and payment methods (eBay (EBAY) started in 1995, Paypal (PYPL) in 1998). This development makes many of the well-established retailers begin to invest in online storefronts. Especially as Amazon goes toe-to-toe with Barnes and Noble. The dot com burst of the late 90s and early 2000s makes retailers skeptical of online retail, with many considering it to be a fad.

Online Social Media

Over time, the development of online social media and its growth to connect people instantly with the convenience of being able to multitask, or watch cat videos, while talking to an old high school friend. This movement really developed under Facebook, which was created in 2004. This was a program that allowed college students to interact with each other online and stay connected. In 2005, high schoolers were allowed to join. Eventually, by the mid and later 2000s, Facebook was able to gather information and provide targeted ads that best benefitted its users. Social media, also with the development of smartphones, became another avenue for retailers to reach consumers and also became another method for customer service. Social media provides a convenient way for retailers to handle customer complaints and provide users that follow them with information of upcoming sales.

The Great Recession Hits – Rumors of the Retail Apocalypse

During the Great Recession in the mid to late 2000s, many consumers (and their families) experienced economic hardship, which led to much less discretionary spending due to having to pay for needs rather than wants. This established more habits of maintaining healthier credit card debt levels (arguably, but that’s not what this article is about) and changes in shopping habits. With the usage of the Internet, consumers were able to go and price compare products at various storefronts without having to leave their home. This ability to conduct research at home, along with the need to save money began to cut down on the amount of foot traffic within shopping locations, especially shopping malls. From 2010 to 2013, the amount of foot traffic in most malls dropped by approximately 50%. Consumers began searching for more experiences rather than things because experiences last as long as the memory of them do. And this has led to brick and mortar locations scrambling on what to do, ranging from cutting down operational costs to investing heavily on online operations; however, for some, it may be too little too late.
On top of that recent economic experience that has been seared into the newest generations with discretionary income (teenagers, Gen Z, Millennials), these generations grew up or are growing up in an age of technological advancement with smartphones and other electronic devices. These new shoppers know how to navigate various mediums of communication that most older generations are not able to easily navigate. During this time, many are saying it is the end of brick and mortar, but retail is merely changing into something else.

This brings us to where we are today with the highlight of how retail evolves over time. Tune in for Part 2 of the series which will discuss the currents concerns, issues, and opportunities. Part 3 will focus on what lies ahead, the cutting edge, and what the future may hold.