The 21st century begins on a note of irony for the retail industry. As the world moves forward with complex technologies undreamed of 100 years ago, one of the biggest trends is a return to the kind of shopping environment that was popular at the turn of the 20th century.
The urban marketplace has made a dramatic comeback. A staple of both village and urban life for centuries, the central shopping district began to dwindle in importance after World War II as the United States became a more suburban-oriented culture. Its replacement was the shopping center, a physically separate retail locus controlled by a single landlord.
"We're getting back to the original downtown, which was the social gathering place where you went for food, attractions and shopping," says architect Paul Jacob, a senior vice president in the Los Angeles office of Baltimore-based RTKL. "We started to segregate those after the war. Some shopping centers tried to get a little of that back, but as effective as malls are at some things, the standard mall form is not as socially satisfying as urban retailing."
An ancient role Shopping, Jacob says, has been a social experience since people began gathering in marketplaces several thousand years ago. Leaving and coming back to that place has been a long process.
Most sources trace the beginning of modern retail to Paris in the latter half of the 19th century. The Bon Marche, a dry goods store founded in 1838, gradually grew to the point where different categories of merchandise had their own rooms, rather than being lumped together in a common space. By 1860, The Bon Marche was a department store, or magasin.
Scholars disagree about which was the first American department store. Rowland H. Macy opened his dry goods emporium in lower Manhattan in 1857, and like The Bon Marche, it eventually grew into a multi-department store. But John Wanamaker in Philadelphia, Marshall Field inand Jordan Marsh in Boston opened stores in the same period. By 1880, all were full-fledged department stores.
The first Marshall Field store had nearly 200,000 sq. ft. of selling area when it opened in 1871. Given that there were virtually no stores larger than 20,000 sq. ft. before 1860, the bump up in size is truly astonishing. Bazaars and market halls had existed for ages, but the idea of a single merchant controlling so much space and merchandise was unprecedented. And the numbers grew more impressive as the years passed.
Retail innovations The significance of the department store lay not merely in its size and division of departments but also in its merchandising and pricing policies. Products were standardized so they did not vary in quality, measurements or other features. Prices were firmly set, with no bargaining allowed, and they were clearly and prominently marked. Customers were given a receipt with each purchase and could exchange flawed products without difficulty. In addition, department stores advertised their prices in the press and stuck to them.
It would be easy to argue that the grand department stores of the first half of the 20th century effectively were regional malls. Within a few years after it opened in 1901, the current Marshall Field flagship complex in Chicago encompassed 900,000 sq. ft. - larger than most regional malls built before 1990. The difference was that one retailer controlled everything. Nonetheless, as in a regional mall, shoppers could buy virtually anything they needed without leaving the premises.
The same period that saw the birth of the department store also saw the inception of other essential components of modern retailing. In 1859, George F. Gilman and George Huntington Hartford founded what would become the Great Atlantic and Pacific Tea Co. (A&P), generally regarded as the nation's first chain store.
Montgomery Ward and Sears were also formed in this period. Founded by Aaron Montgomery Ward in 1871, the former introduced the concept of catalog retailing and brought the modern world to the once-isolated rural dweller. In 1946, the Grolier Club in New York staged an exhibit of mail order catalogs, calling them "the greatest single influence in increasing the standards of American middle-class living."
According to the exhibit's own catalog, the mail order catalog "brought the benefit of wholesale prices to city and hamlet, to the crossroads and prairie; it inculcated cash payment against crippling credit; it urged millions of house wives to bring into their homes creature comforts which otherwise they never could have hoped for."
Ward, whose early catalogs had been burned by brick-and-mortar competitors, opened his first retail store in 1926. Another national catalog company, Sears, also opened successful retail outlets. Founded in 1886 in Minneapolis, the R.W. Sears Watch Co. adopted a more familiar name in 1893 when Richard W. Sears' assistant, Alvah Roebuck, became a partner.
In 1902, John Cash Penney brought another innovation to retailing when he founded Penney & Callahan's Golden Rule Store in the mining town of Kemmerer, Wyo. (Callahan was a fabricated partner designed to make the business seem more solid.)
Knowing that miners worked long and unpredictable hours, Penney kept the store open seven days a week from 7 a.m. to late at night. Penney, whose business eventually became the first department store to operate in several states, maintained the policy as the chain grew, forcing competitors to follow suit.
Brick-and-mortar boom Chain stores proliferated in this period. In 1914, there were about 24,000. Fifteen years later, there were more than 150,000. Between 1910 and 1931, A&P grew from 200 stores to 15,670, while Penney's grew from 14 to 1,459, according to Encarta online encyclopedia.
Richard Longstreth, author of City Center to Regional Mall:, the Automobile, and Retailing in Los Angeles, 1920-1950 (MIT Press, 1999), attributes the advantages of the chain-store system, such as lower prices, to the efficiency resulting from centralized buying and economies of scale.
He calls the benefits of economies of scale the prime reason for the increase in stores in the first quarter of the 20th century. By 1925, almost every aspect of contemporary retailing not dependent on high technology was in place, including mass merchandising, unified pricing structure, advertising, sales and promotions. The remainder of the century was in many ways simply a refinement of existing themes.
One element not fully developed by the 1920s was display. In 1932, Sears established the first store planning and display department. Previously, merchandise had been fitted into buildings; now, buildings were built around merchandise.
The first Sears to be built from the inside out was the Glendale, Calif., store in 1935. Four years later, Sears opened its Pico Boulevard store in Los Angeles. At the time, a rival merchandising executive paid tribute, saying, "In my long experience in the retail field, I have yet to witness a retail unit which equals Sears Pico Store in practical efficiency, merchandise engineering, operation, layout and presentation of merchandise."
The first shopping center Among the modern retail concepts created in the 1920s was the shopping center, the first of which appeared in 1922, when Jesse Clyde Nichols opened Country Club Plaza in Kansas City, Mo. Though it did not look all that different from many downtowns, consisting of 15 separate blocks of buildings broken by the street grid, with stores opening directly to the sidewalk, it had the unique feature of being built at one time by a single developer.
For the first time, one landlord controlled an entire shopping district. Nichols could dictate design, set rents and impose consistent operating hours, signage, maintenance and other requirements that previously had varied from building to building and shop to shop. Where most shopping districts were a jumble of competing interests, Country Club Plaza was entirely of a piece.
The Kansas City project also marked the beginnings of a shift to the suburbs. While in the heart of the city today, Country Club Plaza was on the urban fringe at the time it was built - a clear sign that more affluent residents wanted to get away from downtown.
According to most historians, the next major step in shopping center development occurred in 1942 with the opening of the retail component of McLaughlin, Wash., a planned community built to house war workers. Residents put in long hours, so all retail was located in a central compound to make shopping efficient. The center also provided additional parking behind and alongside individual buildings.
A model design In 1947, Crenshaw-Broadway Center opened in Los Angeles. With 550,000 sq. ft. of retail and 13 acres of parking, it created a prototype still in use 60 years later, primarily in community shopping centers. In 1956, another prototype emerged, heralding the advent of the regional mall: Southdale Shopping Center in Edina, Minn., which became the first enclosed, climate-controlled regional mall in the United States.
As often noted, the shopping center was an outgrowth of America's shift to a suburban, automobile-oriented culture following World War II. Though most historians say malls followed residents to the suburbs, Longstreth argues that malls led the way.
Through the '60s, he says, most malls were built within or just at the outskirts of existing town boundaries, not in the middle of suburbia. Lloyd Center in Portland, Ore., for example, which opened in 1960, was less than a mile from downtown.
The malls attracted city residents by offering better parking than the older downtowns, he says. It was only as malls established themselves as alternatives to downtown that developers began placing them in significant numbers in the heart of the suburbs.
Time to shop Several factors shaped the suburban mall. The most direct influence was a new planning paradigm that advocated separation of uses, so that residential, office, industrial and retail occupied distinct geographic zones with minimal overlap. City after city was rezoned to achieve the separation as much as possible. New towns were zoned that way from the start.
The role of women was also critical. The amount of time spent on daily household chores was reduced with the introduction of vacuum cleaners, washers and dryers, self-regulating appliances, central heating and other technological advances. And the supermarket made food shopping faster and easier than going from greengrocer to baker to butcher as women had done in the past.
All of this left middle-class women with more time to enjoy shopping as a leisure pursuit. The mall gave them a convenient place in which to do that. And the new shopping environments were attractive for another reason: peace of mind. It was easier to keep track of children in a mall than downtown, and kidnappers, pickpockets, muggers and traffic posed minimal concern (at least back then). Economic stratification and racial prejudice also played a role. All races and classes mingled downtown, but mall patrons were largely affluent and white.
Hard lessons As suburban shopping centers grew to become a fixture of American life, the retail industry went through both good times and bad, learning a number of lessons along the way. Retail centers continued their expansion through much of the 1970s, grew explosively in the '80s, then took a nose-dive in the early '90s. By the middle part of the decade, commercial real estate had rebounded, buoyed by a booming economy.
In the '80s, "development was swept along almost mindlessly by a retail expansion that was fueled more by abundant capital and credit than by market demand," says Parker Neely Jr., a principal of Cornelius, N.C.-based Centurion Development Corp. "Developers now know, as they should have known then, that the availability of cash is not a rationale for unchecked growth."
John Bucksbaum, CEO of Chicago-based General Growth Properties, says the hard times were a wake-up call to the reality of supply and demand.
"Failed shopping centers have shown us that the mentality of 'build it and they will come' does not work," he says. "You must completely understand the customer and the retail demand to successfully operate a shopping center."
That explains the current focus on market research, demographic profiling and the high-tech science of site selection. Other trends include a greater emphasis on mass merchandising, the rise of REITs and the emergence of Internet commerce.
When it comes to recent retail history, Wal-Mart founder Sam Walton certainly deserves his own chapter, says Dr. Deborah Lester, a professor of marketing and professional sales at suburban Atlanta's Kennesaw State University.By selling mass quantities of brand-name goods at lower prices, Walton gained enough power to topple retail's long-established balance of power, Lester says.
"He would require manufacturers to come to Arkansas and meet with him before he would sell their products in his stores," she says. "Often, the CEOs themselves would come. Basically, Sam Walton put power into the hands of the retailers."
Walton inspired the founders of category- killers such as Toys 'R' Us, Staples and The Home Depot. "His stores convinced consumers that it was possible to buy good-quality merchandise at bargain prices," Lester says. "That certainly did help propel the growth in outlet malls."
Coming full circle Shopping centers continue to thrive in the suburbs. But counter trends have developed in recent years, resulting in a rebirth of downtowns across the United States and the diminishing role of the mall as a cultural force.
Busy working women, for example, now demand that retail stores be built closer to their homes and offices. The growth of women in the workplace has "profoundly affected the strategies of both retailers and developers," says A. Alfred Taubman, founder of Bloomfield Hills, Mich.-based The Taubman Co., a leader in the regional shopping center industry for more than 45 years.
"While this trend did expand the wardrobe of the American woman," Taubman says, "it also limited the time available to shop." As a result, retailers are focusing on convenience and service like never before. The trend likely will continue well into the next century, Taubman adds.
'Entertain me' The biggest factor in the shift back to street retail appears to be the development of what authors and economists B. Joseph Pine and James H. Gilmore label the "experience economy." For the consumer, they argue, merchandise has begun to take a back seat to the experience of buying the merchandise.
Paraphrasing a recent article in Forbes, RTKL's Jacob notes that the key to entertainment retail lies in the distinction between shopping and buying. "People buy things they want or need, but they shop for the enjoyment." It is shopping, not buying, he says, that dominates retail today.
Until recently, retail and entertainment remained fairly distinct. Karal Ann Marling, a professor of American studies and art history at the University of Minnesota, says it's significant that Southdale and Disneyland opened within a year of each other. Southdale focused primarily on retail with only a modicum of dining and entertainment, while Disneyland was devoted to entertainment with only a modicum of retail.
But in the 1980s and early '90s, entertainment and retail were brought together as neighbors with construction of two massive complexes: West Edmonton Mall in Edmonton, Alberta, Canada, and the Mall of America outside Minneapolis.
Built in phases in the 1980s, West Edmonton Mall grew to become Alberta's top tourist attraction. It includes an indoor amusement park, an indoor water park, the world's largest indoor lake, and hundreds of retail stores, theaters, restaurants and nightclubs. The Mall of America employs a similar approach and has attracted millions of visitors since it was completed in 1992.
Subsequent projects, such as Irvine Spectrum in Irvine, Calif., the Block at Orange in Orange, Calif., and Sony Metreon in San Francisco, have blended the two roles. Simultaneously, The Walt Disney Co. has begun building a huge shopping and entertainment complex adjacent to Disneyland.
E-commerce and the future The biggest retail question at the threshold to the third millennium is what impact e-commerce will have on the industry. There seems little doubt that Internet shopping will continue to grow, and some analysts suggest this will lead to a radical decline in the demand for real estate.
Jacob says e-commerce will simply push the experience economy further along. Many stores will become showcases first and retail outlets second.
"There will always be the need for the showcase," Jacob asserts. "People want to see merchandise first-hand. They may go home and buy it online, but they will decide what to buy only after seeing it."
The challenge for brick-and-mortar retailers will be to create websites as attractive and easy-to-use as their stores. Borders Books, for example, will not prosper if consumers browse for books in its stores but buy them from Amazon.com.
"The key is not to lose market share, and that's going to mean having both a store people like to come to and a website they want to use," Jacob explains.
Ironically, e-tailers that operate primarily in virtual space have begun to appear in real space as well. Gazoonite.com, Drugstore.com, 800.com and others have opened at least one brick-and-mortar operation, creating their own real-world showcase stores. GMBid.com opened a 10,000 sq. ft. showroom on Rodeo Drive in Beverly Hills and plans to open others in New York, Chicago, London and other world-class metropolitan markets. Pre-sumably, other "dot.com" retailers will also follow.
Learning from Las Vegas What the year 2100 will hold for retail is anybody's guess. But in coming years, the industry likely will face familiar challenges. "The fundamentals of location, convenience, safety and merchandise mix will be as relevant in the 21st century as they were in the last 100 or 1,000 years," Taubman predicts.
For his part, Jacob expects a move toward greater extravagance and excitement - Las Vegas style. High-profile projects in the desert city have "upped the ante" in terms of design, he says.
"Once enough people experience these projects, they're going to expect a much higher level of detail and adventure (in ordinary retail developments) than they have in the past," Jacob says.
Anyone who doubts the likelihood of such a trend need look no further than the working-class town of Bakersfield, Calif., where construction is slated to begin on the Grand Canal Port of Bakersfield, a 565,000 sq. ft. retail and entertainment center that replicates Piazza San Marco in Venice.
The project by Daystar Development of Woodland Hills, Calif., will include a 3.5-acre, 50-foot-wide canal spanned by seven pedestrian bridges. Props range from a replica of a Renaissance-era Venetian merchant ship to gondolas with singing gondoliers. Unlike its Las Vegas progenitors, the Grand Canal, however, will not have high-end retailers. Tenants will be primarily power center and factory outlet retailers.
So get ready, America. The new century may bring the world to your doorstep.