For more than a century, department stores were a cornerstone of American retail. The stores offered convenience and a wide (and well-merchandised) selection of products under one roof. From the iconic days of Macy's, JCPenney, and Sears to the bustling mall anchor stores of the 1980s and '90s, department stores defined the shopping experience for U.S. consumers. Fast-forward to the 21st century, and we see the influence of these retail giants wane, regional and local department stores disappearing and/or folding into others, and now many are looking at the potential “death of the department store."
Several factors drove the shift: historical trends, economic forces, suburban sprawl, technological disruption, the evolution of e-commerce, and changing consumer behaviors. Purchase fulfillment moved from batch processing and longer delivery times, exemplified by catalog sales, to a rapid delivery network prioritizing speed and individual item handling. This shift is largely driven by consumer expectations of swift gratification, where the ability to order a single item and receive it quickly has become “table stakes” for retailers.
Although the traditional department store format is becoming less relevant in today's rapidly changing retail environment, it may not disappear entirely, assuming these retailers can adapt and evolve to meet the needs of today’s shopper preferences and expectations.
Historical Context: Rise and Dominance
In the late 19th and early 20th centuries, department stores emerged as a powerful force in the retail landscape, a period marked by the urbanization of America and the growth of the middle class. These stores transformed the shopping experience by offering a wide array of products, many from international designers unknown at the time to the American audience. Assortments ranged from clothing and home goods to cosmetics and automotive care — all under one expansive roof.
Iconic stores such as Macy’s, founded in 1858, Sears in 1886, and JCPenney in 1902, quickly became household names, evolving into national institutions. Beyond mere retail spaces, these stores served full catalogs of assortments long before the internet, while also serving as cultural landmarks and bustling social hubs.
Following World War II, the economic prosperity of the era further cemented the role of department stores in American culture. The advent of freeways leading to suburban shopping malls in the 1950s and '60s positioned department stores as central anchors within these sprawling complexes, ensuring a steady stream of foot traffic and years of profitability.
Cracks in the Foundation
The seeds of decline for department stores were planted far earlier than the dramatic decrease in sales and popularity became painfully obvious, but economic growth generally and surges in consumer spending masked emerging challenges.
1. Overexpansion / Market Saturation
Department stores expanded aggressively in both urban centers and suburban malls. By the 1990s, there were simply too many stores chasing too few customers. The resulting saturation diluted brand identity and strained margins, making it harder for stores to differentiate themselves.
2. Consolidation and Rise of National Brands
Department store consolidation over the last 25 years has reshaped the retail landscape, with mergers and acquisitions driving a stark decline in the number of independent chains and the growth of retailers with a national footprint. For example, Macy’s acquired chains like The May Department Stores Company, which included Famous-Barr, Filene's, Foley's, Hecht's, Kaufmann's, Lord & Taylor, L.S. Ayres, Marshall Field's, Meier & Frank, Robinsons-May, Strawbridge's, and The Jones Store, as well as earlier acquisitions like I. Magnin and Bullock's.
3. The Rise of Big Box and Discount Stores
Retailers like Kmart, Walmart, Target, and Kohl’s offered comparable products at lower prices and with more efficient operations. Specialty retailers like Best Buy, The Gap, and Bed Bath & Beyond chipped away at departments that once had little competition. Consumers gravitated toward these retail category killer alternatives for value, convenience, focused assortments, and better customer service in-store. These stores were also typically “off mall” and thus created a new shopping mecca: the “Lifestyle Mall.”
Technology Tidal Wave: E-Commerce and the Amazon Effect
Perhaps the most impactful factor in the decline of department stores was the sudden rise and continued growth of e-commerce, particularly after 2010. By the late 1990s, traditional retailers, including those in the big-box, department store, and other sectors, started feeling the pressure from online sales. Many struggled to adapt to the changing consumer landscape, leading to store closures and bankruptcies.
By the early 2000s, the rise of mobile e-commerce, with consumers increasingly using smartphones and tablets for online shopping, further accelerated the decline of traditional brick-and-mortar stores and hit department stores especially hard. There was a drastic reset in shopper expectations. Suddenly, “table stakes” for competing in retail success included:
• Convenient shipping options
• Easy returns
• Online product reviews
• Personalized recommendations
• Seamless online experiences
• Endless assortments and user reviews
• Competitive pricing
The Omni-Channel Challenge
E-commerce fundamentally changed shopping, offering instant and constant availability and often better pricing. Logistics and fulfillment companies, including “in-house” operations like Amazon Prime’s fleet, effectively scaled to meet the ever-increasing demand, further fueling consumer expectations around rapid order fulfillment. Department stores, burdened by their investment in physical locations, were sluggish in adopting this digital revolution. As a result, by the time they developed strong online presences and integrated their inventory, they had largely lost their chance to be leaders in this new market, especially considering the explosion of brand-owned .com sites and the ability for smaller retailers to now compete for traffic hundreds of miles away.
Retailers trying to operate in both the online and physical realms faced significant financial and logistical burdens. Establishing fulfillment centers, handling returns efficiently, and upgrading technology required major investments — resources that many older department stores simply did not possess or could not access quickly enough to remain competitive.
Changing Consumer Behavior
As e-commerce gained traction and grew at breakneck speed, the fundamental transformation in consumer preferences presented challenges and opportunities within the retail sector. Modern shoppers became increasingly better informed, driven by a desire for value that encompassed more than just cost, and prioritized engaging experiences.
The traditional department store model, characterized by its wide but often undifferentiated product selection (e.g., relying on a single trendy item stocked across numerous locations), exposed significant working capital, failed to meet increasingly specific shopper demands, and generally did not provide the comprehensive experience desired by a changing consumer base. Compounding these issues, big-box retailers and even membership clubs frequently offered the same brands and comparable product ranges at considerably lower prices. The expansion of direct-to-consumer (DTC) brands represented a further significant shift in the competitive landscape. By establishing direct online channels for consumers, these companies fostered strong brand engagement and provided unique product propositions and more personal interactions. The model found considerable traction among consumers who value direct engagement and a stronger sense of connection with the brands they patronize.
The U.S. Economy and the COVID-19 Tipping Point
The COVID-19 pandemic was a tipping point, accelerating trends that were already in motion. Lockdowns forced consumers to shop online, and many department stores, already financially fragile, could not survive the sudden drop in foot traffic. Major players like Neiman Marcus, JCPenney, and Lord & Taylor filed for bankruptcy in 2020, and Macy's announced the closure of over 100 stores by 2023. Even as stores reopened, many shoppers did not return, solidifying new habits such as online shopping, curbside pickup, and digital-first brand discovery. Furthermore, traffic data indicated that even when consumers returned to shopping malls, their destinations were often likely to be entertainment venues or dining establishments.
The decline of department stores is clear in various data points: in 1990, they accounted for 14.5% of U.S. retail sales, but by 2024, this share had fallen below 1.8%. Between 2017 and 2023, over 50% of mall-based department store locations closed, and employment in the sector has declined by more than 40% over the last two decades.
The fate of department stores is closely linked to that of American malls, which have suffered similar pressures such as overbuilding, declining foot traffic, and competition from digital platforms. The closure of department stores, which traditionally served as mall anchors, has led to lower foot traffic and shuttered smaller retailers, reducing mall valuations. Some malls have tried to reinvent themselves as lifestyle centers, medical hubs, or mixed-use developments, but the transition has been uneven.
Lessons from the Decline
Despite the stark decline, some department stores have managed to survive through significant reinvention. Nordstrom invested early in e-commerce and omni-channel experiences, offering in-store pickup, free returns, and strong customer service, while its Nordstrom Rack outlet concept has remained profitable. Macy's has experimented with smaller-format stores and digital enhancements, although its core brand continues to struggle with relevance. Dillard's has remained financially stable by avoiding overextension and being less dependent on malls.
The downfall of department stores offers several lessons:
- Failure to Adapt to Digital Reality: Delayed investment in technology created lasting deficits.
- Loss of Differentiation: Department stores became indistinguishable from each other.
- Outdated Real Estate Models: Heavy reliance on large physical spaces in declining malls became a liability.
- Disconnected Customer Experience: Traditional service models did not evolve to match modern expectations.
The Road Ahead – Extinction or Evolution?
The decline of department stores reflects deeper transformations in commerce, culture, and technology. It is not just about business missteps but about fundamental changes in how Americans live, shop, and connect with brands. While the traditional department store may be fading, its essence—convenience, variety, and aspiration—lives on in new retail formats. Success in this evolving landscape will depend on blending digital agility with authentic, personalized, and meaningful experiences.
Some department store chains are recognizing the need for radical transformation and are experimenting with new strategies to revitalize their businesses. These efforts include:
- Focusing on Experience: Creating more engaging and interactive in-store environments, offering services like personal styling, workshops, and events to draw customers in.
- Curated Assortments: Moving away from overwhelming breadth to offer more carefully selected and exclusive merchandise that differentiates them from online retailers and discount stores.
- Enhanced Omnichannel Integration: Investing in seamless online and offline experiences, using their physical stores for fulfillment, returns, and customer interaction.
- Leveraging Data and Technology: Utilizing data analytics to understand customer preferences and personalize offerings, and implementing technologies to improve efficiency and the shopping experience.
- Right-Sizing Store Footprints: Closing underperforming locations and focusing on smaller, more strategically located stores.
- Building Partnerships: Collaborating with popular brands and designers to create exclusive collections and drive excitement.
While we have witnessed the end of department stores’ dominance in determining how we shop, for those willing to evolve, to get creative, and to fundamentally rethink how they fit into the lives of shoppers, there is potential opportunity to not just stay afloat, but to find new meaning and connection with consumers. This changing retail environment might not mean these stores vanish entirely, but rather that the landscape is being redrawn, potentially leading to smaller, more adaptable stores that prioritize creating memorable experiences. Ultimately, the future of department stores hinges on the embrace of evolution or face continuing down the road to extinction.
How Ankura Can Help
Navigating today's complex retail landscape demands an integrated and cross-functional approach. Our team brings together deep expertise in supply chain operations, financial strategy, and market intelligence to deliver comprehensive solutions that address immediate challenges and build long-term strategic advantages.
What sets us apart is our commitment to implementation and tangible results. Unlike traditional consulting that often focuses on analysis, our methodology prioritizes delivering measurable value from the outset. We begin with a rapid, data-driven assessment, typically completed within 2-3 weeks, that provides immediate action steps, not just insights. We then collaborate closely with client teams to develop and implement an actionable roadmap, prioritizing initiatives based on their impact, feasibility, and speed to value.
The retail environment will continue to evolve, requiring organizations to build adaptable capabilities. Ankura's approach is designed not just to address today's pressures but to position retailers and suppliers to succeed in a dynamic market.
Contact us and take the first step toward building resilience and achieving your goals in today's retail world.
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
