Department and specialty stores -- like Bloomingdale's and Brooks Brothers, I. Magnin, or Neiman-Marcus -- have traditionally dominated the retail apparel trade. Here a shopper finds, and pays for, quality and convenience. Inventories are large, with a full range of sizes and colors, and service is emphasized.

Such discount stores as Zayre, K mart, and Bradlees are a logical outgrowth of the traditional stores. Born in the late 1940s, discounting reached its peak in the late '50s and the '60s. This is no-frills shopping: self-service and generally without displays, dressing rooms, layaway, or credit. Like the traditional retailer, the discounter carries a full inventory. Since the target audience is less affluent, however, the goods are usually of lower quality, with prices ranging from 20% to 50% below standard retail.

Off-price stores like Loehmann's or Filene's Basement, Marshalls and T.J. Maxx combine the quality goods of department and specialty stores with the plain atmosphere of the discounters. Although both Filene's Basement and Loehmann's Inc. go back more than half a century, the explosion in off-price stores has come in the last decade. The key to off-price retailing is aggressive purchasing by the store, buying goods near the end of the season, or buying irregulars, samples, and garments that were overproduced. Because of this buying strategy, however, inventories are usually quite shallow, with many items not available in every size or color.

The inflationary crunch of the last decade, and the shift in consumer buying patterns it produced, have affected all three types of stores. Consumer spending has withered. And as retailers' costs have gone up, their profit margins have shrunk.

Today's shopper is a more careful consumer than the free spender of the '60s. While consumers in the past might not have admitted they cared about price, today they brag about bargains. Professor Hirotaka Takeuchi, a retail specialist at the Harvard Business School, sees two parts to the "dramatic shift" in buying patterns -- an increased focus on quality as well as on price. "Consumers are saying, if I can't buy more -- because I have less disposable income and because of inflation -- let me buy better," Takeuchi notes. Rather than buying five $20 pairs of shoes, today's consumer will buy one $100 pair.

Discount-store customers, as Jeffrey Edelman of Dean Witter Reynolds lnc. points out, have been hardest hit by the recession, which has had an effect on their shopping. But major discouriters can still improve their market position. Moderateto high-priced merchandise does better than the lower end. Indeed, the bottom end of the market has been so weak that the Allied Stores Corp. chain of department stores has decided not to open budget departments in any new stores.

Traditional retailers have been hit nearly as hard, says John Landschulz, a retail analyst for Mesirow & Co. in Chicago. Although rising prices have pushed up sales totals, the number of units sold has been declining. To fight the cost crunch, department and specialty stores have reduced their staffs and increased their markups from 50% to the 55%-to-58% range. Increased markups, however, have brought increased consumer price resistance.

To bring customers back into the stores, retailers have relied increasingly on sales. The National Retail Merchants Association in New York reports that 60% of all retail ads today are sales ads.

Robert Winkel, president of Crowley, Milner & Co., a Detroit department store chain, says his store is doing more price cutting than it would like. And Harry L. Sowell of Peat, Marwick, Mitchell & Co. notes that such price promotion, with increased markdowns and generally higher operating expenses, make profitability more difficult. In addition, Sowell says, interest rates have sharply increased the costs of financing inventory and credit card receivables; consequently, the inventory depth and easy credit that once marked the traditional retailer is past.

"The growth rate for department stores and general merchandise chains will slow over the next few years," says Daniel Barry, retail analyst for Kidder, Peabody & Co. He projects an annual growth rate of only 2% to 3% in the number of stores.

Off-price retailers, however, are thriving -- and have been growing dramatically over the past few years. While the standard department store apparel sales for Federated Department Stores Inc., the largest department store chain in the United States, increased only 3.6% for the first six months of 1982, sales at their off-price stores rose 18.2%. Another chain, Zayre Corp., bought 10 Hit or Miss stores in 1969; by mid-1982 it had 259 stores. The other off-price arm of Zayre, T.J. Maxx, grew to 75 stores since it was founded in 1976. Together, the two chains did $364 million in sales for the year ended January 30, 1982. For 1981 the 119 Marshalls stores racked up $618 million in sales; Loehmann's, with 57 stores, did $210 million, by one estimate.

Given the changing patterns in consumer buying, the off-price boom is expected to continue, although off-price currently represents an estimated 4.5% of the total apparel sales.

The strategies that industry analysts suggest will bring retail success in the '80s augur well for Sandy Zimmerman's Cohoes Specialty Store, a hybrid that has merged the-value of the discounter with the service, atmosphere, inventory depth, and modishness of the conventional retailer. Zimmerman has generally focused on value by widening the scope and bolstering the quality of his merchandise and by playing up brand names.

"We're entering a new age of discounting," Harvard's Takeuchi insists. "Discounting used to be stores like K mart or non-ego-intensive merchandise, such as appliances. What Zimmerman has done is discount ego-intensive merchandise. Cohoes is right on target in terms of meeting changing consumer expectations and buying behavior. The store is a model for the future."

Traditional Offprice Discount

Cohoes dept. store apparel store store

Rent $4 $15 and up $6 and up $4-$8

(per sq. ft.)

Sales productivity $600 $115 $105 $105

(per sq. ft.)

Inventory turnover 4x 3x 8x-10x 3x

(per year)

Inventory markup 38% 48% 38% 37%

Advertising 1 2.6 2 2.6

(% of sales)

Profit after tax 6 2.4 4 1.4

(% of sales)

Figures are from the National Retail Merchants Association, the consulting firms of Management Horizons Inc. and Doody Co., and assistant professor Hirotaka Takeuchi of Harvard Business School.