Though the Hudson's Bay Company of Canada, which began operations in 1670, was the first store with departments, it is not clear when it could be classified as a department store. The French in Paris invented department stores in 1838; Aristide Boucicaut started the emporium that developed into Bon Marché by 1852, the first department store that offered a wide variety of goods in "departments" all under one roof. Goods were sold at a fixed price, with guarantees allowing exchanges and refunds.

In Victorian Britain the development of new department stores coincided with the acceptance of better fitting, ready made goods, combined with easier travel for all classes, eventually led to the development of department stores, where, initially, several shops traded under one roof. When these failed, newer ventures of department stores, owned by one person were more successful. They helped to create a new middle class type of costume of ready to wear mass produced styles. Later some of these blossomed into the huge department stores like Selfridges. By the mid Victorian era in the UK, Jolly of Bath, and Bainbridge's of Newcastle, Kendal Milne of Manchester and Whiteley's were well established in Britain.

In New York City in 1846, Irish-born entrepreneur A.T. Stewart established the prototype of the US department store on the east side of Broadway, between Chambers and Reade Streets. He offered European retail merchandise at set prices on a variety of dry goods, and advertised a policy of providing "free entrance" to all potential customers. Within a couple of decades, New York's retail center had shifted uptown, forming a stretch of retail shopping from A.T. Stewart's as far as 23rd Street, on Broadway and Sixth Avenue, a stretch that was called the "Ladies' Mile." Macy's, founded as a dry goods store by Rowland Hussey Macy in 1858, Benjamin Altman and Lord & Taylor soon competed with Stewart as New York's first department stores, later followed by McCreary's and, in Brooklyn, Abraham & Strauss. Many of the grand buildings of the 1880s and 90s remain, now put to other uses.

In 1906, Harry Gordon Selfridge a junior partner in Marshall Field's left America to set up a department store, Selfridges in London. After it opened in 1909, it stimulated wide-ranging changes to British retail practice, and the establishment of further department store chains such as Marks and Spencer. Debenham and Freebody also rebuilt their department store on Oxford Street in 1908 and at nearby Regent Street, Liberty flourished, whilst Bond Street developed exclusive small niche shops. As the 20th Century, progressed London's West End became one of the busiest areas for shopping in the world.