Photo: RetailWire
Should department stores go back to the future?
RetailWire will celebrate the fourteenth anniversary of its launch next month and yet, prior to that date, discussions were already taking place within retail industry circles about the viability of malls and the department stores that anchor them. It’s amazing how little some things have changed as similar reports persist to this day.
A recent article on the Business of Fashion site reported on store renovations being made by chains including Barneys New York, Bergdorf Goodman, Neiman Marcus, Nordstrom and Saks as part of what it calls the “Great Department Store Wars of 2015.” In short, the article concludes that department stores are “seeking to bring back the magic to businesses built on nostalgia.”
According to the piece, many department stores are making use of discounts to drive traffic. While it helps attract customers in the short run, it is not seen as a sustainable strategy. The use of designer exclusives, improved in-store customer experiences and melding the digital and physical worlds are typically given as solutions that hold the promise of greater staying power.
The challenges faced by department stores can be viewed as daunting even for leaders in the space. Citi recently downgraded Nordstrom’s stock from a “buy” to “neutral,” according to CNBC. The decision was made despite Citi’s acknowledgement that Nordstrom is a “best in class” operator. Nordstrom, along with its department store peer,s has been challenged in recent months as abnormally warmer temperatures across most the U.S. has resulted in higher on-hand inventory levels.
The chain has made retail investments with a heavy tech emphasis in recent years including Bonobos, Shoes of Prey, Trunk Club and Hautelook. Last year, Nordstrom announced that it would allocate five percent of sales to capital improvements over a five-year period. Thirty-five percent of those funds were earmarked for technology.
- What’s Next for the American Department Store? – The Business of Fashion
- For Nordstrom, best in class won’t cut it: Analyst – CNBC
- The Big Reason You Once Went to the Mall Is Rapidly Disappearing – Time
- Will Nordstrom lead retail into the age of mass customization – RetailWire
- Nordstrom puts its money where its e-commerce is – RetailWire
Discussion Questions
How important a role should nostalgia play in reviving the department store format? Is there a department store operator inside or outside the U.S. that you think has the best handle on what it will take to succeed in both the present and the future?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
J. Kent Smith
VP, Business Development, Vaco Supply Chain Solutions
What’s missing in all of this discussion is the customer experience.
As I just published today in Retail Sales Report From The Mall: Customer Service On Life Support the shopping experience a week before Christmas was dreadful across the board from the highest luxury brands to the department store mainstays.
No amount of shiny objects can mask the fact that for many retailers, there’s no there, there. Employee drones hanging out talking to each other destroy the shopping experience. One-person coverage ignores the realities of waiting on those shoppers who do venture in the door. Discounts do little more than cheapen the whole experience. And spare me your breathless talk of your new app, beacon, payment system or VR.
There was a time retailers considered employees their greatest asset.
I would suggest if nostalgia has any hold on any retailer it is to look back to the service standards where no customer was a given. Where the fight for the dollar was taken one sale at a time. Where no customer was expected to wait for an employee to have a good day. Where a person’s buck to spend opened the doors to feeling good while shopping. Where the environment to shop was a waystation in a hectic and uncaring world.
Forget nostalgia. No, really. Forget it.
The people who are going to be driving sales in the next 10 years are Millennials who are setting up households. They aren’t the least bit nostalgic. They crave authenticity and they value ease. Create a compelling experience for them and reap the rewards.
The answer to the question depends on your definition of “nostalgia.” If it’s defined by elevated levels of customer service and merchandise assortments, it continues to be a winning strategy for Nordstrom despite its current issues. Macy’s has strayed far from this formula in its effort to keep up with the promotional cadence of mass merchants like Kohl’s and J.C. Penney, and now its plan to open off-price stores risks its brand equity even further.
Playing the “nostalgia card” (better service and assortments) might just give the traditional department store more pricing power in the face of intense competition from value-oriented retailers and from e-commerce.
Today’s consumers place little value on “nostalgia.” They highly value convenience, flexibility and personalization. Price is a temporal issue.
Results count, and consumers “vote” with their credit cards, PayPal, Apple Pay and even the department store’s card. But the difference today is that consumers are “voting” (purchasing) at moments in time that are convenient for them … whether it be in-store, online or even via a tweet.
One of the department stores that has the best “handles” on critical success factors is John Lewis in the U.K. John Lewis typically performs above the average because they understand it is not either/or. The future is all about the seamless experience across both online and stores. The retailer wins when they create a long-term relationship with consumers, not when a sale takes place on a given day.
The danger of nostalgia is that it’s self affirming: it makes you feel good about turning back. The conditions that made department stores once thrive simply don’t exist anymore, the fundamentals have changed: demographics, lifestyles, competition, everything. Nostalgia may help along the edges but I think success will only come from redoubling efforts to know, engage and serve their key markets with a mix of technology, service, buying and promotion (not all of it price promotion).
If nostalgia were all it took to succeed we would still have horses pulling buggies, vinyl records for sale everywhere, and Etch-A-Sketches would have been the hottest gift this Christmas!
The reality is that most department stores are being out-retailed by specialty retailers outside their doors. Let’s face it; you can get better product selection, better pricing (higher and lower), better merchandising and better service most everywhere else.
That’s not to say that higher-end urban-based department stores can’t/won’t cut it in the future. They stand the best chance to provide a differentiated experience.
It’s the middle-of-the-road department stores who discount away all profits in suburban locations that are on shaky ground. Their time has passed.
Nostalgia works for the seasonal stuff and holidays or special events. Macy’s does this well but does not promote it enough. The lady who invented the Miracle Mop is at the Herald Square store this week. This is an old way of pulling in Macy’s regulars and new shoppers. This should also happen on a more regional basis. Millennials and Generation Z shoppers love stars of any type. Another great TRedd idea is to really shift the Millennial fashion spaces during Comic-Con weeks. Not a few simple changes but major Comic-Con shift.
Many retailers are shifting to the Galleries Lafayette-style of store-in-a-store. Little boutiques surround a floor. This is a major style in EMEA dept stores.
Another great store is Kaufhaus des Westens in EMEA. Their Berlin store has a pen/school supplies/home office department that is amazing. Expanding areas like this in a department store in the Kaufhaus manner draws new business. Their pen space in this area has only nice gear for writing — this is not an Office Depot department. I bought about six new Lamy pens that I really needed. Spirit of department stores: the display and environment convince you that you REALLY NEED certain merchandise.
Time to change the core of retail — the department store.
Department stores should focus less on themes and start to concentrate more on a successful model. Their sales are continuing to decrease, and profitability is becoming even more difficult as competition increases. Better pricing, combined with superior customer service, are constantly being demanded by the consumer, and it is a call to action which the department stores have avoided for years.
Nostalgia is a psychological escape from the vacuum created by fundamental change. The function of malls was to aggregate vendor supply to attract broader consumer demand. Amazon, for example, does that cheaper, faster and better. Malls won’t die overnight with so much sunk cost in physical infrastructure … but revived?
Cathy hit the nail square on with her comments. Nostalgia is for yesterday’s shoppers. While those shoppers control a large piece of the revenue, they are not the ones taking shopping to the next level. Those shoppers are younger and know how to shop both in the store and online. These are the groups needing to be targeted.
Department stores mainly sell apparel and the decision to buy apparel is mainly made in the fitting room. Department stores have done little to improve the fitting room experience.
Making the sales floor more fun and engaging is easy. Making the fitting room more fun and engaging is hard. In order for department stores to compete at full price with their specialty store and discount rivals they need to step up their fitting room game.
The three things that need attention are: design, service and technology. Some have made headway with fitting room design, but service and technology (that works) is still lagging or in most cases non-existent.
Creating an engaging fitting room experience that brings the brand into the fitting room through design and delivering service that meets the expectations of the customer should be an investment priority.
Unless nostalgia includes the items mentioned above — “designer exclusives, improved in-store customer experiences and melding the digital and physical worlds” — it’s not nearly enough. Nostalgia related to the customer experience which includes not only more professional sales associates but also much better and differentiated merchandising, not to mention a level of service and customer intimacy that made customers feel appreciated. Those things are all missing from retail today.
The reason Nordstrom is no longer going to outperform isn’t the warm weather, it’s that they have succumbed to the myopic “pressure” of promotion and the belief that more is better. Yes Nordstrom does some things very well and better than others, but it’s no longer enough of a differentiator and certainly not enough of a reason to visit a physical store.
The Business of Fashion article was fascinating, insightful and forward-looking. It said not to bring back nostalgia, but that department stores are “seeking to bring back the magic to businesses built on nostalgia.”
Most noteworthy, “it’s the customer herself who has changed … is more discerning, educated, and more demanding than ever … consumers today after the best price … also more willing to research their purchases….”
The brands are stronger than ever, but … “The only way for the department stores to compete and be different is to control the experience, assortment and presentation, and to be highly edited and curated.”
I’m with Cathy and Ed, so I take their lines: Nostalgia is for yesterday’s shoppers. While those shoppers control a large piece of the revenue, they are not the ones taking shopping to the next level. Those shoppers are younger and know how to shop both in the store and online. These are the groups needing to be targeted.
As to a “department store operator” who can take things to the next level? Isn’t it Amazon???
I think it’s time to move as far away from nostalgia as possible. I’m going to say this knowing that many of you disagree, but what Ron Johnson was attempting to do at Penney’s was spot on in terms of what department stores need to have happen (his methodology might have been off, I’ll admit): blow it up. If you recall, he was talking about a “Town Center” in the middle of the store, better lease holders, more innovation and “hang out” space, omni-everything, better, simpler web commerce, and yes, pared down/simpler pricing models. Everyone forgets he was one year into a five year plan that at least to me, looked pretty painful, but also spot on.
Sad to say, but the Penney’s experience/example is one that most department stores are still stuck in: short term thinking 101. Get over your history. Step up to 80 million new customers that don’t care about that.
The traditional department store model comes from an era when retail was organized and run as the endpoint on a long supply chain. The world has changed to one where consumer-centric business models win. Forget nostalgia and focus on understanding and serving the consumer.
No importance! None, zip, nada!
Simply put: Who is the target? What Millennial will find any archaic messaging relevant? Oh wait, is Amazon a department store?
This sector of retail is from a bygone era. Ladies who lunch? Massive urban center emporiums? Men’s Store? Center core?
Going forward, these will be localized to unique locations. Macy’s aggregation of regional brands proved a nationalized department store with a socialized assortment as a dog that won’t hunt.
As Jeff Bezos lights another rocket, he says: “retail ain’t for sissies!”
Yep, I’m with Cathy. Forget nostalgia! That has nothing to do with it. Smart retailers are learning that they must serve the customer before they sell.
Remember that the shopping journey is very different today. The consumer often starts online and they likely have not even made a decision that they will be buying anything. If they get enough of the right information, they may want to see and touch the item. Still they may not have made a decision to buy. The buying step is the smallest and fastest part of the journey, once they have arrived there. So make it easy and convenient.
The department store is still the place that has something for everyone and every aspect and I contend there is still a place for that. Just learn how to serve your customer, give them a great experience and quit that sell, sell, sell thinking.
For my 2 cents.
I think we have a semantics problem: none of the (5) stores mentioned considers itself to be a department store; indeed they are all high-priced specialty stores, which place a high priority on exclusive brand names and personal service…all of which serve as points of differentiation, and allow them to offer “experience.”
So if we’re really talking about the full-service, full-line old-fashioned department store, then we’re essentially talking about Macy’s (and to a lesser extent fading Dillards and even faster fading Bon-Ton). All of which have made a point of closing flagship stores and — more importantly — eradicating heritage store names. If nostalgia ever had any part in the department store’s future, then this trio has essentially killed it.
Department stores do have the ability (potential) to deliver a variety of rich shopping experiences to their target shoppers. Realistically identifying the bases to target and sticking with merch and marketing that appeals to these bases seems to be the issue in many cases. Being everything to everyone in order to drive quick sales gains is a strategy hard to achieve in the short term, and distracting and disastrous in the long term. Tech definitely helps execution, but brand is power.
Nostalgia doesn’t need to play a role here. The retailers that are successful are the ones creating new experiences that improve the shopping experience. Department stores need to develop a fearless attitude like Amazon has in order to move forward. It’s about learning what works, abandoning what doesn’t, and continuing to test the boundaries of what’s possible.
It somehow feels to me that the whole concept of nostalgia belongs to those of us who have reached a certain age. And even we shop differently whether we like the choices available or not.
I do agree with the inclusion of John Lewis as a currently successful model, especially having had a good experience there pre-Christmas. But even that included shopping/researching online before I went to the store and then having the salesman place my order online for home delivery because they didn’t actually have what I wanted in stock.
Add to all that the ease of returning what we don’t like (EXTREMELY easy — and free — in the UK), and I can’t really see any future for department stores or malls at all. Their role as replacement town centres for socialising no longer exists either.
The thought that “Nostalgia” could play a role in a department store illustrates how creatively bankrupt the concept may be. Jack Welch wrote “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
Department stores should be focusing on Millennials who have no concept or need for nostalgia — they’re already annoyed at how far behind most department stores are.
Note to Bloomingdales: black wrinkled shirts on salesmen does not evoke anything close to the positioning you may think it provides you.
Reinvent the category. Do something innovative. Make me want to walk into your doors or visit your site; give me a reasons to want to buy something from you. The old ways don’t work like they used to work. And it seems few have clue to bring back any magic. I’d rather the silence of my computer to the babble of another bad salesperson.
I wrote my thoughts on department stores a few months back, having visited a concept called “Multiplex” in the UK. Here’s what I wrote…
The pending death of the high street is an overused term and instead there is a big opportunity for retailers (and others) to think differently now and in the future about the traditional shop space. Seeing Boden open its first store in the UK and Amazon in Indiana, are just two recent examples which support my view of the bricks and mortar opportunity. Beyond wanting to eat all of Gail’s food display, there are two main opportunities that I’ve taken out of my visit. Firstly, despite some early attempts, there is still a great opportunity for retailers, omnichannel or not, to think about a fundamental change to the store experience and still provide value to the customer. And secondly, there’s yet more opportunity for partnerships, for both big and small companies, as part of their growth strategies.
Starting with the experience opportunity…. At the heart of Multiplex is the opportunity to create a unique experience that can’t be replicated online. Multiplex does this with an incredibly sensory experience — once the reserve of say an art gallery — through its very emotional design. Its richer experiences that consumers are now looking for in their everyday lives and none more so than in shops. Somewhere that can entice, entertain, provide expertise and is easy, will all be key ingredients for success. This is where the store can maintain its central role and is how showrooming has come about. There are many questions around whether it actually leads to sales for the business but this is where the ever improving digital technologies come in, to ensure a seamless and easy experience for the customer, to result in sales. Apple does this best, with only 20% of sales apparently sold there and then and 80% coming from an in-store experience.
Then there’s partnerships, looking beyond technology related ones. The department store has long proven the success of bringing products together. But what about on a smaller scale, with say two or three brands coming together in a store and to support the fight back of smaller shops. This could be the next evolution of the pop-up store, which has proven so successful over the last few years, working together to stand apart. You only need to look at some supermarkets and the growth of their convenience stores to highlight the opportunity for other brands to collaborate, providing a range of products conveniently. Not only can they share ever increasing rental costs, but more importantly they can think beyond their own products and offer related lifestyle products to their customers. This provides customers with the tailored and convenient offer they’re after in their time poor lives. One example here is House of Fraser, which last year launched a click and collect service in a Cafe Nero.
Playing more to experience, lifestyle and convenience, rather than parternships is TOMs, with its store in Kingly Court (London). I came across this last week, where alongside their shoes and accessories, they have a welcoming full barista cafe for their customers.
Both these opportunities come back to businesses needing to think very differently in the future. Business models and the approach to bricks and mortar retail will be disrupted by a rapidly evolving consumer — so its not time to be nostalgic!
Nostalgia relies on a merchant and its customers sharing the same cultural references. It might be a great strategy to bring in customers of your own generation, but newer generations who don’t get the reference may well see it as outdated.
Merchants who make nostalgia a part of their strategy will need to work extra hard to avoid alienating younger shoppers, and may find they need to refresh their brand sooner than otherwise.