The Strong Survive, Then Thrive in Department Store Biz
The long rumored demise of the department store channel appears to have been overblown. There have been casualties along the way, no doubt, but today the channel is not only holding its own in the fight for customers, it appears to be winning.
Myron (Mike) Ullman, CEO of J.C. Penney, told The New York Times, “The ones that have survived in this industry are the ones that have finally figured it out. The strong are only getting stronger.”
And stronger is what department stores are getting. Over the past year, same-store sales for the channel have grown 4.1 percent compared with a 1.3 percent increase in specialty chain sales, based on data from the International Council of Shopping Centers (ICSC).
The resurgence of department stores has been closely tied to the increased demand for designer brands. In the past, department stores watched business walk away to specialty shops that designed their own product. Today, however, merchants see customers walking back in search of brands department stores sell but specialty chains do not.
“The great advantage the department store has is the ability to quickly move from one brand to another to keep itself fresh,” said Stephen Sadove, CEO of Saks. “The specialty store does not have that luxury,” he said.
While clothing brands have been a major contributor to the current popularity of department stores, there is more to the channel’s resurgence.
Store brands have also played a significant role in some stores, including J.C. Penney and Macy’s. Other factors, all related to listening to consumers, have also contributed to the channel’s strong year-to-date showing.
At Federated Department Stores (before the acquisition of May), CEO Terry Lundgren instituted a program called Reinvent at Macy’s that relied heavily on consumer research to create a shopping atmosphere that would appeal to larger numbers.
As a result, Macy’s widened aisles and put price scanners in the store to make the shopping experience more convenient. Most importantly, said Mr. Lundgren, the chain increased the size of its fitting rooms.
“Fitting rooms was the No. 1 issue” on the minds of consumers, he said.
Department stores have also benefited from some economic factors. This is most clearly seen in the luxury store market where businesses such as Neiman Marcus, Saks and others have done particularly well.
James Gold, CEO of Bergdorf Goodman, said stores such as his are doing so well because “the rich are getting richer at a staggering rate.”
Those chains positioned just under Neiman Marcus and Saks, such as Nordstrom and Bloomingdales, have also benefited in recent years from the acceleration of wealth among the more affluent members of society.
Discussion Questions: What is your explanation for what has been and is going on in the department store channel? Where do you see the channel headed?