The Strong Survive, Then Thrive in Department Store Biz

Discussion
Nov 17, 2006

By George Anderson


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?

Join the Discussion!

13 Comments on "The Strong Survive, Then Thrive in Department Store Biz"


Sort by:   newest | oldest | most voted
Bob Houk
Guest
Bob Houk
11 years 5 months ago

Count one more vote for “meaningless blip”.

The economy is good, and for the past twenty-thirty years d-stores have crowed about their resurgence every time the economy picks up. The thing is, each high point achieved in a boom economy is lower than the previous high point. And then comes the inevitable drop in the economy, and the d-stores find a new low point.

Department stores are doomed because they serve no useful purpose. Why shop in a department store when the mall itself is a much bigger, much better department store? They can’t compete on selection with the specialty stores and they can’t compete on price with the discounters. What’s left?

A few high-end stores will survive because they have a niche, but the Macy’s, Bon-Tons, et al are dinosaurs.

Mark Lilien
Guest
11 years 5 months ago

Department stores’ strongest audience: middle-age shoppers. Fastest growing age demographics: boomers and the aged. Department stores may claim they’re listening to their customers, but when did they say they weren’t? It’s easier to be a success when location growth is minimal and the core audience is surging.

Bill Robinson
Guest
Bill Robinson
11 years 5 months ago
What we are seeing is small blip in the long, slow slide of department stores. A generation ago, department stores held more than 20% of the consumer wallet share. They were competitive force in furniture, toys, consumer electronics, sports equipment, etc. Now, department stores can claim 10% of the pie and they’ve pulled back many, many lines. One stop shopping, indeed!!! The few survivors have good strategies. Nordstrom and Nieman Marcus have solidified the upper income segment. Kohl’s has captured the lower end. Dillard’s, Bon Ton and Boscov’s are strong regionally after picking up some spoils from recent consolidations. Penney’s and Macy’s are building margin with their national advertised private labels. Yet, despite the good work of these survivors, the department store industry has yet to connect with Generation X and Y. At a recent college level retail management class, the professor asked how many of the 35 students had been in a department store in the last two years. Two students raised their hand, and they both work in a department store. In fifteen… Read more »
William Passodelis
Guest
11 years 5 months ago

I also am afraid we are only seeing a blip in the slow and ongoing demise of the Department store. I also feel, however, that the department store will NEVER fully go away. Maybe in 10 years, we will only have ONE player, but there is a reason for existence to be exploited by D. stores: They make it easy. You go there and you can buy all you need with out having to go anywhere else, if you don’t want to. This fact alone should allow at least one to survive, although I will admit, when and if that day comes, it will indeed be a sad day and a BOORING shopping experience.

Perhaps, as younger generations age and lose “time” due to busy lives, will they rediscover the long-maligned department store and discover the benefits it has to offer? We can only hope.

Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
11 years 5 months ago
The department store comeback is a trend with staying power. One of the reasons is that department stores are doing a better job of attracting younger shoppers. Department stores are attracting younger shoppers by featuring trendier designer fashions, exclusive merchandise in the apparel and home furnishings segments, and edgier advertising campaigns in youth-friendly media. There’s also the fact that the universe of department stores has been thinned by bankruptcies, consolidations and acquisitions. But the ones that survive have done so for a lot of good reasons, and are again becoming shopping destinations for a new generation of consumers. Among these reasons: — Savvy department stores have countered consumers’ preference for specialty stores by becoming collections of specialty stores themselves. The fact that these stores-within-stores often have their own buyers, marketing, advertising, and sales and management personnel is what gives them the ability to be closer to the market, and why they are more likely to feature the hot products and items. — Savvy department stores either offer distinctive products, provide exceptional service, or compel the… Read more »
Gene Hoffman
Guest
Gene Hoffman
11 years 5 months ago

Savvy department store companies have learned that nothing is so exhilarating as to be shot at without result.

Once they dodged the deadly bullets being fired by discounters and specialty retailers they determined that they really could serve a contemporary role in today’s commercial world. So they began working hard to “upgrade” their assortments, daily values and promotional relationship with their existing shoppers and potentially new customers, just like J.C. Penny has. And that methodology is working.

I see this channel progressing in the near future by maintaining and continually upgrading that mindset. Otherwise, poof.

Dick Seesel
Guest
11 years 5 months ago

The article cited from the New York Times includes such a broad range of retailers (Bergdorf’s to Kohl’s) that it muddies the definition of “department store.” Stores like Penney and Kohl’s are capturing market share in today’s climate because they are reinventing the traditional department store, not because they are copying it. You could make a case that Target is today’s “department store,” too.

If you define “traditional department store” as the type of operation that Federated runs, it’s all about gaining market share, not about the intrinsic long-term growth of the concept. This has been going on for over a decade, and a one-year blip in Federated’s numbers (which don’t even reflect the performance of the acquired May Co. stores) shouldn’t be confused with a turnaround. Specialty retailers can be quick learners, too, and can move quickly to develop new merchandise strategies and service concepts in order to jump-start their sales trend.

Rebecca Cruise
Guest
Rebecca Cruise
11 years 5 months ago

What is the definition of a department store ? Ask the younger generation and they’ll answer: ” a what?”

Target and Wal-Mart are their department stores.

Craig Sundstrom
Guest
11 years 5 months ago

To paraphrase our friends in the real estate biz, definition, definition, definition: if you broaden the category of “department store” wide enough to include luxury retailers (BG, NM), large specialty stores (Nordstrom) and discounters (Target) you probably will find the (pseudo) category is “recovering”…if you narrow your time frame to one year-over-year comparison, you certainly will.

But the meaningful picture is the one that Richard, Bill #1 and Bill #2 ably described…expect the headline in the January 2008 NYT to read, “For Department Stores, Victory was Illusory.”

Aaron Spann
Guest
Aaron Spann
11 years 5 months ago

I expect to see a resurgence in Department Stores. Some names have been given a second lease on life (Lord & Taylor) and they are fighting a good fight. Others are rumored to resurface, like the Pizitz chain in Alabama. I have also heard that some other names are trying to come back.

In today’s retail environment, the consumer wants choice and while Macy’s is doing an okay job on their national roll-out, it has left some regions with relatively little choice and, in some markets, pure outrage has set in.

This leaves the floor open to other players. Maybe some will step up.

Justin Time
Guest
11 years 5 months ago

I’d like to mention both the niche markets that Boscov’s, the Bon Ton and Belk serve in the department store arena.

I personally am captivated by Boscov’s. It truly is a main line department store, with all of the services that true department store customers expect from one.

They make their own candy, they have a highly specialized travel department, they sell appliances and electronics, even toys. Wow, I call that full service.

Their stores are really fun to shop, with lots of promotions, the “Gimbels” of today. And who else sponsors the oldest Thanksgiving Day parade? None other than Boscov’s.

I expect them to remain a strong regional competitor and hold their own against the likes of Kohl’s, Macy’s and Target.

And I do expect to watch the Boscov’s Thanksgiving Day Parade at 9 am on ABC-TV. Happy Thanksgiving everyone.

Gary Teich
Guest
Gary Teich
11 years 5 months ago

Working directly with many of the major department stores, I see a growth trend. Most of the players have the financial clout to promote and expand at a fast pace. Their buying power is a major force and most manufacturers need their goods in these stores.

Jan Whitaker
Guest
Jan Whitaker
11 years 4 months ago
As a social historian who has looked at department stores from the 19th century into the near present (Service and Style: How the American Department Store Fashioned the Middle Class, 2006), I go for the “blip” thesis. The traditional downtown department store — the department store most people over 40 have in mind (not part of a big chain) — has been losing market share since before World War I. Yet it is not totally gone, amazingly enough, and has more lives than a cat. But, whereas it once led retailing, was a marvel to behold, became a style leader for a wide and diverse group of consumers, and introduced the concept of entertainment and “uplift” to shopping, I see it as a follower today, one of many players in the retail world. I do believe, though, that any American city that can qualify as a global city (with many visitors and a vibrant street life), has room for at least one premier department store which offers top style and fine service and that suggests… Read more »
wpDiscuz

Take Our Instant Poll

Which sector do you think will perform best this holiday season?

View Results

Loading ... Loading ...