Where Are Department Stores Headed?

Jan 18, 2005
Rick Moss

By Rick Moss

Last week’s high-profile resignation of May Department Stores chairman and chief executive Gene Kahn was perhaps a fitting prelude to the National Retail Federation conference
now underway in New York City. NRF kicked things off with their forecast of slower retail sales growth for 2005. That mood was echoed by conference panelists’ predictions of coming
bankruptcies, consolidations, and store closings, reported CBS Marketwatch.

Diane Swonk, chief economist at Mesirow Financial in Chicago was quoted as saying, “We’ll see some major consolidations going on, and all those corner stores that you were wondering
why they were there, well, guess what? They’re going to be gone.”

Already shuttering stores in the wake of disappointing holiday results are Macy’s (Metro Center store in Phoenix), Saks Inc. (four Proffitt’s stores in North Carolina), Spiegel
(more Eddie Bauer stores), and Wet Seal (150 store closings by March). And, of course, there’s the continuing saga of Kmart and Toy R Us in the mix.

Although May Department Stores didn’t provide an explanation or announce store closings, Mr. Kahn’s exit comes on the heels of a 3.2 percent holiday sales drop. Critics also
had complained that Kahn approved the purchase of Marshall Field’s last summer at too high a price — $3.24 billion. May now controls Lord & Taylor, Famous-Barr, The Jones
Store, Filene’s, Foley’s, Hecht’s, Kaufmann’s, Meier & Frank, Robinsons-May and Strawbridge’s, along with a few specialty chains. All this leaves quite a challenge for the
next chief exec.

May’s troubles are representative of much of the department store business. Many are saying that sweeping changes are called for to set things right, but May hasn’t yet spoken
of a change in direction.

One retail economist, Richard Hastings of Variant Research Corp., pointed to new concepts from Abercrombie, Gap, Pac Sunwear and other specialty chains as signs of hope for apparel
retailing. These companies are attempting to track demographic changes with concepts designed for the over-35 crowd and different teen groups. But making format shifts is much
more problematic for department stores that are, by their very nature, designed to be “all things to all people.” The fear is that the only actions to be seen in the coming year
will be downsizing.

Moderator’s Comment: Where do department stores go from here?

Federated’s Macy’s and Bloomingdale’s, and many of the May department stores, have exceptionally strong brands and shopper loyalty spans generations. There’s
so much tradition there, you would think it’s their game to lose. However, we may be seeing the last generation of chain-loyal shoppers passing on. Younger generations cut through
anchor department stores at breakneck speed on their way to American Eagle, Free People and J. Crew. It’s going to take some real “out of the box” thinking to make department
stores vital again.

May is putting together a search committee for Kahn’s replacement. My suggestion would be to look for an outsider who can see things with fresh eyes. And
I mean WAY outside…perhaps from outside retailing altogether.

Rick Moss – Moderator

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