Leslie H. Wexner has reignited an old industry debate: Are department stores dinosaurs headed for extinction?
“Department stores are irrelevant,” the chairman and chief executive officer of L Brands Inc. said at his firm’s investor meeting last week. They don’t generate near the traffic of restaurants and food establishments, or embody “the emotional content” of Apple and other concepts in the mall, Wexner said. “The average Apple store probably draws more traffic to a shopping center than any department store does.”
He’s a hardliner on outlets and the apparel business as well. There’s no room really for either in his specialty empire. Outlets are “easy money and mark the beginning of the end for brands with high emotional content,” he said. Coach Inc. “cut its own throat” by growing its outlet channel, he added. Wexner also took credit for recognizing a decade ago that apparel shopping would shrivel, as other merchandise categories blossomed.
Given his track record for corporate reengineering and catapulting Victoria’s Secret Pink and Bath & Body Works, Wexner can’t be ignored, whether one regards him as industry soothsayer or just someone who occasionally sounds off.
His logic isn’t bulletproof. True, department stores aren’t the powerhouses of yesteryear and there are fewer of them and maybe still too many. J.C. Penney and The Bon-Ton Stores Inc. are struggling; Saks Fifth Avenue is barely profitable, and Neiman Marcus is piling on debt. Nevertheless, Macy’s, Nordstrom and Dillard’s Inc. have been on a roll, and retail’s new kingpin, Richard Baker, chairman and ceo of Hudson’s Bay Co., says he’s ready to pour money into all of the department store holdings he’s heaped together — including Saks.
Baker wants to “catapult Saks to the pinnacle of luxury, and as part of that, we are committing to spend $200 million to renovate our Fifth Avenue flagship and do what it takes to turn it into the most glamorous and luxurious department store in the world,” he said recently. He’s also experimenting with Lord & Taylor, testing new locations cautiously to see whether L&T could be an alternative anchor in lifestyle centers.
Belk Inc., too, is moving forward, fortifying flagships, adding stores in Texas, and looking to hit $6 billion in revenues in five years. It’s picked up its marketing game with the theme “Modern. Southern. Style.” and has expanded exclusive offerings, such as Cynthia Cynthia Rowley for women and Made Cam Newton for men. “Our business has grown each of the last several years,” chairman and ceo Tim Belk told WWD. “We are continuing to invest in our brand and believe the future is bright.”
Overseas operators also are stepping up their expansion games. Lane Crawford and Galeries Lafayette both opened stores in China in the last month — in Shanghai and Beijing, respectively. Andrew Keith, president of Lane Crawford and Joyce boutique, said at the Shanghai store opening that “the appetite for multibrand [retailing] has grown” in China.
Other retailers and brand chiefs defended their formats in the wake of Wexner’s dour appraisal. Here’s what they had to say.
• Terry Lundgren, chairman, ceo and president of Macy’s Inc.: “Note that our sales have grown by more than $1.2 billion in each of the past three years. If you look back over the past 10 years, our company’s sales and earnings have more than doubled, and market capitalization has tripled. Macy’s is very proud of its track record of strong growth that has allowed us to gain market share and continuously improve in a very competitive industry,” he said, choosing to let his company’s performance speak for itself, rather than get back at Wexner.
Lundgren countered Wexner’s department stores as “irrelevant” comment by stating that Macy’s has “an enduring culture of growth.” He also said Macy’s employs 176,000 people, added 5,000 full-time jobs this year and is hiring an additional 83,000 workers this holiday season. “That’s exactly what our country needs. We are making a significant contribution to GDP [gross domestic product].”
• Millard “Mickey” Drexler, chairman and ceo, J. Crew Group Inc.: “I have known Les a long time. He’s a pioneer in the specialty store business. He’s a great merchant. When Les talks, I listen. Regarding department stores, the only comment I would make is that when I first met Les years ago, he made his feelings clearly known. He was saying the same things he said Wednesday and not more kindly. My decision to leave the department store business and take a job at Ann Taylor was, I suspect, based in large part on his strong opinions.
“Regarding the outlet business, as I interpret it, there must be integrity in the business and in the pricing of goods and if one can find the same brands and same goods in many different channels — online, outlet centers or department stores — it absolutely hurts the integrity of your business. I do think there is an opportunity for outlet-store businesses that have different goods and are not just changing a stitch here or there. It’s a different business and should be treated as such. When the outlet business becomes the chief profit driver, the growth vehicle in the business, it’s the tail wagging the dog then, and what Les is saying is very valid.”
• Philippe Houzé, executive chairman, Galeries Lafayette Group: “To me, the traditional department store is dead. You see, I am ready to go a step further than Mr. Wexner. I don’t know him personally, but I rather admire him for his personal achievements. The traditional department store is dead, long live the multispecialist lifestyle concept store! If a department store is not a chameleon that had adopted all of its predators’ strong points, then indeed it is in serious trouble.”
Saks and Neiman’s, both recently sold, “are not companies on the brink of extinction. In fact, today’s department store, or concept store, has to be click and brick, it has to be a permanent lifestyle theater, it must know how to combine events, culture, art, gastronomy and designers’ creativity. To quote an old slogan we have remained faithful to: There should always be something happening. And if a store has managed to nurture that, then it has reinvented itself and it will captivate its customers. If you talk in terms of categories, then you are still on the old model of the department store. I think you have to forget that notion. That’s why I prefer to talk about a multispecialist lifestyle concept store. I think you have to forget the department store in the sense of a store organized by categories. That is dead and buried. On the other hand, look at the fabulous job that world-class department stores like Selfridges, Saks and Nordstrom are doing. They no longer have anything to do with traditional department stores. People call them that because they are not sure how to classify them, but Colette in Paris looks quite pale in comparison with these stores. They are super-Colettes.”
• Mike “Myron” Ullman 3rd, ceo, J.C. Penney Co. Inc.: “People are looking for newness and new ideas and like the social experience and convenience of having a lot of ideas in one place. A department store is not a thing. It’s an environment. Les Wexner has created exciting environments, but I just believe that when done well, department store environments are as relevant as ever.”
• Allen Questrom, former chairman and ceo of Federated Department Stores Co., Neiman Marcus Inc., J.C. Penney and Barneys New York: “What do you call a department store? Wal-Mart has many departments, and you can make many choices. Penney’s is a department store, and Neiman Marcus is a department store. In the 1920s, they sold major appliances. Those times have changed, and it’s been modified. I don’t find that Macy’s is irrelevant. Their business has been good. I don’t think department stores are irrelevant. There are too many of them but they’ve been saying department stores are irrelevant since I’ve been in the business. They were in a dominant position in the 1950s and 1960s. Maybe not as much now.
“I think Les is right” about outlets. “If you are a Coach, Ralph Lauren or Saks Fifth Avenue, maybe these outlets have the same product or they sell different products for their stores. If it’s truly an outlet store and they’re selling the same line, it besmirches the name on the door if it’s the first line. People start to see the name differently.”
On apparel’s significance: “Right now, there isn’t a lot going on in fashion that’s new and different. People are buying jewelry and shoes and looking for ways to make themselves look different and new. People are buying new cars now because they haven’t bought a new car in the last 10 years and there are all these new gadgets. The great thing about American department stores is the ability to have people come up and create new ideas. Ready-to-wear is undergoing a fallow period. Two or three years ago, everybody was buying colored jeans. Now women are going back to being more dressy and guys are wearing ties. I don’t think apparel is irrelevant. Maybe it is less important today, but maybe that’s because there’s nothing new. I think there are going to be some new trends for spring.”
• John King, ceo of House of Fraser: “Department stores, like all other retail stalwarts, must change with the times — this doesn’t mean that they become any less relevant. At House of Fraser, we believe that offering a truly multichannel shopping experience is the key. We’re committed to investing and evolving our offering across all platforms and differentiating our proposition to deliver the best customer service in the market. Securing the best national and international brands for our customers and investing in our exclusive house brand portfolio such as Biba will ensure ongoing relevance.”
• Helen David, Harrods general merchandising manager: “As a globally recognized brand and one of the most iconic shopping destinations in London, our buying teams constantly seek exclusivity and a reason to buy — with both leading designers and labels. Our strategy continues to be focused on creating an exceptional shopping experience with beautifully crafted collections and constant newness all under one roof….We look at our customer and our market and we aim to meet and exceed the expectations of our customers daily through exclusive previews, trunk shows and client events which cannot be found elsewhere.”
• Paolo de Cesare, ceo, Printemps: “We are not interest in entering this debate. If anyone has doubts concerning the relevance of department stores, I invite them to visit Printemps in Paris. The store enjoys traffic of 40,000 to 50,000 customers a day and sales of over $1 billion — quite an achievement for a 148-year-old retailer.”
• Kenneth Cole, chairman and chief creative officer, Kenneth Cole Productions Inc.: “The retail landscape is continuing to change at rates that could not have easily been anticipated in time enough to prepare for where it is at the moment. I don’t believe that department stores are any less relevant today than brick-and-mortar retail is as a whole. Outlet stores aren’t ‘brand killers’ when they are allowed to distinguish themselves from their full-price alternatives, and I don’t believe that apparel has necessarily become less significant. People don’t buy apparel, I believe they buy clothes that fill lifestyle needs, and will buy them in apparel stores or anywhere else that best facilitates easy and reliable service.”
• Barbara Kahn, Patty and Jay H. Baker Professor of Marketing at The Wharton School: “I have to give Wexner credit — he’s getting a whirlwind of publicity. He must know something. Wexner has created fun in the store. That’s what it’s always been about. Some retailers, such as J.C. Penney, that are stuck in the middle, are neither here nor there, while Macy’s has been doing very well. They understand the omnichannel experience. I do agree with Les Wexner that the retail landscape is changing and you have to adapt. Those that don’t change will be dinosaurs.” With outlets, “You have to be supercareful. You’re always walking a tight rope if you don’t discriminate between value-priced merchandise and your top line. Coach was treading too close. I think Coach has damaged its brand to some degree.”
• Mindy Grossman, chief executive officer of HSN Inc.: “Brands are addicted to outlet store strategies to satisfy external expectations of growth. It is brand dilutive. Apparel will always be relevant but customers’ desire today to define themselves as individuals extends to many more categories — including technology.
“This debate is moot. The standard definitions of retail are antiquated. The question is not whether any particular ‘destination’ is relevant or not. It is about what a relevant experience needs to be to engage and inspire customers. That ‘destination’ could be physical, digital or even virtual.
“The future of retail comes down to one word — experience: using the insights you have on your customer and their behavior to create meaning and relationships, engaging them in new and different ways, providing a culture of generosity and giving them a reason to interface with your brand every day…and finally, having the ultimate trust to engender ongoing loyalty through service, transparency and community.
“We have to lose old vernacular and redefine our business models in what we call a ‘boundary-less’ retail world where there are no artificial barriers, driven by innovation and collaboration and leveraging the power of technology to create a seamless experience for customers.”
• Anita Bhappu, associate professor, program chair of retailing at the University of Arizona: “Currently the model is threatened.” However, “I see a lot of potential in reconceiving the space. Space can be repurposed for dining and other activities that draw the consumer into the store. You can’t do that with the online marketplace.
“I think the whole idea of discounts and promotions is troubling. There’s always been that tension. Am I willing to sell it at a lower price? I would have to agree that heavy promotion and discounting erodes the brand’s value.” At stores such as Saks Fifth Avenue, where you pay market price and get the experience, and Saks Off 5th, “I think there’s an overlap, but not really a big one. They are two distinct brands.” On apparel, “I would tend to agree with [Wexner]. It’s not that it’s not as important, but it’s not as important to other things we sell today.”
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