Allen Questrom, the turnaround specialist who led four of the biggest names in retailing, sees a long, difficult climb for merchants, particularly in the luxury sector.
This story first appeared in the November 18, 2009 issue of WWD. Subscribe Today.
Questrom retired in 2004 as chairman and chief executive officer of J.C. Penney Co. Inc. after restructuring the chain. Before that he led Federated Department Stores Inc., which is now Macy’s Inc., in its $4 billion takeover of then-bankrupt Macy’s. After leaving Federated in 1997, Questrom was chairman and ceo of Barneys New York just after it emerged from bankruptcy. He was also called upon to rev up business at Neiman Marcus Inc. as president and ceo from 1988 to 1990.
With homes in Dallas and Aspen, Colo., Questrom, 68, keeps a finger on the pulse of mass and luxury as a board member at Wal-Mart Stores Inc. and Sotheby’s Holdings Inc., and he is a senior adviser at Lee Equity Partners LLC.
Questrom shared his views about what he characterized as the most challenging business environment of his lifetime.
WWD: What do you see happening in luxury goods?
Allen Questrom: The problem is the price and the products have been overdistributed, so if you are going to have a brand that you pay $5,000 for, you can’t see it in every store. In many cases, there is too much distribution and the customer resents paying for it unless it is special-special, but you can’t run a business on special-special. So there is a whole sense that many of those international brands are so overpriced because of the labor [costs] in Europe and the global economy that pushed up prices.
WWD: If you were running Neiman Marcus, what would you do?
A.Q.: I would think they will have to downsize their business dramatically because they have a lot of aspirational customers that moved up into Neiman Marcus and Bergdorf Goodman, and those people aren’t there. They decided to go elsewhere. I think the challenge for designer goods is the Forever 21 concept, where people are buying more and more of these less expensive fashions where they can buy it for nothing and wear it one or two times and throw it away. Whereas if you buy a $2,000 blouse you really can’t wear it every day.
The European designers are so slow to market that by the time they deliver [product] it’s been copied by all these knockoffs that are already in the stores. That business has to be rethought, not only by Neiman’s, but also by all the producers. It will be a lot smaller….If anything they will underbuy, which is frankly good for the business. There is nothing like having more demand than supply.
They’ve really got to cut expenses and look at stores and see do they really need to be there? Saks [Fifth Avenue] needs to cut 10 or 15 of them to get expenses down to what it was four or five years ago because [business] was so exaggerated in the first decade of the new century that this probably won’t be around for a while, maybe 10 years for sure. If it comes back with a huge thrust it will be easier to take care of than the opposite. They’ve got to work with vendors and make sure distribution is much more limited and each one has to make a unique offering.
WWD: What about Nordstrom?
A.Q.: Nordstrom has a broader based customer….But even they are doing much less well than lower-priced stores like Macy’s. It’s not so easy to run with minus 10 percent [sales declines]. Everybody has been affected except for the dollar stores, Wal-Mart, even Target, [was affected] because they didn’t focus on value as much as fashion for a price. That became less of a deal for people. Fashion is more discretionary….A lot of people don’t eat out as much so the need to get dressed up has changed, as well. The thing about retail and marketing is you have to constantly look at changes going on in the bigger environment and you have to adjust to those. This is a dramatic change with many, many factors.
WWD: What do you think about fashion design?
A.Q.: There is really nothing new on the scene, other than dresses three or four years ago and it continues….[There is some newness in] shoes and handbags. But there is not a lot of excitement in apparel because designers are trying to be more conservative and do things that are less risky. But the key to the business is newness and new ideas so this will be an opportunity for new designers and new ideas….That’s a better way to do business. Like the iPod — they are constantly coming up with new ideas and the customer buys it. My wife, who doesn’t lack for clothes, she goes to stores and has no excitement. She has such an interesting wardrobe that she can pick things from her closet and look current.
WWD: When do you think business might improve?
A.Q.: Most [retailers] are doing a very good job of cutting cost basis back and smaller inventories. Going into next year you will start to see some sales increases and people talking about the economy getting better. But I don’t think you’ll get back to ’07 [figures] particularly in upscale.
I’m not an economist. There is the whole green concept of new industries and new jobs, but we don’t have job growth, and on top of that we have a consumer who has been overcredited over a long period of time since the Eighties. Her house overappreciated and has gone down [in value], her 401(k) is down, her savings have gone down, and she’s worried about her job. There is nothing on the horizon that says that customer is going to come in and change the economy….It will be a long, long pull, and unlike other recessions this is about people losing the values of what they had, and they are insecure.
We have been through these before, but we will recover from it. If you learn anything about recessions, you really have to be very mindful that the world is not an uphill climb. It goes up and down. It won’t always be good. You have to preserve for a rainy day. This is a big deal, new to all of us, and people will think differently.