Get off the heroin of friends-and-family sales. Create a narrative. Serve up a different “cocktail” of goods and services. Bring an element of charm to the setting.
This story first appeared in the October 29, 2014 issue of WWD. Subscribe Today.
Those were among the survival tips given by three top executives, who realize the sector has been losing market share yet aren’t about to raise the white flag.
“It doesn’t frighten me at all,” said David Walker-Smith, managing director of Fenwick of Bond Street, about the shrinking share. He said survival depends on “how good you are and how adventurous you are. It’s about knowing your consumer. It’s about knowing where and when to dare and how long to dare.”
Walker-Smith was joined by Jeffrey Gennette, president and chief merchandising officer of Macy’s Inc., and Marigay McKee, president of Saks Fifth Avenue, in a candid discussion on the future of department stores, the challenges and the pitfalls.
At one time, department stores were deemed dinosaurs, threatened with extinction with the rise of the Internet, brands building their own stores, sameness and declining mall traffic. The numbers seemed to indicate they were on their way to extinction: Their share of U.S. retail sales, excluding food and automobiles, declined from 12.7 percent in 1992 to 5.2 percent in 2012. But while Sears and J.C. Penney are struggling, Macy’s, Saks Fifth Avenue and Fenwick, a U.K.-based 11-unit department-store chain, have their heads above water and their top executives are expressing ideas about how to insure the future.
For Saks’ McKee, market share declines are “alarming,” she acknowledged. “Each one of us has to find our way, in the best possible way for our brand. I would break out singing Gloria Gaynor ‘I Will Survive’ but it’s not appropriate around this crowd.
“There is a real place for department stores in today’s world,” she continued. “In the Eighties it was enough to just sell things to people. In the Nineties we talked about personal shopping as a strategy, and today department stores have to become like our homes, where the customers are guests where we invite them to our homes to experience our brands.”
“We really have to sharpen our game in stores,” said Gennette. “The beauty of a store is to really have a narrative and to pull discordant pieces that are on the Web and present it in a way that speaks to fashion, speaks to the opportunities for experiences and human interaction.
“But there probably are too many stores, probably too many malls, so we have to figure out what the noble purpose of each of the stores is. In some cases the store might be a place for fulfillment, and you might shrink the square footage. It might be a showroom. There may be some stores in productive malls where you really have to raise your game, focus on experiences, and make sure your sales associates are equipped with the best technology to counteract the computers that every customer wears with their mobile device.
“It’s the smells. It’s the sights. It’s the touch. It’s the feels. So we are all going to have to be better retailers to keep on top of where customers is changing,” he said.
The executives — merchants at heart — spoke of another mine field — markdowns and too much emphasis on finances. “What concerns me most is the markdown,” said Walker-Smith. “It drives your sales line but erodes your profit and erodes the true customer value and experience. That’s what scares me and that’s what’s happening in London.”
“Retailing lives and dies by the spread sheet. Fashion lives and dies by the product,” McKee said. It’s about getting people to fall in love with the product and in love with the shopping experience, she said. “Then you have a successful formula for retail.”
At Saks, McKee cited the challenge to properly showcase the 2,000-plus brands in the 750,000-square-foot Fifth Avenue flagship. “We have to focus on what we can affect. You can’t be stars in every game. We chase that magic equation of success, how we can enhance the retail theater to make it more exciting.”
According to Gennette, department store success requires “developing a different cadre of talent. Most retailers today pretty much have different silos between the team handling online and the team handling in-store. The best retailers are seamless. We have a real obligation to cross-train to make them think like a customer. There is a huge push in omnichannel to basically cross-train our people. You can’t teach smart and you can’t teach aggressive.” His idea of what makes for real talent — agility, the ability to collaborate and curiosity. “We are taking generalists, that operate as omni buyers, and starting to pull apart those responsibilities that get in the way of really being students of pop culture.”
According to Walker-Smith, it’s better to shut down than let down. “We just switched off our online because we were letting our consumer down,” he said.
It’s also time to show some humanity, he suggested. “The customer of these megastores is actually getting turned off by the noise, the aggression and the lack of true service.”
McKee wouldn’t disagree. “Charm is one of the most undervalued things in business today. People respond exceptionally well to charm. It’s a challenge for department stores today, especially when they’re very large. That element of charm leads to the need for personalization, to tailoring the sale to different customers.”
At Saks, where 82 percent of the clientele are women and the average age is 48, “We are spending a lot of time on training, on the attitude and approach, from the meet-and-greet to the first impression. We might have people who have been there 10, 20, 30 years. How do you get them to be emotional about the product, passionate about service, how do you get them to exceed expectations. Service is what brings customers back.”
So does the right product, which trumps price. “A gut and a feel for this is really important,” said Gennette. “If you populate your store with merchant product that really addresses what they believe the customer is doing, I don’t think that price is really going to be the determinant.”
“I don’t think price drives loyalty,” added Walker-Smith, adding that when he took over the beauty department at his previous job at Selfridges, he discovered that “gift with purchase does not drive loyalty, it just drives a bag of stuff that nobody wants.”
The “friends-and-family” phenomenon is a complicated issue, the retailers agreed. “Exposing brands to hundreds of days of discount, we are all in this together,” Gennette said. “It pushes us to look at a level of exclusivity, so you are not as exposed as you would otherwise be.” Friends and family, “I don’t know that it is going away in the near future.” The situation is “fraught with very tense negotiations with vendors. They are highly concerned with what’s going on with pricing.”
Exclusivity, getting your brand profile and starting to reduce promotions is the proper path for Macy’s, Gennette suggested.
Across the sector, women’s apparel is not as robust as it once was, though according to McKee, “I wouldn’t see it as dragging. It clearly depends on what level of ready-to-wear we are talking about. There is still no price resistance at the top end of the market, and both the top end with designer wear and the low end, like H&M, have raison d’etre.” But the middle market is challenged, she said. “It’s about making that middle market not be such a gray area and to give it a point of discernable difference.”
“I do think the apparel business has been depressed and certainly you have seen some shifts into some of the accessory categories,” Gennette said. “But I think the future store is going to be a different cocktail of goods and services and different operating models.” In the U.S., it’s mostly a curated model, Gennette noted. But with new licensed products and shops and a return to categories that were dropped by department stores due to economic imperatives at the time, “the department store could really be the mall of the future,” Gennette said. “We have been overreliant on women’s apparel.”
“There is an opportunity to do things in a different way,” McKee said, adding that Saks has just started a fashion-to-go service in New York and will be expanding it to Miami and Beverly Hills, with stylists visiting homes with products and spending time with customers.
“Retail, it is about innovation, and less about the margin, but we’ve got to keep our finances happy,” McKee said. “It’s also about editing, getting off the heroin of friends and family. I did not have any friends and family when I came to the United States. What is friends and family?”