Department stores might be a shrinking breed, but not all are shrinking violets.
After years of bankruptcies, mergers and consolidations, the statistics show that those with real staying power — notably, Federated Department Stores Inc., Kohl’s Corp., Nordstrom Inc., the Neiman Marcus Group Inc. and J.C. Penney Co. Inc. — still command the lion’s share of traffic for apparel and accessories.
According to the latest market research on shopping patterns, commissioned by WWD and conducted by Synovate, of an entire sample of 2,935 female consumers, 34 percent select department stores most often to fill their personal clothing and accessories needs. Discounters took a 30 percent share, and 23 percent shop specialty chains.
Forty-two percent of shoppers aged 50 and older said they’re more inclined to shop department stores for their clothing and accessories, whereas 26 percent of these more mature customers frequent discounters most often and 11 percent often shop specialty chains.
Among 13- to 17-year-olds, department stores didn’t fare badly, either: Twenty-seven percent shop department stores and discounters scored the same percentage, while specialty stores attracted 38 percent.
But for department stores to stay alive, retailers and analysts say they must:
- Create more compelling shopping experiences.
- Be less reliant on malls, where traffic has been diminishing, and focus on off-mall sites.
- Get quicker deliveries, higher product turnover and increased merchandise exclusivity.
- Broaden the offerings to food and other categories that department store retailers abandoned in the past two decades.
- Replenish talent, which is getting scarce, for fresh approaches.
The two big turnaround stories of the past two years are Nordstrom and Penney’s, while Federated and Neiman’s have been consistent performers. Industry sources cited Penney’s for its successful centralization implementation, and upgrades in merchandise quality and in presenting fashion trends.
Nordstrom was cited for its quality merchandise, depth of assortment and service, and for starting to catch up with technology to better control inventories, after long using outmoded systems. “They were always good at front-of-house. Now they’ve improved back-of-house,” said one consultant.
“We are keenly aware of what is going on around us, and we are focused on things within our control,” said Nordstrom spokeswoman Deniz Anders. “That means offering our customers a quality shopping experience and fresh and compelling merchandise.”
Anders said one factor in the store’s success is that “customers are really responding to fashion right now” and to the store’s Savvy department, which offers trend-driven, contemporary merchandise. Also, last year, the company completed its rollout of the Online Personal Book, which helps salespeople build relationships with customers. It reminds salespeople to notify customers about new merchandise arrivals, special events or sales.
Regional players, such as Gottschalk’s, based in Fresno, Calif., remain vulnerable, though Belk Inc., a southern regional, is starting to shine. Belk in April announced a deal to purchase Saks Inc.’s southern group of department stores, and through restructuring, has a stronger capital structure. The chain also has lots of loyal shoppers in many of the midsize markets, where it dominates, and has a focused presentation. Belk operates smaller stores in many locations, compared with Macy’s, and the smaller units require less investment and maintenance.
However, with the Federated-May merger, “the whole sector gets a new halo,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. “The standard Federated-May can set for manufacturers and itself, in terms of superior presentation, service and differentiation, will create a better situation for department stores overall. Those that create an emotional experience for customers, and not only sell product, are the ones who win. Target sells an experience at the discount level that is better than the average. Neiman’s sells an experience at the luxury level that’s better than its peers. Both stores do well.”
The higher the income, the more likely department stores are the venue of choice. According to the survey, 39 percent of those with $100,000 incomes or higher shop department stores, only 13 percent shop discounters and 31 percent shop specialty store chains.
With incomes from $75,000 to $100,000, 40 percent prefer department stores, 24 percent seek discounters most often and 23 percent were often in specialty chains.
The balance shifts, though, moving to lower-income brackets. For example, among shoppers in the $50,000 to $74,999 income bracket, 32 percent prefer department stores, 37 percent shop discounters and 20 percent shop specialty chains.
At the $35,000 to $49,000 income level, 28 percent chose department stores most often, 46 percent picked discounters most often and 15 percent usually frequented specialty chains.
“We feel ever more optimistic about the unlimited opportunities of Bloomingdale’s,” said Michael Gould, chairman and chief executive of the Federated division. “We are very focused. We have a clear identity of who we are and who our customers are. We have differentiated ourselves and continue to differentiate on a daily basis from department stores. We want to play in the field of upscale specialty stores.”
Bloomingdale’s has been emphasizing contemporary brands, exclusives and cleaner sight lines, while reducing signage and price promotions, and enhancing service and housekeeping.
“Certainly, Federated has redefined merchandising in the department store sector. They are clearly the leaders,” said Ken Lakin, chairman and ceo of Boscov’s, the Reading, Pa.-based department store chain. “But I do firmly believe that sales have stabilized at the regional level, and that there is clearly a role for the so-called regional department stores that can do well in today’s environment. They are catering to secondary markets, have the ability to use local media, and can be more flexible and adaptable to local economic conditions.
“We are doing all right,” Lakin added. “Boscov’s had a very good first quarter and April was particularly good. May was a little disappointing, primarily because of the unseasonable conditions in the Northeast. June is coming back pretty nicely. We’re coming off a good year, although it all happened at the very end, which is typical. It’s competitive.”
Edward Wilkerson, designer of a bridge collection that bears his name, advised department stores to check out upscale specialty stores, particularly some overseas. “Barneys [New York] in Japan is a tour de force in terms of visually presenting the merchandise. You feel like you’re in an environment of luxury and you want to buy it. In New York, everything’s the same. Lovely, another store in Japan, makes you want the merchandise and they keep you in the store. There’s so much going on.
“There’s a lot that can be done. I recently visited Saks Fifth Avenue in Costa Mesa, Calif.,” he added. “Its new visual person is really getting it right. The company is revamping the store floor by floor, and shopping for merchandise around the world, including Indonesia.”
Larry Leeds, chairman of Buckingham Capital Management, said, “Listen to Terry Lundgren [Federated’s chairman and ceo] and follow his message, and department stores may very well flourish again. Terry is the first modern department store executive who recognizes the need for fashion with a general twist. He recognizes the need for discipline without overbearing limitations, which deprive the stores of fashion. It involves a genuine team relationship between the vendor and store. Federated recognizes different cultural and demographic issues by store location and knows that it can not be cookie cutter.”
Specialty stores stole market share from department stores by offering customers a more personal and less stressful environment, said brand consultant Catherine Sadler, who was chief marketing officer at Ann Taylor Stores Corp. until founding her eponymous consultancy firm last year.
“People loud and clear said they wanted better customer service, better return policies and a more defined point of view [from department stores],” said Sadler. “At the end of the day, there are aspects to department store shopping that will always be very compelling to a large group of consumers, from the ability to cross shop to strong promotional ability. What we’re seeing is the department store awakening to the opportunity.”
In addition, Sadler said, some department stores are offering a better shopping environment and are connecting with customers by developing a point of view, which involves private label programs and in-store events. That point of view, she added, becomes “an umbrella for everything that is within the store and so the customer understands, just as they do when they’re dealing with a brand like Ralph Lauren.”
“Our culture’s changing quicker and quicker, and I think the stores are trying to address that,” said designer David Meister. “I don’t think department stores are any less valid. It’s just a matter of how they reassess and how they position themselves.”
Stores are reaching out to customers by tying into current cultural events such as movies and celebrities, making the shopping experience “a more personal thing,” said Meister, who does store appearances to meet shoppers. “You are seeing more and more of that kind of thing — anything to make it special or more fun or more entertaining to the customer.”
“Every major department store has targeted a specific consumer,” said Hank Sinkel, executive vice president of sales and marketing at sweater firm Hampshire Designers. “It’s, ‘What’s you’re lifestyle?’ It could be a contemporary person who’s 60 years old. That’s really much more of how they’re starting to think and how they’re starting to merchandise their assortments and stores. I think that’s the way people buy today. They want to have a concise, clear presentation of clothes that fit their style of life.”
Department stores are a work in progress, he said.
“The department stores are not rolling over and playing dead,” said Sinkel. “They are very aggressively pursuing these new challenges.”
“Department stores are in transition, not just in the U.S., but worldwide,” added Walter Loeb, the retail analyst. “They have lost focus on the customer and allowed specialty stores to gain market share. With lingerie, for example, most department stores have shrunk the space because of Victoria’s Secret and very few stores still have full day- and nightwear assortments.” One exception, Loeb noted, was Galeries Lafayette, which he said has a “sexy and attractive” lingerie floor.
There are very few areas where department stores still dominate, although watches, coats, accessories and cosmetics are still among the major attractions, Loeb maintained.
Loeb’s recommendation: Send buyers to more markets, and don’t be overly centralized.
“Department stores can’t buy the traditional way anymore,” he observed, adding that they must maintain a presence in all major markets, whether it’s High Point, N.C., for home, or Los Angeles for contemporary fashion.
Loeb also recommended that department stores press for faster deliveries to change the selling-floor presentations more often and operate more like Hennes & Mauritz or Zara. He also said they have to continue to reduce the sales image, step up direct mail to the most loyal customers and should bring back fashion coordinators to the ranks to help direct the buyers. Many have been cut from the workforce, though Macy’s East has rebuilt its fashion office over the past year.
“Traditional department stores have sort of taken their eye off the ball,” said Jack Kyser, chief economist with the Los Angeles Economic Development Corp. “And until they figure out who the customer is and what they want, their future is pretty grim.”
Certain traditional department stores, such as Robinson’s-May, Dillard’s and Saks Fifth Avenue, are undergoing identity crises, and are struggling to carve a niche in a market increasingly dominated by Wal-Mart and Target on the low end, and Neiman’s and Nordstrom on the high end.
“We could take some people out, blindfold them and take them to Rob-May or Macy’s and they would have a hard time saying what store they were in,” Kyser said. “Basically, they are interchangeable.”
He’s still skeptical, even with the Federated-May merger. “[Federated is] biting a big chunk of trouble, particularly in Southern California, with the overlap in chains. When you have to shut stores and fire people, you generate a lot of ill will.”
However, Cheryl Holland Bridges, assistant director of the Center for Retailing Studies at Texas A&M University, praised Federated for refining its merchandise selection. “Their product mix is more focused and higher quality, and their private labels have done extremely well,” she observed. “Customers trust them because of the quality and fashion rightness. Also, some successful department stores are realizing that too much inventory is a bad thing not only from a financial standpoint, but also from a customer standpoint. More-focused inventories seem to make better shopping for the customers.”
Bridges, a former senior merchandising officer at Ashford.com, Batus and Federated, added that “so many stores have gotten away from personalization and customer service, but the winners not only have the right amount of sales associates, but associates who are product masters, who are technically adept in understanding the product so they can explain it.”
Winning department stores also work with manufacturers to speed product to market, observed Ed Vierling, president of Hagger Women’s Wear, which sells the Hagger and Multiples labels to department stores. “They are starting to get orders to manufacturers in a more timely manner to justify the shorter deliveries they request,” he said. “They have to give a little bit, and we have to give a little bit, to achieve shorter timelines.”
Lois Huff, vice president and manager of soft goods at Retail Forward, said, “A tipping point in the industry came when J.C. Penney moved to a much more fashion-focused perspective at value price points and Federated Department Stores bought May Co.” While the two events strengthened malls, “Dillard’s and several of the Saks Inc. nameplates face tremendous pressure, and must define a position that’s going to resonate with consumers.”