Byline: Thomas J. Ryan

NEW YORK — When it comes to department stores, there are too many look-alikes.
According to the four participants in WWD’s recent financial forum, department stores, particularly with the invasion of category-killers, are suffering from too much sameness and must become destination stores themselves. Walter Loeb, of Loeb Associates, said most department stores are failing what he called “The Blink Test.”
“You go into a store, you blink, and you haven’t the foggiest idea where you are, because they’re all so similar,” Loeb said.
While profits at department stores have revived over the last two years largely reflecting cost cutting, revenues have generally remained sluggish.
“What I think the department stores are saying right now is that with not a lot of growth in our business, the only way we can get earnings per share up is to cut costs, but you can’t cut costs into prosperity,” said Peter J. Solomon, who heads his own investment firm.
Department store sales are being hurt by the popularity of category-killers such as Bed, Bath & Beyond, Sports Authority, and Best Buy, as well as specialty stores such as Ann Taylor and Talbots. These chains offer focused assortments that today’s time-strapped consumer clearly understands, the experts said. Moreover, the homogeneity at department stores will likely get worse, as the three national chains — Dillard Department Stores Inc., Federated Department Stores Inc., and May Department Stores Inc. — may find it difficult catering to local regions.
Loeb said department stores have to take advantage of the fact that they are leaders in fashion.
“The department store is the only place where you get new ideas,” said Loeb. “It is incumbent upon department stores to find a trend and to create.” He said several department stores are not willing to take risks “because they’re looking over their shoulders and saying ‘we’re hired hands and we don’t want to upset any shareholders’ feelings.’
“However,” Loeb added, “I sense that at least there is some movement towards telling what colors are in and telling the customers what to wear.”
The panelists also agreed that the department stores must focus on their best customers, although they differed on the chances that ever-larger department stores will be able to meet individual needs.
Loeb said the key could be technology, which is particularly efficient in analyzing purchases on credit cards.
“They have the information; they just haven’t used it,” Loeb said. Analyst Peter Schaeffer, at Dillon Read, was less confident that major department store chains would be able to meet the needs of different regions.
“All of a sudden the regionality is gone and then what you have is the same merchandise at Macy’s in New York, Macy’s in Florida and Macy’s in Las Vegas, and that’s a disaster,” he said. This will give an edge to regional department stores, he noted.
Another problem is that the need for fresh new looks may be frustrated by most department stores’ push toward private label assortments and by the difficulties small apparel firms have reaching the shelves.
Private label merchandise may increase margins, but it often stifles creativity, they said.
“The unfortunate thing is that private label is likely to be all perspiration and no inspiration, and again you’re back to the initial question of how do you bring in the customer,” said Loeb. “It needs to have more design, more excitement, and more color, and it has to have more individuality. The creativity has to come from designers and Seventh Avenue.”
Smaller firms, often a source of newness, may not be able to fit into the nationwide matrix since they can’t supply the whole country. In addition, these firms are having a hard time breaking into department stores because of demands for space by major brands and designers.
“The major names guard their space very jealously and it makes it hard for a smaller firm, even if they are successful,” said Elizabeth Eveillard, managing director at PaineWebber.
Solomon said the main problem is that “there needs to be a reason to go to a department store,” noting that over the years the emergence of new store formats and situations have chipped away at these reasons.
With the emergence of major credit cards, department stores lost their stature as the only place that offered credit. The emergence of the mall created their main competition, the specialty store. “Then it did something worse, it should have crushed immediately the first supplier that opened a store next to it. When it did not crush that first moment, it put itself in another level of jeopardy and the jeopardy levels of department stores keep coming on one after another,” Solomon observed.
Eveillard also pointed out that department stores are losing predominance in home to category-killers.