Dinosaurs, Dodo Birds and Department Stores
By George Anderson
Annette McEvoy, a retail analyst and president of A. McEvoy & Associates, is among those who believe the prognosis for department stores is grim.
“Some of them will not make it,” she told The Boston Globe.
Ms. McEvoy is far from alone, particularly in her assessment of so-called middle tier department stores that are watching share being chipped away on the high-end by luxury retailers
and by discounters for the mass market.
“You’ve got your Macy’s stuck in the middle,” said Steve Spiwak, an economist at Retail Forward. “For the necessities in life, people want to pay as little as possible so they
go to the Targets of the world. For the rest of the stuff, they like to splurge on the special items, and those are sold at Coach or Neiman Marcus.”
According to Retail Forward, overall department store sales dropped from 11.1 percent of non-automotive retail sales in 1994 to 6.6 percent last year. At the same time, Wal-Mart,
Target and warehouse clubs were seeing their share go from 3.2 percent to 7.9 percent of the total.
Moderator’s Comment: Is the middle-tier department store an endangered species? What will it take to save it?
One of the department stores stuck in the middle that has managed to buck this trend of late has been J.C. Penney. The company has focused its merchandising
efforts on exclusive fashion brands. According to the Globe report, the chain’s turnaround plan initiated under former chief Allen Questrom has been successful. Excluding charges
from its former Eckerd drugstore unit, the department store chain has gone from a $705 million loss in 2000 to increasing profits in recent years. –
George Anderson – Moderator
I would say that SOME department stores are endangered and, that after the mergers and right sizing, a handful will remain strong (Penney’s among them). Kohl’s benefited from a geographic advantage for a time – placing softlines stores in underserved areas (where a mall was just a bit too far away), yet that strategy eventually reached saturation. Their otherwise unspectacular brand offering, rounders of basics and spotty service won’t overcome that. May Company began standardizing their stores and giving irrational real estate to over-exposed brands years ago … just when they should have been working on differentiated strategies to meet the growing encroachment from Wal-Mart and Target. If Federated rolls out Bloomingdale’s SOHO concept to carefully-chosen urban areas and if consumers respond favorably to the Macy’s hyphen pull, Federated and Penney’s will coexist as the “better” and “best” softlines anchors.
I agree with sales_pro and would add fun and enjoyment to the experience. Going into Dept Stores is like cleaning the bathroom! It has moved to a low involvement, low experience activity. This needs to be reversed and someone will figure it out – Trader Joe’s Dept. Stores?
This is essentially Class Warfare in America fueled by Middle America’s tightening household budgets and the need (not the desire) to support the rapidly growing Chinese economy by purchasing low quality items.
The “Have’s” will continue to shop at upscale stores and the “Have Not’s” will continue to shop at Wal-Mart, Dollar General Stores and Target. The high end consumer and the low end consumer, combined, make up a much smaller segment of the American consumer population than those caught in the middle.
If mid-line retailers are serious about attracting their customers back to the stores, they need to get in gear with selling higher quality goods at a reasonable price. Most middle income families would rather dress their children in quality name brand clothing.
If American retailers and American consumers do not wake up and realize what is going on in China, we are going to have only 3 professions in America: Doctors, Lawyers and Wal-Marter’s.
Wake up America and do the math.
Easy fix: deliver quality, value and customer service! This requires management and work! Anyone up to it?
From the perspective of retail industry consultants, who live every day with Schumpeter’s “Creative Destruction,” it probably doesn’t matter to you if a department store goes belly up because there’s always something new out there.
From the perspective of people who work in the field of urban and commercial district revitalization, where department stores are the primary anchor, driving people traffic to the commercial district, a source of spectacle and vitality, a major driver of pedestrian activity which helps contribute to safety and vibrancy in the commercial district, a large source of sales tax revenues in cities that have long lost out to the suburbs over retail, and often a source of retail social capital leadership among downtown merchants and business leaders…this is a big deal.
Birmingham Michigan survived, even thrived, in the face of the Detroit area’s malling, because it had branches of Crowley’s and Jacobson’s, two small chains that are now deceased. Fortunately for Birmingtham, those companies lasted long enough for trends to catch up to what Birmingham had/has, but the loss of those department stores is changing the mix of stores and services significantly now; retail is being lost to restaurants and night time activities, etc. In short, Birmingham is a different place without department stores.
Downtown Washington is anchored by a Hecht’s department store built in the early 1980s. Maybe May stinks at execution (from reading the posts here and articles elsewhere), but they don’t at that store. It’s not Macy’s or Bloomingdale’s in Manhattan, but it’s a nice, interesting well-done, attractive place to shop, and I go there all the time. Without Hecht’s downtown, it’s hard to imagine anything else coming along in that long period from post-riot 1968 to the now exciting urban area post-1998.
Without a Crowley’s, Kerns, or Hudson’s (now Fields) in Downtown Detroit, is it any wonder that it is so difficult to jumpstart much in downtown Detroit (the Compuware Center, with a Borders and other retail, is starting things up again…)?
For those of us in the field of community revitalization, we need department stores, and we need them to thrive. Department stores can be our “competitive advantage” and our “unique selling proposition” if we can get them to be great, interesting, and exciting places to be. (I haven’t been to Harrod’s, to the new Selfridges or to the renovated State Street Field’s store.) That’s the challenge we have, to help our department stores be great, because the vitality of our traditional commercial districts depends on it.
It probably is endangered. How to save it? Should we? I think we spend too much time talking about how to “save” certain retail segments like department stores and supermarkets. Perhaps we should focus more on how to serve consumers of the future rather than than saving outdated formats. What can we do to save the typewriter industry now that we all have computers? Nothing, because we shouldn’t.
I think a lot of department stores are missing the key middle-American demographic: people who want quality in some things and low prices in other things. I would rather buy good clothing brands at Nordstrom and inexpensive household items at Target. That leaves the May Co. store in my market in the middle with nothing I want to buy.
What I miss are the elegant downtown department stores of my childhood, with a toy department and a millinery department and an elevator operator (“Second floor, ladies’ coats, stationery, confections”), plus a tea room where your grandma could take you for chicken a la king and a butterscotch sundae.
“Some of them will not make it.” Thanks, Ms. McEvoy. We were on the edges of our seats and our collective breath was bated. Now we know the truth and can sleep better at night for knowing it.
David Livingston responded most succinctly, “Should we [save it]?” But to “rllayman,” I’ve gotta’ say that saving the buggy whip plant because it’s a big employer and major source of traffic and vitality is short-sighted. That traffic, vitality, and the taxes accompanying them are rapidly diminishing. As these so-called “source[s] of spectacle and vitality” begin to drive less traffic and ancillary commerce, will you still advocate artificially propping them up? Or, will you advocate supporting the “next big thing” to achieve the same results?
I realized after writing that people might think that I was trying to defend not changing (the last response in the thread). No, you can’t prop up something that doesn’t work. I guess, and maybe I am just antediluvian, I think there is room for excitement in the department store. Maybe because I pretty much stick to traditional center cities, it’s the case that I am out of touch. Or maybe, using the new downtown Field’s model, or my experiences with Hecht’s downtown DC store, Macy’s in San Francisco, Nordstrom stores that have the piano, etc., the department store as a vital center of commerce is going to become an exclusively downtown-urban experience, and the suburbs are going to become increasingly big box focused, and this is merely another aspect of retail market segmentation into ever smaller segments.
All department stores are in trouble. Sales and profits are down and unlikely to bounce back anytime soon. The problem is that the entire department segment suffers from a chronic case of the “look-alike syndrome.” From the customer’s perspective, the market has evolved into a brilliant shade of gray where no one company stands out as a unique competitor.
Everyone carries the same merchandise from the same vendors in the same location with the same pricing and the same advertising and promotions. No wonder the customer isn’t excited about buying. It is almost as if the entire department store segment has adopted a socialized form of merchandising. In reality, you can’t tell a Federated store from a May Company or Dillard’s store. How in the world did the market get into this predicament?
In a nutshell, the department store segment has evolved into an oligopoly, or a market controlled by only a few competitors. Although the evolution may have made economic sense, I don’t think anyone anticipated all of the potential hazards, especially the look-alike syndrome. The primary drivers of the consolidation were growth and market share dominance.
The first and perhaps biggest issue is the disappearance of dozens of great local and regional department store companies who formerly provided unique and personalized merchandising strategies.
Let’s take a stroll into the past and visit some of the malls of America. If you close your eyes and remember, you will see some great old department store names like L.S. Ayres in Indianapolis, Bamberger’s in New Jersey, Carson Pirie Scott in Chicago, Donaldson’s in Minneapolis, Foleys in Houston, G. Fox in Hartford, Frederick & Nelson in Seattle, Gimbel’s in New York (Philadelphia, Pittsburgh and Milwaukee), Halle Bros. and Higbee’s in Cleveland, Hochschild Kohn in Baltimore, J. L. Hudson in Detroit, Jordan Marsh in Boston and Florida, Jones Store in Kansas City, Joseph Horne in Pittsburgh, Maas Bros. in Tampa, McAlpin’s and H.S. Pogue in Cincinnati, Stewart Dry Goods in Louisville, Prange’s in Green Bay, Sanger-Harris and Titche-Goettinger in Dallas, Rike-Kumler in Dayton, Thalhimer Bros. in Richmond, Wanamaker in Philadelphia, Woodward & Lothrop in Washington DC, J.B. Ivey in Charlotte, Goldblatts in Chicago, Emporium-Capwell in San Francisco, Davison’s in Atlanta, Denver Dry Goods in Denver, LaSalle & Koch in Toledo, Leonard’s in Ft. Worth, Meier & Frank in Portland, Sterns in Paramus, Strawbridge & Clothier in Philadelphia, Wieboldt’s in Chicago…and many others.
Most of these fine companies carried the family name of the founder that represented a tradition and commitment to their community. Each company had their own buying and management staff with unique and localized merchandising knowledge. The hometown department store was always able to read their market and customer better than the national chains that relied on centralized buying staffs.
The market is now dominated by three major competitors: Federated, May Company and Dillard’s. The economics may have made sense, but the consolidation destroyed the opportunity to maintain localized and regional competitive differentiation. The remaining major competitors used economy of scale to reduce expense and centralize many management functions. Eventually, the new department store conglomerates began to experience the same problems that befell most national chain stores, namely the inability to truly understand the local markets. The knee jerk response is that the local management is responsible for customizing the offerings to meet local requirements. But, in reality, the local management can only operate within the confines of a predetermined national merchandising strategy. For instance, if a corporate buyer makes a deal to put merchandise in all locations, there is little that a local manager can do to make the offering satisfy the unique, local needs. As a result, the New York stores have the same merchandise as the Ohio stores and those on the West Coast.
In addition, the national buyers are not able to buy for particular customers or for unique, local events. All customers are grouped into categories and demographic characteristics with the hope that the strategy will appeal to the majority. As a result, the new department stores have not been able to maintain the intimate relationships with their major customers that the old department store used to do routinely.
The vendor community has also played a major part in the merchandising transformation by mandating guidelines and requirements for location, presentation, pricing and advertising. Some vendor lines have established requirements for doing business with them on a take it or leave it basis. I suspect the great merchants from the fine old department store families are rolling over in their graves at the arrogance and dominance that some vendors have been able to implement in the new department store era. As a result, the department store market has evolved into a sameness that is best described as a brilliant shade of gray.
Eventually, someone is going to wake up and reinvent the department store. In the meantime, if anyone in the department store business is listening, the merchandising strategies you are using do not make sense as seen through the eyes of your customers.