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Singing a Different Tune: Dept. Store Naysayers See Hope Amid Gloom

Rumors of the demise of the department store are apparently exaggerated. Here’s a report on the state of the sector and challenges that lay ahead.

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NEW YORK — In an age of Wal-Mart dominance, price deflation and declining mall traffic, almost no one preaches the gospel of department stores, unless, perhaps, they are Terry Lundgren or Allen Questrom.

So even the always provocative Carl Steidtmann sounded a little loopy in November when he told 500 executives at a Fashion Group luncheon: “Younger consumers between ages 18 and 24 have defined the department store as their store of choice.”

Could it be that department stores — for decades maligned as retail dinosaurs slowly headed to extinction — have seen the light?

“There’s a ‘9/11 generation’ that is culturally more conservative than their parents and like department stores more,” Steidtmann, the chief economist of Deloitte Research, would later tell WWD.

It’s not exactly a revival in the works, but Steidtmann said department stores have an opportunity to attract younger shoppers, and the old dinosaur argument doesn’t fly. “People have been talking about the demise of department stores forever. Every 10 years you hear the same story. But they have come out of this most recent recession stronger than the past recession, which was about debt and leveraged buyouts, though some other department stores went out of business because they lost their franchise and had no reason for being,” he said.

“It reflected excess capacity. There still is excess capacity, but not as much. Department stores really have focused on productivity on inventories, sales and labor costs. They’ve closed stores that were under-performing, streamlined merchandising operations and managed their inventories better. The real challenge is to grow the top line. What makes it so difficult is price deflation, because of the impact of China,” though China is expected to revalue its currency in coming months. Casualization also reduces the average ticket size, Steidtmann noted. “The other big challenge is real estate. New malls aren’t being built. How do you take the department store concept outside the mall?”

That’s an issue, but perhaps more for the future. Malls are still magnets for young people — as evidenced by the crowds of teens hanging out at any mall nationwide on any given Saturday afternoon. “Malls are very attractive to young people, more so than strip centers where the older customer tends to shop because of the convenience,” said Questrom, the chairman and chief executive officer of J.C. Penney. “Kids go to malls to socialize and like shopping malls. We do a huge juniors business and a huge young men’s business.”
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