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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“I never thought department stores were dead. I just thought their products were stale,” said Hal Kahn, the former ceo of Macy’s East. “Our problem wasn’t getting the core customer. There were just too many of the same looks in too many channels of distribution. But in the last couple of years, through the development and expansion of limited-distributed resources, like urban and private label brands, Macy’s has been offering a lot of newness. The fastest- growing businesses cater to the young. And when the economy improves, there will be a return to dressier apparel.”

And there are other signs that Steidtmann’s bullishness on the sector might not be misplaced. Fourth-quarter results were strong and most retail executives have offered an improved outlook for this year. Meanwhile, stores are pushing ahead with proprietary merchandise programs, such as Federated’s INC and American Rag brands and May Co.’s Hotel Suite collection of better textiles, china, crystal and furniture. As a result, analysts are taking the view that the department store model can be reinvented once again, albeit with a lot of work.

“They are still getting squeezed by wholesale clubs on one end and specialties on the other, but department stores are much more aware of their issues and ready to address them,” said Carrie Shea, global leader of retail practice, Archstone Consulting. “For the last six years, there was some denial, some unwillingness to change merchandising strategies. The 2002 holiday season was a wake-up call, and for the past year, they’ve become much smarter about merchandising, inventory management, and making returns easier through the holiday season, partly by providing a better integration between Web sites and stores. They are also starting to invest more in loyalty marketing, providing differentiated service to most valued customers and understanding who their customers are.”

“There are fundamental needs that department stores satisfy,” noted Arnold Aronson, director of retail marketing strategies for Kurt Salmon Associates. “While they are surrounded by competing channels, they provide one-stop shopping. They put their reputations behind the products they sell, offer return privileges, and they reward loyalty with perks. Department stores have reached a point of some reenergizing and renewed enlightenment among select department store management. They haven’t turned a corner. They are turning a corner.”
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