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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“All of a sudden, management has finally accepted the fact that they have a problem,” added Walter Levy, retail consultant. “Appreciating you have a problem is the first step, and Federated is further down the road addressing it, but I don’t think anyone has stepped up with a new conceptual breakthrough, like Home Depot Expo, which takes a holistic approach,” with new products and related services to create home environments.

For department stores to survive, analysts advise them to:

  • Reduce the dependency on apparel and designer brands that have overshadowed the store’s personality.

  • Emphasize food and restaurants, home goods, gifts, wellness and weight-loss products and revisit categories like electronics that got dropped.

  • Develop off-the-mall formats, since malls have saturated the country and few are getting built.

  • Clean up pricing strategies. Markdowns often lack credibility and coupons confuse the issue.

  • Differentiate merchandise by lifestyle, rather than merchandising by brand. Discard the matrix.

  • Breed merchants with a feel for products and customers.

They also warn department stores to protect their market share in cosmetics with urban brands like Sean John and Phat Farm and increase share in contemporary and junior apparel. However, the recently announced Kohl’s/Estée Lauder and Boots/Target deals, and Sean John’s decision to open stores, suggest their hold on such categories may be weakening.

Still, the department store sector continues to consolidate and lose share and suffers from merchandise sameness and slim comp-store gains. Total retail sales of department stores, including national chains such as Sears, Roebuck & Co. and J. C. Penney fell 5 percent to $319.3 billion last year, from $336.1 billion in 2000, according to the U.S. Census Bureau.

According to NPD Fashionworld consumer data estimates, in 2003, department stores alone posted $31 billion in apparel sales, against $35.5 billion in 2000, and lost apparel sale dollars at about twice the rate as the retail industry overall.

“It’s an antiquated business model that worked for a consumer of another era,” said Robin Lewis, president of the consulting and publishing firm bearing his name. “They try to be all things to all people and it’s not working. They should focus on one consumer target, like Kohl’s focuses on the working mom. The real cracks in the model are structural. It’s a maze of departments that defy quick and easy shopping, and the location of the stores defy accessibility. These issues are not easily resolved. I think Selfridges is a good model, with entertaining lifestyle departments and brands that fit the lifestyle. Also, Selfridges allows the brands to run their own businesses in the store. That kind of change for these U.S. department store behemoths requires a magnitude of shock and awe.”
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