Skip navigation
Retail Traffic

Doom to boom?

“Many department stores are doomed,” says R. Fulton Macdonald, president and CEO of International Business Development Inc., a New York-based consulting firm specializing in retail. “The handwriting has been on the wall for 20 years, and it's just a matter of time.

“I don't mean every department store will go completely out of business. But the ones that remain will have to re-invent themselves. Those that succeed will do so by recognizing their real strengths don't lie in physical stores, but in their ability to provide high fashion merchandise, selection and presentation, in stores as well as on the Internet. These abilities translate into strong brands.”

Lois Huff agrees. As principal consultant with PriceWaterhouseCoopers LLP in Columbus, Ohio, Huff senses that a number of current department store names will disappear. “The sector will consolidate down to a small number of players,” she says. “And this may happen very rapidly.”

Emblematic of these predictions, Target Corp. consolidated its own department store holdings under the single Marshall Field's name in January of this year. In one stroke, the traditional names of Dayton's and Hudson's disappeared from the marketplace, while Marshall Field's grew larger.

“One name gives us the opportunity to focus on a single brand at all levels of our business,” says Linda Ahlers, president of the new consolidated Target group. “This is particularly important for our Internet initiatives and the launch of our online gift registry that give us a presence beyond the markets where we have stores. These initiatives will be strengthened by a national brand.”

A study by PricewaterhouseCoopers suggests that the woes of the department store industry stem from too many department store names competing for a dwindling supply of dollars.

According to this study, conventional department stores (not including mass merchandisers such as Sears, J.C. Penney, or Montgomery Ward) accounted for 3.5% of total non-auto retail sales in 1990. In the year 2000, conventional department stores accounted for just 2.3% of non-auto retail sales. “We're anticipating that this will be down to 1.9% by 2005,” Huff says. “So over a 15 year period in which non-auto retail sales have generally risen, department stores have been getting a declining share of the total available growth.”

What has caused this? The growth of retail alternatives such as supercenters, interactive shopping, and discount stores — Target, in particular.

Between 1995 and 1999, PriceWaterhouseCoopers figures show the percentage of primary household shoppers purchasing in supercenters has grown from 39% to 58%. Likewise, interactive shoppers have grown from 2% of household shoppers in 1995 to 21% in 1999. In the same period, Target stores have increased their share of household shoppers from 43% to 52%.

At the same time, upscale department stores saw its share of household shoppers grow by a single percentage point, while traditional department stores lost a point.

What are the department stores to do? “You have to keep all of this in perspective,” Huff says. “The sector has many problems. But department stores still meet the needs of a huge segment of the population — those that want one-stop-shopping for a broad assortment of strong apparel brands for the family. You can't find those strong brands in discount stores.”

Survivors will leverage this basic strength by rationalizing the number of store names in the market. “You can't build a strong brand if you have a half dozen different store names operating across the country,” Huff says. “This becomes a matter of the big store names getting bigger, in an effort to create national brands.”

Survivors will also rationalize their private brand offerings. “This can be what sets a department store apart,” Huff says. “You find profitable supplier relationships and leverage your inherent strengths in merchandising.”

Department stores also need to address problems related to promotional pricing and the shopping process. Compared to discount stores such as Target and Wal-Mart with race-track layouts and grocery store style check-out, department stores make shopping a trial. Thirty years ago an afternoon spent getting lost in a maze of departments, chatting with sales people, and making an armful of purchases represented a pleasant outing. In today's tightly scheduled world, however, department store layouts represent confusion, frustration and delay to many shoppers, especially as these stores have cut back on service staff able to answer shoppers' questions.

“People still shop for brands in department stores,” Huff says. “Unfortunately, the department stores have trained customers to shop during clearance sales or special promotions. So shoppers are not going to department stores for the right reasons. This is the problem that is pressuring profit margins and forcing the movement toward consolidation.”

While no one predicts a return to a golden age of department stores, both Huff and Macdonald believe the merchants who leverage their merchandising strengths into single national names, focus their national and store brand offerings, remake their shopping experiences, and give shoppers reasons to buy other than promotional pricing will survive and even prosper.

Michael Fickes is a Baltimore-based writer.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.