what’s next

When was the last time you shopped for clothes or accessories at a department store? And when I say department store, I mean nothing short of a Macy’s. Let’s not count the popular secondary department stores like Marshalls or Ross or the department stores’ own secondaries like Nordstrom Rack, Macy’s Backstage and Saks Fifth Avenue OFF 5th.

If or when you did last grace the departments, did you linger and walk the floors like the good old days? Or was it a smash and grab raid like you were shopping online? Could you live without department stores in your shopping life? After all, you have never had more buying options for apparel or just about anything for that matter.

I ask these questions because you may have to consider life with fewer or even (well down the road, if ever) no department stores. The business press has been reporting the on the struggles of the US department stores for some time now. Recent poor financial results have increased the pressure on some big names.

The Business of Fashion just posted an excellent article on the subject, Why American Department Stores Are ‘Broken’.  Macy’s saw a 5.6% drop in year on year sales for the first fiscal quarter of 2016; Saks Fifth Avenue was down 5.7 percent, and the usually invulnerable Nordstrom dipped 1.7%.

Why are they broken?

• Retail in general is struggling despite all the usual economic parameters for strong retail sales currently set in ‘Go’ mode. The Business of Fashion outlines the reasons in another excellent article, “Why Aren’t Americans Shopping“. I couldn’t put it any better, so I won’t except to say that we live in a very different retail world post the 2008 Great Recession (aka “The GFC” or “The Global Financial Crisis”, as it is known elsewhere).

• Department stores haven’t changed they way they do business in practice or look and feel for years. Walk into any department store today and it looks like it did 20 years ago. Just buying up the next popular online site or simply posting more content on social media or having sales staff working off iPads and or jazzing up your advertising will not cut it in this millennial world. Its all about customer engagement. Even the edgiest marketers are still figuring out how to effectively influence millennials. I do like “The 5 Ways to Sell to Millenials” on Inc.com:

1.  Authenticity matters most

2. Realize you’ll be fact-checked–almost before you finish.

3. Make your point, and then shut up.

4. Make your message an emotional story.

5. TV? What’s TV?

Department stores are way behind the game.

• I heard an industry type on NPR last week state that many in the department store upper echelons have been in the system for their whole careers and that they may little or no feel for the new world of retailing. I’m not sure about this take. Surely someone involved in the running of a premium department store like Saks or Nordstrom or Bloomingdales is staying abreast of all the selling, promotional and demographic trends and needs. If not, then there will be some hefty pink slips making the rounds.

• Competition is fierce, very fierce. Marshalls and Ross are as busy as ever with both recording healthy increases of year on year sales for Q1 2016. We all know that traditional bricks and mortar apparel retailers have been losing business to the online sellers for a long time now. The scope and pace of the e-commerce effect is broadening and quickening daily. But its now not only the Amazons of this new brave new world that are throwing shade. Retailers now need to contend with popular re-commerce sites like thredUP which are essentially online thrift stores that allow you return good for free within a certain amount of days, and fashion share sites like Rent the Runway where you can rent clothes and send them back.

Where to from here for the premium department store chains?

I think we will see a significant physical and influential downsizing of the department store presence in the market while they attempt to polish their customer engagement by returning to what set department stores apart years ago – the destination shopping experience.

The department store experience should include:

• good quality restaurants and coffee shops pitched to the spending power of their demographic. E.g. Macy’s would have a cafeteria, Nordstrom would have something more upmarket. I would give them a mid-century modern look to hark back to the 50’s movies where people often seemed to be eating and drinking at the department store before or after a spot of shopping.
• personal shoppers, spa services, and parties for regular customers
• pop-up shops spotlighting new, innovative products.
• more store-in-stores run by the brands themselves along the European department store model.
• friendly and attentive sales staff
• easy and efficient return policies
• more bounce and pep to the look and feel of the stores. They should get ultra modern or mid century or something out of the ordinary.
• and most importantly when it comes to apparel, more focus on the products that people are wearing now and not what they will be wearing in 3 months. I agree with the Business of Fashion piece that calls for enough of “the “early” retail deliveries, which are increasingly out of sync with the physical seasons and result in markdowns during what should be peak selling periods, hurting full-price sales potential. “As it stands, Pre-Fall clothes are delivered from April through July, while Autumn/Winter clothes are delivered from July through October,” BoF reported in March. “Heavier items like outerwear and knits are often deeply discounted in January when cold weather finally hits.” 

I am sure it seems inconceivable to many that we could exist in a retail environment without department stores. They have been the big fish of the retail world for 150 years.

Fortune.com ran an article in January titled ominously, How American Department Stores Are Fighting Extinction. They concurred with many of the points that I suggested above.

Do I think a mass extinction is imminent? No. But things are going to have to change and change quickly. Department stores better figure out how stay connected and relevant or they will be left way behind in this ever evolving, ever accelerating retail environment and may not catch up.

Paul Brindley
Principal Adviser
paul brindley consults