Can the American department store be saved? 10 retail experts weigh in
'It's about learning what works, abandoning what doesn't, and continuing to test the boundaries of what's possible'
American department stores have had a rough couple of weeks, with many reporting less-than-stellar holiday season results and predicting that their Q4 reports will miss expectations.
Macy’s announced last week that it would eliminate 4,800 positions after a disappointing holiday report, and Kohl's is reportedly mulling going private after failing to boost sales amidst its "Greatness Agenda" turnaround effort. Even Nordstrom, the shining star of the space and usually seen as a sure bet, was downgraded from "buy" to "neutral" by Citi analyst Paul Lejuez. With Nordstrom now facing the pressures felt by all department stores — particularly, declining store traffic and larger competition from big-box stores — "we have a hard time telling investors to buy [Nordstrom stock] at this time,” Lejuez said.
In an effort to revitalize their stores and appeal to younger consumers who are spending more on experiences over hard goods, U.S. department stores are investing millions of dollars into luxe renovations and souped-up in-store experiences. Macy’s just unveiled a millennials-focused basement, filled with selfie stations and popular teenage apparel brands, while Bergdorf Goodman recently opened a swanky revamp of its jewelry floor. A recent article in Business of Fashion summarized some of the motivation behind these moves: It’s a plan to “bring back the magic to businesses built on nostalgia."
The question is, will these makeovers be enough?
RetailWire, an online retail discussion forum, asked its BrainTrust panel of retail experts the following questions:
- How important a role should nostalgia play in reviving the department store format?
- Is there a department store operator inside or outside the U.S. that you think has the best handle on what it will take to succeed in both the present and the future?
Here are 10 of the best comments from that discussion. Comments have been edited by Retail Dive for content and length.
1. Make the customers want you
Christopher P. Ramey, President, Affluent Insights: The thought that "Nostalgia" could play a role in a department store illustrates how creatively bankrupt the concept may be. Jack Welch wrote, "If the rate of change on the outside exceeds the rate of change on the inside, the end is near."
Department stores should be focusing on millennials who have no concept or need for nostalgia — they're already annoyed at how far behind most department stores are.
Reinvent the category. Do something innovative. Make me want to walk into your doors or visit your site; give me a reason to want to buy something from you. The old ways don't work like they used to work. And it seems few have a clue to bring back any magic. I'd rather the silence of my computer to the babble of another bad salesperson.
2. Be like Amazon
Arie Shpanya, Founder & Executive Chairman, Wiser: Nostalgia doesn't need to play a role here. The retailers that are successful are the ones creating new experiences that improve the shopping experience. Department stores need to develop a fearless attitude like Amazon has in order to move forward. It's about learning what works, abandoning what doesn't, and continuing to test the boundaries of what's possible.
3. Focus for success
Larry Negrich, Director, Business Development, TXT Retail: Department stores do have the ability (potential) to deliver a variety of rich shopping experiences to their target shoppers. Realistically identifying the bases to target and sticking with merch and marketing that appeals to these bases seems to be the issue in many cases. Being everything to everyone in order to drive quick sales gains is a strategy hard to achieve in the short term, and distracting and disastrous in the long term. Tech definitely helps execution, but brand is power.
4. Adapt to a changing era
Martin Mehalchin, Partner, Lenati, LLC: The traditional department store model comes from an era when retail was organized and run as the endpoint on a long supply chain. The world has changed to one where consumer-centric business models win. Forget nostalgia and focus on understanding and serving the consumer.
5. Ron Johnson—the original disruptor?
Lee Peterson, EVP Brand, Strategy & Design, WD Partners: I think it's time to move as far away from nostalgia as possible. I'm going to say this knowing that many of you disagree, but what Ron Johnson was attempting to do at Penney's was spot on in terms of what department stores need to have happen (his methodology might have been off, I'll admit): blow it up. If you recall, he was talking about a "Town Center" in the middle of the store, better lease holders, more innovation and "hang out" space, omni-everything, better, simpler web commerce, and yes, pared down/simpler pricing models. Everyone forgets he was one year into a five year plan that at least to me, looked pretty painful, but also spot on.
Sad to say, but the Penney's experience/example is one that most department stores are still stuck in: short term thinking 101. Get over your history. Step up to 80 million new customers that don't care about that.
6. Who can take things to the next level?
Naomi K. Shapiro, Strategic Market Communications, Upstream Commerce: Nostalgia is for yesterday's shoppers. While those shoppers control a large piece of the revenue, they are not the ones taking shopping to the next level. Those shoppers are younger and know how to shop both in the store and online. These are the groups needing to be targeted.
As to a "department store operator" who can take things to the next level? Isn't it Amazon???
7. Nordstrom’s troubles
Phil Rubin, CEO, rDialogue: The reason Nordstrom is no longer going to outperform isn't the warm weather; it's that they have succumbed to the myopic "pressure" of promotion and the belief that more is better. Yes, Nordstrom does some things very well and better than others, but it's no longer enough of a differentiator and certainly not enough of a reason to visit a physical store.
8. It’s all about the fitting room
Marge Laney, President, Alert Technologies, Inc.: Department stores mainly sell apparel and the decision to buy apparel is mainly made in the fitting room. Department stores have done little to improve the fitting room experience. Making the sales floor more fun and engaging is easy. Making the fitting room more fun and engaging is hard. In order for department stores to compete at full price with their specialty store and discount rivals, they need to step up their fitting room game.
The three things that need attention are: design, service and technology. Some have made headway with fitting room design, but service and technology (that works) is still lagging or in most cases non-existent.
Creating an engaging fitting room experience that brings the brand into the fitting room through design and delivering service that meets the expectations of the customer should be an investment priority.
9. Shifting the core of retail
Tom Redd, Global Vice President, Strategic Communications, SAP Global Retail Business Unit: Nostalgia works for the seasonal stuff and holidays or special events. Macy's does this well but does not promote it enough. The lady who invented the Miracle Mop is at the Herald Square store this week. This is an old way of pulling in Macy's regulars and new shoppers. This should also happen on a more regional basis. Millennials and Generation Z shoppers love stars of any type. Another great TRedd idea is to really shift the Millennial fashion spaces during Comic-Con weeks. Not a few simple changes but major Comic-Con shift.
Many retailers are shifting to the Galleries Lafayette-style of store-in-a-store. Little boutiques surround a floor. This is a major style in EMEA dept stores.
Another great store is Kaufhaus des Westens in EMEA. Their Berlin store has a pen/school supplies/home office department that is amazing. Expanding areas like this in a department store in the Kaufhaus manner draws new business. Their pen space in this area has only nice gear for writing — this is not an Office Depot department. I bought about six new Lamy pens that I really needed. Spirit of department stores: the display and environment convince you that you REALLY NEED certain merchandise.
Time to change the core of retail — the department store.
10. Mid-price, beware
Kevin Graff, President, Graff Retail: If nostalgia were all it took to succeed, we would still have horses pulling buggies, vinyl records for sale everywhere, and Etch-A-Sketches would have been the hottest gift this Christmas!
The reality is that most department stores are being out-retailed by specialty retailers outside their doors. Let's face it; you can get better product selection, better pricing (higher and lower), better merchandising and better service most everywhere else.
That's not to say that higher-end urban-based department stores can't/won't cut it in the future. They stand the best chance to provide a differentiated experience.
It's the middle-of-the-road department stores who discount away all profits in suburban locations that are on shaky ground. Their time has passed.