GUEST EDITORIAL: DEPARTMENT STORES FACE A PRECARIOUS FUTURE

I am increasingly worried about the future of department stores. Jeff Gennette, in his many media interviews as he took over his new role of CEO of Macy’s, has stated that department stores are in a state of transition. I beg to differ with that analysis: I’m convinced that department stores are in a state of transformation so massive that it begs the question of what not to do but rather who will survive. Gennette laid out a series of steps that sound very logical and proactive…if we were in a different era. I believe the CEOs of the retail world are finally reacting to current conditions, but this is a far cry from a true transformation.

Gennette’s planned changes sound appropriate but fairly standard: Better, more exclusive merchandise. Faster turn times and faster product cycles. Fewer stores. Less promotions and more customer service. (Oddly a directive contradicted by his CFO.) But so what? Department stores in general look boring. In an era when consumers seem largely disinterested in buying apparel, we’re offering much of the same stuff, season after season. Same styles, same basics, same brands and then increasing the promotions to drive sales. While I contend that a change in content is absolutely necessary, that will not solve the industry’s longer-term issues.

JC Penney is closing 140 doors. Macy’s is closing 100.  Kohl’s a handful.  Financial implications aside, Penney’s needs to close 400 stores, Macy’s 300 and Kohl’s 300. If it’s impossible to get out of leases then retail execs must come up with alternatives. I don’t mean to dismiss the negative financial implications but long-term survival trumps short-term issues, even pre-packaged bankruptcies. We simply do not need this amount of stores and closing less than the proper number will only delay the inevitable.

Most analysts blame growing internet sales for the widespread slowdown in brick-and-mortar business, but I believe the internet affords stores an opportunity in addition to a challenge. I also believe it’s an easy excuse to justify poor performance. It’s interesting that TJX, Ross and Burlington are adding stores while everyone else is closing them. These three have virtually no exposure on-line. The English juggernaut, Primark, only has a handful of stores in the U.S. but I understand they will be expanding, although they have absolutely no on-line presence.  While these stores happen to be value-oriented, that is not the total story. They speak to their consumers.

I do not mean to dismiss the impact of e-commerce: it’s massive and will continue to grow in importance.  But many consumers pre-shop on-line to decide what to buy in the bricks, so smart department stores will invest in their websites. It’s change. It replaces poor performing stores. It replaces small town stores. It replaces the time constraints of shopping the stores. It offers convenience. It’s non-threatening.

The web includes Amazon, but Amazon alone is not the killer, just the conduit.  Amazon appeals to the convenience and ease of stress-free shopping; therefore, department stores must understand that appeal and address a solution. This should include developing a fulfillment process that profitably includes free shipping. Buy on-line and pick up in-store is one ingredient of this winning formula. Social media is another, having become the addictive driver of much of what the consumer thinks and does. Tapping into consumers where they intellectually live is much more important (and more affordable) than an ad in the Sunday newspaper.

Truth be told: department stores have become platforms for promotional private label merchandise fronted by the illusion of iconic brands. In the process, they’ve abdicated basic merchandising decisions to these power brands. To the consumer, however, these brands are no longer iconic. What’s more, these power brands have their own retail stores and on-line sites. (Levi’s just announced their Q1 numbers and said they were struggling at wholesale but well ahead with their own stores. Any guesses on where their emphasis will be going forward?)

Clearly, some vendors have become department store competition. I believe the department stores should consider dropping these brands entirely. Most stores have enough talent to create their own exciting, focused merchandise on an exclusive basis. I applaud their efforts to gain exclusive brands, not just the old washed-up labels appealing to their old consumers.

I fully realize these are some pretty dramatic suggestions and that it’s far easier to think about them than to actually do them. However I’m convinced that solutions exist and that gradually reacting to current conditions will end in disaster. In other words: address opportunities aggressively and act long-term. Don’t transition: transform!

Fred Rosenfeld is an industry consultant. He can be reached at frosenfeld@comcast.net.