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Department Stores Struggle To Keep Up With BC-Big Chains

May 8, 1988

NEW YORK (AP) _ Department stores have to be special these days to hold on to their share of the retail market.

″They have to offer something that you can’t find somewhere else,″ said Barbara Loren, a consultant with Loren-Snyder Marketing Inc. in Troy, Mich.

Competition from specialty retailers, who have taken business away from general merchandisers like Sears, J.C. Penney and Montgomery Ward, has put big department store owners on the defensive as well.

Consumers who flocked to a Lazarus or May department store for clothing, electronics and toys often turn now to stores like Limited, Circuit City and Toys R Us.

As a result, ″department stores as a whole have very, very limited growth potential,″ said Fred Wintzer, an analyst with the investment firm Alex. Brown & Sons Inc. in Baltimore.

Some stores, such as Bloomingdale’s and Nordstrom, are perceived as unique with natiowide appeal and therefore can move into new markets and win new customers.

Customer service also can set department stores apart from the specialty crowd, but it’s been a problem for some companies.

Tackling the service issue means more than adding sales help and making merchandise returns easier. Stephen E. Watson, chairman of Dayton-Hudson Department Stores Co., said it also may involve changing store layout and appearance.

″The issue of how the store looks and its presentation is important,″ said Watson, noting that consumers don’t want to buy new clothes in a run- down, drab store.

It also means improving the merchandise mix, which today means updating fashion lines so a department store can better compete with specialty apparel retailers.

The strategy has worked, but it also has changed the image of the department store industry and moved the stores in the direction of specialty retailing.

″They are purveyors of the current (fashion) image,″ said Joseph Ronning, an analyst with Brown Brothers Harriman Inc. ″Department stores have evolved from being true department stores to being what are primarily fashion stores.″ One of the best success stories in department stores is R.H. Macy & Co. Inc., said Ronning, crediting Edward S. Finkelstein, the retailer’s chairman, for turning the company around.

″Finkelstein came in and made major changes in the Herald Square store, gussied up the first floor ... put in more inventory per square foot,″ the analyst said.

Macy also revamped the merchandise in all its stores, and in the process won praise as a retailing innovator.

Other department store owners also recognize their problems and are trying to resolve them. Crumbling downtown stores are being refurbished, and newer stores in shopping malls are also getting makeovers. Batus Inc., the owner of Marshall Field’s, plans to spend $110 million just to renovate the chain’s flagship store in downtown Chicago.

Monroe H. Greenstein, an analyst with Bear Stearns & Co., cited Dillard Department Stores, a growing chain in the Midwest, and May Department Stores Co., the nation’s seventh-largest retailer, as being among the nation’s strongest department store owners.

″They have been more flexible with the changing times,″ said Greenstein. Some department store companies learned too late they should have changed their old-fashioned ways. Gimbel’s failed to keep up with the times and went out of business.

Other examples of how not to run a department store company were Associated Dry Goods Corp. and Federated Department Stores Inc., Ronning said. Both companies’ poor use of assets left them vulnerable to takeovers. Associated was bought out by May in 1986 and Federated is being acquired by Campeau Corp.

Analysts don’t expect much growth in department stores, but they also don’t foresee trouble for the industry as a whole.

″They continue to have a future,″ said Greenstein. ″But you have to be a strong operator.″

End Adv Sunday May 8

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