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Department Stores Change to Survive

September 19, 2000

SHORT HILLS, N.J. (AP)_ The Short Hills Mall boasts boasts big department stores including Macy’s, Bloomingdale’s and Nordstrom, but you probably won’t find Ilene Garlock and Beth Silvia shopping at those retailers. They usually bypass the big merchants and head for specialty stores.

``Everything is all spread out at department stores,″ said Garlock, a 51-year-old teacher from Montville, N.J., who was on her way to Chico’s, a trendy women’s specialty store.

In a department store, ``you find a skirt in one place, and then you have to go to another for the top. You don’t get service, and there’s nothing special. I like shopping at small stores.″

``Department stores are so overwhelming,″ said Silvia, a 24-year-old casting assistant from Millington, N.J., who said she prefers J. Crew and Banana Republic. At those stores, ``it’s easy to get in and out. I just don’t have a lot of time.″

Shoppers like Garlock and Silvia are a growing problem for department stores, which have lost respect and sales in an increasingly competitive environment. But the retailers, realizing they have poor customer service, a cluttered appearance and merchandise that’s too similar to that of their competitors, understand they need to change _ and soon.

The stores, which seemed destined for extinction after several high-profile leveraged buyouts collapsed in the mid-1980s and early 1990s, enjoyed a resurgence from 1997 through the summer of 1999. That was fed by consumers’ freewheeling spending and the emergence of clothing labels like Tommy Hilfiger and Nautica that brought fashion-conscious customers into the stores.

However, over the past year, the traditional department store companies, including Dillard’s, May Department Stores, Nordstrom, and Federated Department Stores, have seen their fortunes unraveling. The past six-month period has been particularly rocky, marked by missed sales targets, fashion faux pas and heavy markdowns.

Clearly, the overall retail business, especially apparel, is facing tough times, given a slowing economy, higher gasoline prices and higher interest rates on credit cards. Even the once high-flying Gap and Abercrombie & Fitch are struggling with negative same-store sales.

But department stores, increasingly squeezed by specialty stores and chains like Target, have taken a bigger beating. From January through August, department stores posted a 1 percent decline in same-store sales, those from stores open at least a year, according to Kurt Barnard, publisher of the Retail Trend Report, based in Upper Montclair, N.J.

That compares with specialty stores, which posted a 5 percent increase, and the overall retail industry, excluding auto dealerships, which registered a 7 percent increase.

For the holiday season, the consensus of retail industry analysts is that department store sales will be flat at best _ but they also project 5 percent to 6 percent increases for specialty stores and a 4 percent increase in retail overall.

The strong economy, which was lifted by heavy consumer spending, masked the ``underlying problems of traditional department stores,″ according to Wendy Liebmann, president of WSL Strategic Retail, a consulting firm.

The sector, which represents about $80 billion in annual sales, has been too reliant on apparel, making it extremely vulnerable to the category’s current downturn, analysts said. Apparel now accounts for 75 percent of department stores’ inventory.

Another fundamental problem is stores’ dependence on such brands as Tommy Hilfiger and CK Calvin Klein, according to Tom Tashjian, managing director at Banc of America Securities. That worked well when these brands were star performers, but recently, they’ve suffered from a lack of fashion newness. And consumers kept seeing the same merchandise in every department store they visited _ a problem known in the industry as sameness.

Department stores have also lost their marketing distinction.

``The primary reasons why consumers used to shop at department stores was for merchandise selection and service. Now, they are choosing it for convenience and price, which are the same reasons they choose mass merchants,″ said Liebmann.

Store executives, including Terry Lundgren, president and chief merchandising officer at Federated, acknowledged the more challenging environment and admitted they’ve been plagued with ``too much sameness.″

``The consumers get bored very quickly,″ Lundgren said. ``We need to have differentiated product.″

The retailers believe the situation is temporary. They’re counting on the return this fall of dressed-up looks _the suit and the blouse _ to reignite consumer spending.

They’re also on a campaign to reinvent themselves, by increasing their offerings of home furnishings and expanding their own private-label collections. Federated, for example, is finding success with such store brands as INC, Alfani, Charter Club and Style & Co., and is backing them with consumer advertising.

These moves are expected to further differentiate department stores from their competitors.

Stores like Macy’s, Bloomingdale’s and Carson Pirie Scott are also aggressively courting the teen and preteen customer with trendier fashions and more exciting decor. Federated is installing in 50 of its stores a music system that rivals that of a night club, according to Lundgren.

``We have been too focused on the finance side of the business and not enough on the merchandising side,″ said Brad Martin, chairman and chief executive officer of Saks Inc., which includes the traditional department stores Parisian and Carson Pirie Scott.

Martin said department stores need to again offer non-apparel merchandise such as home furnishings that they abandoned a decade ago. ``We failed to offer other categories, and consumers had to go buy them somewhere else,″ he said.

Retailers are also heeding the call for better service. Saks and Federated are reconfiguring their sales floors to make it easier for the time-pressed shopper. They are also creating larger cash register areas.

For the holiday season, department stores are focusing more on gift-giving items, acknowledging that specialty stores like Banana Republic and The Gap have surpassed them in this category. This fall, Bloomingdale’s launched a Hot At Bloomingdale’s campaign, spotlighting such items as leather pants, Waterford crystal and python print bras.

Despite their current problems, department store executives believe they still have a competitive edge over specialty stores, one that will help them regain lost ground.

``We have one-stop shopping,″ said Michael Gould, chairman and CEO of Bloomingdale’s. ``You can buy bridal, and all your needs for the family. You can’t do it at the Gap.″

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