Why are Department Stores Failing?

The Box is Dead, but Merchants Haven’t Noticed.

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The department store was a new retail paradigm in the mid-nineteenth century, born from a fragmented network of individual proprietors selling from single stores on busy, dirty and horse manure filed city streets.   To shop one would need to visit the haberdasher, the boot maker, and dress-maker and of course none of these would have been near one another in town. The “Department Store” was born out of this chaos in what amounted to grand emporiums of commerce.  Customers flocked to the family founded institutions such as Stewart’s in New York and Wanamaker’s in Philadelphia for the sheer size, design and  convenience. Everything imaginable could be found under one roof including afternoon tea in elegant settings. It was an Experience!

So what’s happening today? Department stores have lost that experience factor, plain and simple.  The stores moved to the suburbs along with the cars and highways. Market share was gained, but the experience flagged, however the box remained unchanged. Even shopping malls realized that they needed to break out of the blank walled fortresses created by the paradigms founder Victor Gruen, by turning malls inside out and creating places.

Meanwhile the retail industry has had a tectonic shift. More women in the workforce with less time on their hands. Mass merchants segmenting the market and owning the price and supply chain advantage. Fast fashion retailers producing new designs and delivering to stores in under 21 days! On-line shopping with next day delivery. Style trends such as athleisure wear that were missed. Retailers such as Kors and Coach moving their wares out of department stores to protect margins. And, finally the massive amount of capital required to play catch up on their ecommerce and omnichannel networks.

Primark Store King of PrussiaThe implosion of the industry is painful to watch, but much of this is self-inflicted damage. I have been in department store interiors that haven’t been renovated in twenty-five years! Exteriors that haven’t been touched since they were built some fifty years ago. The stores that have had renovated still maintain their original 1960’s walled off box exterior, and they are still their original size. Really who needs 225,000 SF of the same Merchandise sold in every store at the mall and box on the strip? Seriously, who wants to shop at their mothers  department store?

With European Fast fashion retailers crossing the pond such as H&M, Zara and Primark they see the US as easy pickings. They are right, the disinvestment in their stores, product and omnichannel experience is staggering. What do the Fast Fashion retailers understand?  Downsized boxes,  transparency to the street, contemporary interiors, fresh merchandise along with some fun and frolic, in-other-words, an experience.

Bottom Line:  Macy’s first quarter comp sales were down 5.2% whereas Zara sales were up 14%.  These trends will continue until the department stores develop a new strategy. Macy’s CEO Gennette says the store has to concentrate trendier merchandise and less cluttered stores.  Unfortunately that’s not enough, a comprehensive turn around strategy will also need to address their store’s physical appearance and customer experience if they want to stem the decline.

Photo Credit-Primark Elevation

One thought

  1. You are absolutely right about your diagnosis. And there is another way to look at it too. Department Stores that you so well described as a new paradigm in the mid nineteenth century, were a novel way to buy commodities—one stop shopping that also catered to the new shopper-women. Those newfangled commuter trains brought women into the city where they had nowhere to go until John Wanamaker gave them a culturally acceptable destination. And I still remember my Montgomery Wards that sold lawn mowers and suits, hardware and dresses all on Main Street in Fremont, Ohio. They were both convenient and a novel experience!

    So what’s happening today? Well the lucky ones that could nurture some brand loyalty have survived longer than others but shopping at bricks and mortar locations for commodities is less tenable as society has changed and the web has grown. Convenience, more choices, and great price points are all touch points the web has figured out more effective ways to offer shoppers. Not so much the brand, the experience or the social aspects of shopping.

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