A Hopeful Look at the US Department Store in 2014


Creative destruction, change management, business transformation —call it what you will, but something’s underfoot in the department store channel. After decades of ceding market share to specialty formats and channel consolidation, has the worm finally turned?

In addition to economic and consumer malaise, mall traffic, and thus store traffic, is the problem. With the Internet’s 24/7 access, price transparency and free shipping, combined with a fruitless in-store search for a size, color or sales clerk, who needs a brick-and mortar-department store? It used to be a destination to see the latest trends in color and silhouette, interpreted by a bevy of national brands, and curated by retail buyers with a clear fashion sense as well as an understanding of their customer base. Nowadays, social media, Instagram and fashion bloggers are more personable than the average sales clerk. And that source of style and fashion curation is more robust. A trip to the mall has become a chore … and just so boring.

According to the US Department of Commerce, retail sales-x for the first five months of 2014 rose 2.2%. While non-store sales rose 5.9%, department store sales dropped 3.2% and sales at clothing stores rose 1.3%. E-commerce continues to capture a growing portion of retail sales, and in the first three months of 2014, sales rose 15% and represented 6.2% of total retail sales according to US Department of Commerce data.

But a bevy of department stores are testing multiple strategies to improve the in-store experience and, as Robin Lewis recently reported, Macy’s is at the forefront. Licensed shops such as Finish Line and Lids are driving new store traffic and benefitting related category sales as well. According to CEO Terry Lundgren, leased shops are new traffic for Macy’s and increasing traffic is a major priority. The New York flagship includes leased luxury brands Burberry, Gucci, Longchamp, and Louis Vuitton, elevating the Macy’s brand in the eyes of the many international and domestic tourists that make a visit to Macy’s at Herald Square a part of their NYC visit.

M.O.M. is the acronym for Macy’s core business strategies: My Macy’s localization merchandise strategy; Omnichannel integration; and MAGIC, selling customer engagement.

Exclusives and private labels are differentiators that can drive traffic and support merchandise margin. Macy’s 30+ private labels represent about 20% of total sales and could easily move upward with the 2015 launch of Thalia, targeting the Latina customer in multiple merchandise categories. On the exclusive front, Macy’s targets 10% to 20% of national brands such as Polo Ralph Lauren, Nautica and Tommy Hilfiger as exclusive to Macy’s. If about 70% of a retailer’s merchandise assortment is non-exclusive, to quote Bloomingdales ex-CEO Michael Gould, “what really differentiates, is people.” This is where MAGIC comes in.

Meet and make a connection. Ask questions and listen. Give options and give advice. Inspire to buy. And celebrate the purchase. This type of customer-selling program, supported by associate training with refreshers and coaching, increases average ticket and customer loyalty. The worm is turning!

On the omnichannel front, all of Macy’s 655 full-line stores have shipping capability and are fulfillment centers, which should improve inventory turns. They are rolling out “buy online pick up in store,” which will drive store traffic and provides the opportunity for incremental add-on sales. A real win-win!

Retail shops are actually the perfect laboratory for testing what the consumer wants. Just when did retailers get so risk averse? Thankfully we are beginning to see more creativity in the department store space. Macy’s is testing kiosks in 40 stores providing visibility into a full category or brand assortment that may not be available in that store and order placement functionality bringing online transparency in-store. Bergdorf’s will have its 6th floor designer lab to nurture new young talent. In an uber focus on efficiencies and technology of the past decade(s), retailers lost sight of the romance and the magic of merchandise and the shopping experience. The pendulum is reversing. This could be fun!

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