BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Here's What's Wrong With Department Stores

Following
This article is more than 7 years old.

Despite indicators that consumers are gaining confidence (though they are mixed indicators at best), and despite the fact that retailers are working hard to adjust to a more digital consumer, department stores do not seem to be reaping any benefits from their efforts. Macy’s in particular has been disappointing, because the retailer has made such concerted efforts to become more “omni-channel”.

Other department stores are faring no better. Kohl’s, once a darling, now perceived to be in trouble. Sears – a dead man walking. JCPenney , another retailer with a countdown hanging over its head. But Macy’s is the hardest to swallow – if that retailer can’t make it, what hope do the others have?

Yes, you can point to larger issues. The economy has hurt consumer confidence and apparel spending has turned out to be the most discretionary of discretionary budgets. The environment played a role in 2015, with warmer weather killing winter sales.

But the problems are bigger than that. Teen retail was the early warning, as even Aeropostale has filed for Chapter 11 just this month. They were taken out in part by not adapting to how teen consumers want to buy. Well, those teens are getting older, and while there are more 20-somethings living on Mom & Dad’s couch than since 1940, there are plenty of them who have done so long enough that they’re finally looking to move out.

And so, department stores must now face the same music teen retail faced: they MUST adapt to new shopper behaviors, and they must do it quickly. What’s wrong with department stores? Here’s three big things.

One: Consumers no longer shop the way department stores sell.

Department stores were built around the idea that consumers would come to the store for inspiration and discovery. But retailers can no longer rely on that draw. Consumers increasingly get inspiration online first, from social media and blogs, and not from the retailers themselves.

When that happens, the decision-making process employed by shoppers gets turned completely on its head – consumers start to choose the specific products they want to buy before they choose where to buy them from. This leaves department stores forced to compete on price instead of value. And what’s the biggest trend in department stores today? Opening more off-price locations. This strategy is basically an admission that department stores no longer have any clue how to sell to consumers – their answer is to try to compete on price alone.

Consumers also increasingly look for the companies they engage with to stand for something – something authentic. That means having a brand that stands for something more than just consumerist ideals like having a nice home or dressing in the latest fashions. And it means more than just donating some money to a charity or sponsoring a foundation or something. Authentic means something the company believes in, top to bottom, and demonstrates it in everything it does.

Toms is a perfect example of this kind of authenticity. Macy’s has the foundation in place to potentially take the moral high ground around authenticity with its history around Believe and Make-A-Wish, but the magic of a PR campaign is a long way from execution in the store – from every store employee feeling connecting and engaged in such a campaign. And that’s about the best example out there for department stores, which isn’t saying much. I’m sure they all engage in community philanthropy, but that is not at all the same as living a value top to bottom.

Two: A sea of sameness.

Another place where department stores are getting hammered is on the fast fashion front. Retailers like Zara and H&M can put out new fashions every few weeks. Department stores were built around the concept of featuring brands, almost like a store-in-store. Name your list of brands, from Estee Lauder in cosmetics to Coach in handbags and accessories to Ralph Lauren in apparel, and you will even today see vignettes of each of these brands – Macy’s, Dillards, Lord & Taylor.

Even though department stores have made investments in private label brands to try to break up that see of sameness (Inc. at Macy’s is a good example), the sameness problem has gotten worse. The buying power of department stores has increased significantly over the last twenty years or so, thanks to consolidation. Throw in the Great Recession, the trouble predicting the weather, and consumer spending shifts away from apparel to electronics, and it’s not surprising that merchandise buyers in department stores have become more conservative. They have to make bigger bets with more at stake – they’re not going to go out on a limb for something unproven. The net result though is a bunch of mall anchors that all carry the same thing.

It gets worse for department stores, though. Thanks to that concentration of buyer power, brands have been forced to take a harder look at their own retail strategy. To be fair, it wasn’t department stores alone that have driven brands in this direction – they’re watching consumers too, who are interested in engaging directly with brands. They’re looking at how tough it is to convince department stores to take risks on their assortment, and they’re looking at the tough terms that retailers are employing as insurance against even the conservative bets they’ve made. If you’re a brand and you want to have a strong voice to consumers, you open an online site and your own stores – where you can make sure your brand is well represented, and where you can put the full assortment on display, not just the same five lines that are in every mall anchor.

Three: Little to no value-add.

If your only value proposition to consumers is that you have great brands under one roof, you’re going to lose. Sports Authority is just the most recent casualty in that war for consumers’ hearts and minds. News flash: you can get great brands anywhere. And when you look for them online, even if they’re at different stores, they’re only a tab away.

So what should department stores stand for, then? They should stand for a lifestyle. They should stand for things that help consumers solve their lifestyle problems. But stores have been gutted. High-end luxury department stores are the exception. The rest of the vertical have no expertise in stores. Not beyond what I could get asking random people on the street. Why should I go to a store when I can get better advice from blogs? At least they have followers to help give them some cache and sense of expertise.

And department stores are not organized to present solutions to lifestyle problems. Need an outfit for a wedding? Well, first you have to go to dresses, and then shoes, and then accessories. Need a new outfit for a job interview? Same deal, except it may be even worse. You might have to visit several brand vignettes to find this brand’s suits vs. that brand’s suits, and then start all over again if you need a blouse or shoes to go with.

Now, part of the problem is that the brands themselves want their vignettes. They want their voice to the customer to stand out, even within the department store. But how do consumers shop online? They see all blouses together. They can filter by brand if they want, but the primary sort is the function first, brand later. And you just can’t shop that way in a department store.

Are Department Stores Dead?

Not yet. But they could kill themselves, under the weight of “we’ve always done it this way”. Tweaks in omni-channel strategy aren’t going to be enough to address the fundamental issues at department stores. Not with the way these trends are heading.