Department Stores Doomed?

Will They Survive the New Economy?


One of the strengths of the department store is that it has multiple departments under one roof. If they are strong enough, they create a synergy which helps the entire organization. Thus, if the men’s division attracts 1,000 customers and the women’s division attracts 1,000 customers, then each, because of cross shopping, has more than 1,000 customers. Everything under one roof has worked well for decades. Discounters, such as Wal-Mart, and category killers, like Best Buy, have made the job of the department store more difficult, but there has always been competition.

What seems apparent is that department stores have lost their way and forgotten some of the root principles which made them great. There is a saying in retail: “During good times you should advertise; in bad times you must advertise.” The lack of advertising in the newspapers and on radio/television is somewhat due to the lack of focus, as well as financial stress of major retailers. Retail advertising math is more compelling for department stores than specialty stores because the former normally have more and larger departments to take advantage of the extra customers attracted by the ad. If a $1,000 ad produces only $2,000 worth of sales in a specialty store, that can be more devastating, theoretically, than in a department store with the same results, if the latter’s ad attracts enough customers to give the total store a $10,000 lift because of cross shopping. Getting the customer into the store has always been key, but today, we don’t see the emphasis on that as much as perhaps we should. Department store managements need to return to that traditional thinking, and move forward aggressively with increased advertising. Include trunk shows and celebrity appearances. The kids still want to see Mickey Mouse, have Easter egg hunts, and enjoy breakfast with Santa. Judging that advertising should be partly reflected in what it does for the store totally.

It’s also true that constant price promotions are having a negative effect on margins and thus on profits. We see so many advertisements for large discounts that we have trained our customers to “wait for the sale.” Further, the appeal gets boring. That’s not healthy.

What is the suggestion? Scale back on the heavy discounts. It will hurt revenue for a year, and one could lose some market share. That’s not any fun, but our goal is profit. Sales by themselves do nothing. If we were to cut our 25% all-encompassing discounts back to 20% for a year, and from twice a month to once every three or four weeks, we might regain some retail sanity. Avoid, for example, 20% discounts on entire categories; settle instead for 30% off three or four good items. Emphasize fashion, service and uniqueness. Features such as free shipping and luxury gift wrap have their own appeal.So does professional tailoring. It will take a year and maybe a bit longer to wean the consumer off the narcotic of constant price promotions. It can be done, but it’s got to be planned and executed properly.

The best example that can be offered for the possible success of such a strategy would be the cosmetics departments. Those entities, controlled by the manufacturers, don’t have the gigantic price sales, but do have business enhancers, driven by creativity, uniqueness, and good service, and they make money. There are many cosmetic promotions, which include purchase-with-purchase, and new product launches. But it is rare to see an entire cosmetics line on sale. Cosmetics departments serve as one example of what we need to get back to as an industry.

Hans Sternberg