“I think the challenge for the department stores going forward is to truly find what they represent in the consumers’ eyes”
Maile McCann, ModernRetail, 3 January 2022
I loved working as an assistant buyer at Bullocks Wilshire. Buying women’s fashion was all about the ability to both predict the styles that would be popular and forecast the sales each item would generate. Every February, when shoppers were home recovering from after-Christmas sales and stores were astonishingly empty, each Bullocks store conducted inventories in every department. Based on how the departments performed during the past year, the department buyers were promoted or fired. It is perplexing, therefore, that the department stores failed to predict the demise of their business model. During the pandemic, Vanity Fair (May 2020), suggested that the lockdown might be the final nail in the coffin of luxury retail because mighty retailers from Neiman Marcus to JCPenney appeared to be falling like dominoes. Post-pandemic retail sales rallied, but department store sales continue to decline.
The history of Bullocks Wilshire paralleled the stories of other high end department stores such as Neiman Marcus (Dallas), Marshall Field’s (Chicago), Woodward & Lothrop (Washington, D.C.), I. Magnin (San Francisco) and Bonwit Teller, Bloomingdales, Saks Fifth Avenue, and Macy’s of New York. The stores responded to changing consumer habits with short term solutions that bolstered flagging sales but, ultimately, abandoned their shared mission.
The mission of each of these stores was to bring the experience of luxury, fashion, and excitement to middle class women. In fact, department stores democratized fashion for decades, making it possible for customers throughout the United States to buy the same merchandise that was available in New York, Paris, and London.
The interiors were spacious and beautiful, filled with light, mirrors, glass counters, and mannequins. Many of the stores were famous for their lavish, imaginative window displays. Bullocks Wilshire was housed in a magnificent art deco building in Los Angeles. From the late 1800’s to the late 1960’s, a trip to a department store was a destination experience. There were tearoom fashion shows, elegant sales personnel, and shopping for a pair of shoes was a pretty wonderful experience. The pale pink tearoom on the top floor of Bullocks Wilshire was a favorite destination for ladies who lunched. (Watch the video at left to see what it actually looked like when the doors of Bullocks Wilshire opened for the first time.)
The Paradigm Shift
While consumer habits began to change during the 1960s, the beginning of the department store’s obsolescence began in the 1970s. Following the Vietnam war, the U.S. experienced turbulent inflation, unemployment, and two oil crises that doubled the cost of gasoline almost overnight. The immediate impact of faltering consumer confidence was a sharp decline in retail sales. In retail, daily sales were measured against two numbers; 1) Did you beat last year’s sales? and 2) Did you achieve the planned sales target? For two consecutive years, my departments - like most of the Bullocks departments - recorded sales that failed against both measures. During those dark days, decisions were made in the corner offices of most major department stores that would completely alter the department store shopping experience.
The Fateful Decisions That Were Made
Zero-based staffing:
In the mid 1970s, Federated Department Stores, Inc. unleashed an army of MBAs in their stores to monitor the number of shoppers on each floor. Charts were filled out on the hour, recording the number of shoppers at that specific time. Subsequently, the number of department store sales associates in each store was dramatically reduced. The purpose of reduced staffing was to increase productivity.
However, those calculations assumed a maintained rate of sales per associate, completely overlooking the sales impact of professional salesmanship (“Can I get that for you in a different size? A different color? Would you like to see some accessories that would work with that?”). Instead, the minimal sales staff was preoccupied with operating cash registers and cleaning out dressing rooms. For the customers, the department store shopping experience ceased to be a pampered occasion and became just another chore.
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Eliminating specialization among the buyers:
When I was in the Federated Training Program, we were frequently told that it was important to learn how to be a good buyer. A good buyer, we were told, could use all of the skills of the profession to buy any category of merchandise from coats to shoes to home furnishings. Federated was determined to move away from buyers who specialized in a category. Retail buyers became purchasing managers rather than purveyors of fashion and the emphasis became economies of scale. Once again, the shopping experience changed. It became increasingly difficult to differentiate among the various Federated Department Stores on the basis of fashion. Even if the various department stores weren’t all selling the same merchandise, it certainly looked like they were selling the same merchandise because they were using the same vendors. A good brand offers a significant, relevant difference. The department store brands were losing their brand differentiation.
The emergence of luxury fashion malls:
During the 1980s, luxury fashion malls became the new glamour shopping destination. Once again, shopping was an event. Fashion malls offered specialty stores, restaurants, and movie theaters in addition to department stores. The fashion malls were financially reliant upon the enormous rent paid by the department stores, however. Each fashion mall was usually anchored by two department stores (one high-end, such as Bloomingdale’s, and one mid-range, such as Macy’s). The new, elegant fashion malls introduced shoppers to the joys of designer boutiques, luxury jewelry shops, and chic new stores. Eventually, the fashion brands embraced by shoppers were most often associated with stores such as Urban Outfitters, Lululemon, Michael Kors, and Steve Madden. It became increasingly difficult for department stores to offer merchandize that wasn’t available in the specialty shops located in the same shopping malls. Once online shopping became ubiquitous, it was only a matter of time before the purchasers followed the brands out of the fashion malls to online sites. It is significant that none of the major department stores generate significant sales online.
Conclusions:
The existing department store concept may not be a viable business model today. Luxury fashion malls provide the endless variety of designer fashions, entertainment, and services once associated with department stores. Online shopping has made it easy for consumers to buy everything else. When ranked by sales, the top U.S. department stores are Macy’s, Kohl’s, Nordstrom, J.C. Penny, and Dillard’s. The rankings suggest that popular department stores offer a range of affordable fashion and - with the exception of Nordstrom - do not provide much customer service. When ranked by sales among major retailers, however, the top store - Macy’s - ranks only 21, far behind Walmart, Amazon, Costco, The Home Depot, and Kroger. In order to be relevant and profitable in today’s retail market, department stores must do a better job in terms of determining their mission, their competitive set, and the point of difference each store offers versus their competitive set. If, for example, the original department stores’ mission was to provide merchandise that rivals a trip to New York, London, or Paris, it must be acknowledged today that the democratization of fashion has happened. What is the department store’s mission today?