Department stores launches once made national news. Now the headlines are about how retailers must match up to online stores.
One of the first things I did on settling in New York City was to subscribe to the city’s paper of record, the New York Times. Along with my subscription I got access to a digital archive that lets you look at old copies of the paper all the way back to 1851.
During a recent foray into the Times’ past, I came across an article from 1878. It was about the opening of Macy’s on 6th Avenue. The headline stated: ‘Opening day at Macy & Co’s – A place where almost anything may be bought.’
This idea of comprehensiveness – a place where anything may be bought – was for a long time one of the main attractions of the department store. In a world where shopping was fragmented and product choice far less abundant, the new channel provided a one-stop shop for the needs of the US’s middle class.
Nowhere was this truer than in regional America, where the department store brought the sophistication of city shopping to consumers eager and willing to buy. Malls anchored by one or more popular department stores sprang up in abundance.
Emerging competition
This growth did not go unchallenged. In the 1960s there was the birth of another format: the big-box discount retailer.
Kmart came on to the scene in March 1962, followed two months later by Target, and then two months after that by the world’s first Walmart.
Unlike many department stores, these concepts had mass appeal: they offered a wide assortment coupled with low prices and convenience. As a result, they thrived.
It is a telling fact that since 1975 Sears’ sales have grown 138% while Walmart’s have rocketed 201,595%.
While the big-box retailers eclipsed their department store rivals, the slightly different positioning of the two meant that they could coexist. Until a new threat emerged, that is – online retail.
Multichannel challenges
Online has, almost at a stroke, undermined the points of differentiation of both department and big-box stores. The online offer is more comprehensive, having products delivered is more convenient and prices are often cheaper.
Even those more rural areas that once relied on a department or big-box store for variety now have access to unparalleled choice at the click of a mouse.
“Online has, almost at a stroke, undermined the points of differentiation of both department and big-box stores”
Neil Saunders, Conlumino
The response to this threat has been varied. Some retailers – such as Target and Kohl’s – have seized the opportunity to reinvigorate their propositions, improve in-store environments and develop new store formats.
Others – including Sears and Macy’s – have become internally focused on areas such as cost-cutting and financial reengineering.
On the ground the difference is tangible. Macy’s and Sears’ stores look uncared for, feel cluttered and often lack good service. They provide little reason for consumers to visit, so they increasingly don’t.
This further weakens the profitability of individual stores and undercuts the justification for investment. In such a vicious cycle, it is hard to see an endgame other than eventual failure.
The difference also shows in the financials. In their latest quarters, Target and Kohl’s both performed above average with some signs of good progress. By comparison, sales at Macy’s and Sears shrunk, and losses deepened.
In this varying performance lies a salient warning: as the pattern of demand changes, retailers need to evolve and adapt. Failure to do so could eventually result in newspaper stories of another sort – the obituaries of the once great retailers of America.
- Neil Saunders is the managing director of Conlumino
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