STORES Magazine - October 2008 - (Page 90)

CONSIDER THIS / LOEB RETAIL LETTER Copyright 2008 by Loeb Associates Inc. Used by permission. Department Stores in Crisis BY WALTER LOEB History could show that August was a watershed month for the department store sector. Mervyns (177 stores) and Boscov’s (73) declared bankruptcy and, in Germany, three chains — Hertie (72 stores), Wehmeyer (40) and SinnLeffers (47) also declared insolvency. While the stores will try to remain open, I believe it signals a rationalization of their existing store base and a reduction of the workforce. Immediately, a leading German newspaper published a scathing article about the “death of department stores.” I do not concur with the assessment of the German Financial Times; I do believe, however, that the current hostile environment will Walter F. Loeb is a New Yorkforce other companies that based consultant and member have shown sharp declines of the NRF board of directors in sales to examine their fuwhose newsletter is published ture course of action. monthly in STORES. There are several reasons why these companies are now scrutinizing their operations, closing stores and considering management changes. Some may even have the guts to change merchandise assortments in order to attract more customers. In some cases, stores were in poor locations — such as the units that Boscov’s acquired from the May Company when Federated (now Macy’s) acquired the company. At the time, Federated sold more than 80 stores to others; it now seems obvious that some of the stores that were not right for Macy’s are poorly situated for others, too. Similarly, in Germany, the investment infusion in Hertie did not result in better sales. weak entrenched management teams that did not react quickly to the environment or changing customer demands. And a host of new competitors like Abercrombie & Fitch, Aeropostale, C&A, H&M, Esprit, Hollister, Mango or Zara appeal to young people who do not want to shop in traditional department stores. While motivated by improved profit margins, the current trend of featuring as much as 40 percent of soft goods in private labels does not always reflect consumers’ tastes. I believe that the average customer shops for style, quality and fit first: Only when customers have found a product that they like do they examine whether the price represents good value. The challenge for department stores is not to meet last year’s sales figures, but to embrace change — to win recognition as an innovative retailer in any season and in any environment. Focus on target customer I also believe that department stores can no longer attempt to appeal to everyone; they must be focused on classifications that reach their target customer. Department stores are competing with specialty stores like Bed Bath & Beyond and Best Buy, which sell home furnishings and appliances in broader assortments and at very sharp prices. Some of the companies that have become insolvent had 90 STORES / OCTOBER 2008 Embrace change Efforts to attract customers with aggressive promotions is not reflective of how the customer shops; this holds true even in the current consumer recession. Right now, the customer is cherry-picking for value during sales, but if stores cater to that attitude by offering more sale goods they will ruin their image and future growth potential. It is bad enough that clearances often choke stores. The challenge for department stores is not to meet last year’s sales figures, but to embrace change — to win recognition as an innovative retailer in any season and in any environment. Companies must streamline their operations and be willing to re-examine their assortments; the customer will be attracted to excitement and will trust a company that understands her needs. WWW.STORES.ORG http://WWW.STORES.ORG

Table of Contents for the Digital Edition of STORES Magazine - October 2008

STORES Magazine - October 2008
Executive Editor's Page
President's Page
Force of a Different Collar
What Shoppers Think
Bagging the Competition
10 Things You May Have Missed
Numbers Worth Counting
Full Price/Markdown
Retail People
Favorite 50
Sticky Strategies for Retention
Business Intelligence
NRFtech Wrap-up
Warehouse Systems
Selling Tools
Supply Chain
LOEB Retail Letter
Arts Update
Point of View
NRF News
Retail Crossword
Retail Industry Calendar
Last Laugh

STORES Magazine - October 2008