The department store isn't dead yet

Macy's and other retailers are thriving, in fact, long after some observers predicted they would wither away.

By MSN Money Partner Aug 12, 2014 1:55PM
Credit: © Jin Lee/Bloomberg via Getty Images
Caption: Pedestrians cross the street in front of the Macy's Inc. flagship store in New York, U.S.By Phil Wahba, Fortune

Beating up on department stores is a favorite pastime of retail haters. 


And yet, despite accusations of having a passé business model, dusty stores and an aging customer base, U.S. department stores have staged a comeback in the last two years -- and are arguably more vital than they have been in a long time.


Just look at the Wall Street forecasts for the retailers' comparable sales (sales at stores open at least a year plus e-commerce) reports expected in the next week: Macy's (M) is expected to report a 4 percent jump on Wednesday, while J.C. Penney (JCP) should post a 5.8 percent increase and Nordstrom (JWN) a 3.2 percent rise on Thursday, according to Thomson Reuters data. 


Even the perennially struggling Sears' (SHLD) U.S. namesake stores are seen posting a 1 percent comparable sales increase. Bon Ton Stores (BONT) and Dillard (DDS) are also expected to report comparable sales jumps for the second quarter.


Not bad for a part of retail many have claimed is doomed to disappear.


To be sure, overall department store sales are way below their 2000 peak of $232.5 billion, according to U.S. Department of Commerce figures, compared to $179.7 billion in 2012, the last full year for which data are available. (There was a spate of bankruptcies a few years ago that claimed chains like Mervyns, explaining a big part of the dip.) The Commerce Department found department sales were down 0.5 percent in the second quarter of 2014 compared to a year earlier.


But as Macy's explosive growth, and Penney's return from the brink in the last year show, there is life among the department store survivors, as many vendors are re-discovering.


Take Coach (COH). The upscale handbag maker has fallen out of favor with U.S. customers, prompting it to decide this year to close 20 percent of its stores and essentially reverse a big push toward in recent years to have its own store fleet. To make up the difference, Coach will rely more on department stores like Macy's and Nordstrom, tapping the shopper traffic those locations draw.

 

Coach isn't just focusing on high-profile stores like Macy's massive flagship in Manhattan where it will soon staff shop-in-shops with Coach staff (and where its space was designed by Dutch starchitect Rem Koolhaas). Macy’s 810-store fleet will be how Coach reaches customers in smaller markets as it doubles down on its 12 top North American markets for its own stores.


"There is place for the American department store," Coach CEO Victor Luis told Fortune in a recent interview. "Consumers at a department store don't have to go very far to cross-shop and in essence, compare and contrast. And so, at the end of the day, engaging well with the consumer at a department store, looking good, winning in a department store is a good test of a brand's vitality."


And Macy's has become the go-to retailer for some smaller brands needing a partner with a big footprint: Finish Line (FINL) and sports team merchandise seller Lids last year struck partnerships with Macy's to operate small boutiques at dozens of its stores. Those partnerships have been key to helping Macy's get more shoppers into its stores.


Macy's has also somehow managed to become more crucial for several established vendors, even as they open up more of their own stores. Macy's generated 12 percent of Ralph Lauren (RL) sales last year ($875 million), compared to 10 percent two years earlier. The department store accounts for almost all of PVH's (PVH) Tommy Hilfiger’s U.S. sales at wholesale.


Macy's has been particularly deft at using its physical stores to bolster its e-commerce by using them to help fill online orders, and the retailer has loosened its structure to give regional offices more say in what they buy for the stores. It has also developed brands specifically for millennials, and made its stores in bigger cities home to true luxury brands like Louis Vuitton and Dolce & Gabbana, helping it draw in a broader customer base.


Other less successful chains have also proven how important they are. J.C. Penney, on the comeback trail after ditching its 2012 experiment of no sales and fancier wares, is one of the most important channels for Levi Strauss and VF Corp's (VFC) Lee brand of jeans. PVH’s Izod is also particularly reliant on Penney. (VF, PVH and others bent over backwards to help Penney out at the height of its crisis, when sales were falling 25 percent per quarter, lest they lose a major retail client.)


For all its problems in the last two years, Kohl's (KSS) has twice as many stores as it did only a decade ago, and Sears' problems are largely self-inflicted, analysts say.


On the whole, department stores have finally woken up to the possibilities of e-commerce, and better in-store tech. (Macy's and Penney were among the first retailers to try out beacons in stores.) While they continue to face challenges, not least of which is a secular drop in mall traffic, there are signs that department stores have rediscovered how to be relevant.


"Thankfully we are beginning to see more creativity in the department store space," independent retail analyst Marie Driscoll wrote in a recent post for retail industry newsletter The Robin Report. "The pendulum is reversing. This could be fun!"


More from Fortune


84Comments
Aug 12, 2014 4:42PM
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"an aging customer base"...
you know, contrary to what some marketing "experts" would claim, spoiled  teenage d-bags DO NOT run the world...



Aug 12, 2014 4:30PM
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I never found their prices to be outrageously overpriced.  I shopped at Macy's over the years quite a bit but within the last couple of years their selections, at least in the men's department, trended toward the younger crowd with their skinny clothes and nothing was left for the conservative dressed males that actually worked in a conservative setting.  I finally went back to Dillards and have been happy.  Department stores need to understand that trends come and go but the classic look is always there and when you abandon that customer then you've lost them forever.
Aug 12, 2014 4:41PM
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Wait, last week MSN said that retailers were dying off. Now MSN says that they are alive and well. Which one is it I wonder?
Aug 12, 2014 6:11PM
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While the department stores may be coming back, the malls are still failing. All they can think about is more and more clothing stores. What ever happened to variety. Used to be, you could go to the mall and find just about everything you wanted- clothes, books, DVD or music CD, a new blade for your lawn mower- and that would be all before lunch. 
  BUt not these days...
Aug 12, 2014 5:14PM
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Online purchases are great for most things but not  when is comes to women's clothing.  I want to try  on clothing  before purchasing it.  I have tried purchasing clothing online and ended up sending it back and reordering.  It is such a hassle. Usually the clothing doesn't look like it does in the mock up, doesn't  fit, is poorly made, or doesn't look good on me.   It is just easier to go to a department store, look at the clothing, see how well it is made and from what materials.  You need to  try it on to see if it not only fits, but is becoming on you.  You really cannot gauge what something will look like on you from an online model.  This is the reason I do believe clothing stores, especially dealing with women's clothing, will never go out of business.  Most women want to see what clothing looks like on them before purchasing it.  And if you are a woman, and you don't really care - good for you.  I am young and want to look totally awesome in my clothing! 
Aug 12, 2014 7:44PM
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Sometimes you just want to get out of the damn house.


 I don't want to buy clothes, shoes, etc. online. I want to feel the material, try on the fit, get an idea of what I'm buying. I like to walk around a store, see people, maybe talk to someone, get something to eat. I like to maybe see something that I didn't expect to see.  I just don't want everything dumped on the doorstep that I bought off some screen.

Aug 13, 2014 12:20AM
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The department store will never die but Sears should've put their catalog online!
Aug 12, 2014 4:06PM
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If they stop selling all cotton sun dresses for $2-300 "on sale", I think that will be one good step. I think $89 for toddler shoes is too high as well. I don't mean something you know is going to be over priced for no reason. Regular store brands. H&M are right next door with a lot lower prices on the same looks.
Aug 16, 2014 2:45PM
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Well they WON'T be thriving in Ferguson, MO. They will be gone. Yet another failed IQ test. Yet another failed behavior test. Business will be leaving soon, VERY soon, as soon as they can pack. Then...very few jobs (none for youth). The gross local product will be selling drugs and stealing from each other...which will produce A LOT of black on black violence. That equates with a large percentage of your youth spending the better part of their lives in prison. Hey, it was worth it, right? It was a hoot trashing all those whitey stores. What genius. (That's why they had no knowledge of the wheel until the 17th century, and never developed a written language.)
Aug 16, 2014 9:03AM
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A few stores in Ferguson Mo. are now available empty lots as the local animals are burning them out.
Aug 12, 2014 5:11PM
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If more retailers have the means and approach that Macy's uses (a big 'if') then more department stores would be successful. Macy's combines an upscale environment with excellent sale pricing, if you excuse the fine print that is traditional in their coupons. Macy's also takes note of Nordstrom stores, who tend to employ interested people and give them some training to handle their jobs. Customers DO notice this type of quality in addition to products and pricing.
Aug 16, 2014 9:15AM
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Department stores are not thriving today in Ferguson Missouri. The hood trash are rioting again. It makes no sense how these idiots are willing to destroy their own neighborhood. But then again, they more than likely voted for Obama only because he's half black.
Aug 16, 2014 11:34AM
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Department stores in Ferguson are on fire
Aug 12, 2014 10:00PM
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The classy department stores are already gone with the exception of Nordstrom's and Nieman Marcus.


Does anyone over the age of 45  from the East Coast remember B. Altman and Co.?  Now that was a classy department store. Alas, the world is going to the chuckleheads who live in the cloud.

Aug 16, 2014 3:38PM
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They are doing so great, that's why the closest Sears I used to go to, which was about 15 miles away has closed down.  They're putting in a sporting goods store in its place - that'll be the 3rd sporting goods store in that mall.  Now I have to go 50 miles to Sears.  One thing that kills department stores for me is that I am 6 feet tall and I wear pants with a 34 inch inseam.  I went from store to store to store looking for pants that long only to finally ask a clerk at one store who told me they only order pants up to a 32 inch inseam.  If you find 34, it's either a return or mistake in the order.  So I can now only buy pants online, which sucks because I can't try them on first and since everything is made overseas now, there is no regulation in measurements and a size 34 can really be a size 30 or 38.  So I end up returning and reordering pants again and again until I finally get the right fit.  This new world of global economy sucks ducks!!! 
Aug 16, 2014 1:09PM
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Just because I can buy something on the internet doesn't justify the conclusion that I want to or even will.  I can't always see quality in an internet picture.  Clothing sizes are no longer reliable.  Then there is the joy of Chinese produced clothing where pant seams twist around my leg even when the brand should be reliable. According to the talking heads of marketing and retailing I elect to remain a cliché while driving my sedan to clothing stores where I find the quality and fit that will not have me embarrassed when I wear the clothes I buy.  Purchasing prognosticators wearing $10,000 suits while asserting that my desire to look presentable is abnormal are an insult.
Aug 16, 2014 7:59PM
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Nordstrom continues to thrive with a simple, time tested formula - excellent customer service and quality merchandise tastefully presented.  Used to be that there was more quality merchandise and service level to be had in Macy's as well as other comparable stores - not true any more and that is why I rarely enter Macy's anymore because when I do I am left feeling disgusted by the lower quality stuff, icky fabric blends,  the great majority made in China, and especially the women's shoes - OMG, all made in China, more and more all man-made materials, so stiff and uncomfortable with no support or give.  It is painful to even try the shoes on they are so stiff, even the so-called higher end brands now.  Ugh.  The poor quality is palpable just walking through Macy's now and the stores are so jammed with crap and racks so close together it is annoying.  Ever try to walk through the lingerie department - good luck doing so without knocking bras off onto the floor because the racks are too close together and good luck finding your preferred brands without having to roam the entire department.  Who is running the show anyway with these poor buying and store layout decisions?.  I now prefer to shop less and when I do shop I insist on good quality and service or I simply do not buy. 
Aug 16, 2014 10:50AM
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Wonder how the department stores in Ferguson MO are doing.
Aug 16, 2014 6:29PM
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I personally like shopping at macy's, I prefer to check out the fabric, try things on before I buy.  I also sometimes shop at the online macy's store and if it dosent fit right or I don't like it I will just go directly to Macy's store to return or exchange it.  My kids also shop their as well.
Aug 12, 2014 5:29PM
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I think Macy's and a few other 'high end' retailers got the message about making items more affordable and offering better quality for the dollar. I won't shop at JCPenney or Sears simply because they employ people who cannot put together a simple sentence and their products are garbage. I used to like some of the hardware and appliance items with Sears, but they've completely lost my business now.
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