October 18, 2006
Consumers Headed to Department Stores for the Holidays
Department stores are “in” for the holidays.
According to a new BIGresearch study conducted for the National Retail Federation, an increasing number of consumers say they will be headed to department stores to do at least
some of their holiday shopping this year. In all, 62 percent plan to shop in department stores, up from 53 percent just four years ago.
Interestingly, while the percentage of those who plan to shop in department stores is going up, the opposite is true of discount stores. Four years ago, 77 percent of shoppers
planned on heading to a discount store to do some or all of their holiday shopping. Seventy percent say they will do the same this year.
A report by the Chicago Tribune suggests the move to department stores may not be a one-off event. Department stores, the research shows, are doing a better job of attracting
shoppers in the 18 to 25 demographic. Seventy-nine percent of consumers in this segment said they planned to visit department stores to find gifts for the holidays.
In recent years, consumers in that age bracket have gravitated to specialty stores. The Trib report said department stores have gone to edgier advertising campaigns backed
up by trendier designer and store exclusive merchandise in the apparel and home furnishings segments.
“Over the last couple of years, department stores, knowing that they are losing that customer segment, have been doing more things to bring them back,” said Phil Rist, vice president
of strategy for BIGresearch.
“Department stores are hitting the fashion cycle better than in the past,” added Peter Morici, professor of business at the University of Maryland. “This is shaping up to be
a catch-up year for department stores.”
Whatever department stores have been doing appears to be working. In September, the channel saw sales increase 8.4 percent, the largest single month increase dating back to January
1997.
Discussion Questions: How do you explain the growing interest in department stores as a shopping destination, especially among young adults? How are
specific chains breaking with the past (or perhaps reclaiming it) to become shopping destinations?
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Of course department stores are staging a comeback, and not just in the 18-to-25 demographic. There are several reasons why this is a trend, not a blip:
— Savvy department stores have countered consumers’ preference for specialty stores by becoming collections of specialty stores themselves. The fact that these stores-within-stores often have their own buyers, marketing, advertising, and sales and management personnel is what gives them the ability to be closer to the market, and why they are more likely to feature the hot products and items.
— Savvy department stores either offer distinctive products, provide exceptional service, or compel the loyalty of high-purchase, multi-trip shoppers with customized programs and rewards.
— Savvy department stores use their web sites and the Internet to drive traffic to their stores. They integrate their in-store and online operations. The majority of shoppers, and the overwhelming majority of younger shoppers, hit the Web before they hit the stores.
— Savvy department stores have become consumer-centric, not product-centric.
— Consumers have money to spend (employment and income up, delinquincies down) but spend selectively. They want quality, price, selection, convenience, and service. The department stores that provide these will thrive.
There’s also the fact that the universe of department stores has been thinned by bankruptcies, consolidations and acquisitions. But the ones that survive have done so for a lot of good reasons, and are again become shopping destinations for a new generation of consumers.
Please! There are several reasons why one should be skeptical. Comp figures that are “out the window” since the merger allow Federated to play with a pile of numbers in a variety of exciting — for them — ways (the fox is loose in the chicken coop). Remember also that many malls and downtowns are sharing business with one less (closed) department store competitor. Next, retailers know (thank you Paco Underhill) that it is about what shoppers do and not what they say they will do and clever researchers know how to word questions to get desired results (Federated at play again?). So, I for one will evaluate in two years (when we will have closer to real comp figures) and my expectation is that total department store market share will continue to decrease with a healthier Federated and Macy’s completely dominating but only because they have eliminated all serious direct competition.
In My Opinion:
The Department store resurgence is only a temporary event.
Stores such as Forever 21, Abercrombie, and Outlet Malls are still the predominant sources of fashion for 18-25 year olds.
Also, it’s only a matter of time before young consumers realize how homogenization in the department store sector is going to make a bland universal “smooth jazz” approach to department stores.
Now that there is a certain “Red Star” retailer operating coast to coast, there is no longer any excitement of traveling to a different city and having an exciting different department store than you have at home. Like all 18-25 year olds, as they mature they will get bored with the same in house brands of the large department stores.
Many 18-25 year olds are brand name “snobs.” They want to carry around the latest Coach Brand purses, Kenneth Cole Shoes, Hollister T-Shirts, Abercrombie Shorts and Express dresses, not in-house department store brands that mimic the brand names with different spellings.
Two things seem to be driving this trend.
>One is the clear and unique positioning of department stores, i.e., they’re doing a much better job of letting shoppers know why they should visit their stores.
>The second is truly a reaction to the significant emphasis that we’ve seen on very specialized retailing. Today the novelty of being able to authentically satisfy multiple sets of shopping needs in one store is unique, and it’s a positioning that some department stores now own.
Imagine that: a return to a focus on one-stop shopping!
One month doesn’t make a trend. The long term decline of department store market share is likely to continue. That doesn’t mean profits will decline, however. The shrinking number of players, combined with restrained location growth (or location decline), is a great tonic to profitability. It doesn’t matter what the surveys say. People vote at the cash register and those are the only votes that matter in any business.
Department stores apparently have caught on to the E-boom. They’ve lowered their prices enough to compete, and have sites of their own. E-shipping and handling costs now compete fairly with store space. The advantages of trust, education (one can see the product), and immediacy will take over again. Large items and ones where where appearance and style are important will do especially well.
I agree that one month doesn’t make a trend and that it would be all too easy for the customer to become bored with a stale offering, so ultimately the department store itself — and there are SO few now — will be the deciding factor. It is up to them to TRULY create an exciting and enticing offering to get the customer in their locations. If they can do that, they will gain share and maintain relevance; if they fail to do that, we will continue to see even more consolidation and store loss. Although we are pretty close to minimum, some day we may only see Dillards, Kohl’s, Penneys and Belk. Macy’s is still in initial execution at present. It will be interesting.
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Of course department stores are staging a comeback, and not just in the 18-to-25 demographic. There are several reasons why this is a trend, not a blip:
— Savvy department stores have countered consumers’ preference for specialty stores by becoming collections of specialty stores themselves. The fact that these stores-within-stores often have their own buyers, marketing, advertising, and sales and management personnel is what gives them the ability to be closer to the market, and why they are more likely to feature the hot products and items.
— Savvy department stores either offer distinctive products, provide exceptional service, or compel the loyalty of high-purchase, multi-trip shoppers with customized programs and rewards.
— Savvy department stores use their web sites and the Internet to drive traffic to their stores. They integrate their in-store and online operations. The majority of shoppers, and the overwhelming majority of younger shoppers, hit the Web before they hit the stores.
— Savvy department stores have become consumer-centric, not product-centric.
— Consumers have money to spend (employment and income up, delinquincies down) but spend selectively. They want quality, price, selection, convenience, and service. The department stores that provide these will thrive.
There’s also the fact that the universe of department stores has been thinned by bankruptcies, consolidations and acquisitions. But the ones that survive have done so for a lot of good reasons, and are again become shopping destinations for a new generation of consumers.
Please! There are several reasons why one should be skeptical. Comp figures that are “out the window” since the merger allow Federated to play with a pile of numbers in a variety of exciting — for them — ways (the fox is loose in the chicken coop). Remember also that many malls and downtowns are sharing business with one less (closed) department store competitor. Next, retailers know (thank you Paco Underhill) that it is about what shoppers do and not what they say they will do and clever researchers know how to word questions to get desired results (Federated at play again?). So, I for one will evaluate in two years (when we will have closer to real comp figures) and my expectation is that total department store market share will continue to decrease with a healthier Federated and Macy’s completely dominating but only because they have eliminated all serious direct competition.
In My Opinion:
The Department store resurgence is only a temporary event.
Stores such as Forever 21, Abercrombie, and Outlet Malls are still the predominant sources of fashion for 18-25 year olds.
Also, it’s only a matter of time before young consumers realize how homogenization in the department store sector is going to make a bland universal “smooth jazz” approach to department stores.
Now that there is a certain “Red Star” retailer operating coast to coast, there is no longer any excitement of traveling to a different city and having an exciting different department store than you have at home. Like all 18-25 year olds, as they mature they will get bored with the same in house brands of the large department stores.
Many 18-25 year olds are brand name “snobs.” They want to carry around the latest Coach Brand purses, Kenneth Cole Shoes, Hollister T-Shirts, Abercrombie Shorts and Express dresses, not in-house department store brands that mimic the brand names with different spellings.
Two things seem to be driving this trend.
>One is the clear and unique positioning of department stores, i.e., they’re doing a much better job of letting shoppers know why they should visit their stores.
>The second is truly a reaction to the significant emphasis that we’ve seen on very specialized retailing. Today the novelty of being able to authentically satisfy multiple sets of shopping needs in one store is unique, and it’s a positioning that some department stores now own.
Imagine that: a return to a focus on one-stop shopping!
One month doesn’t make a trend. The long term decline of department store market share is likely to continue. That doesn’t mean profits will decline, however. The shrinking number of players, combined with restrained location growth (or location decline), is a great tonic to profitability. It doesn’t matter what the surveys say. People vote at the cash register and those are the only votes that matter in any business.
Department stores apparently have caught on to the E-boom. They’ve lowered their prices enough to compete, and have sites of their own. E-shipping and handling costs now compete fairly with store space. The advantages of trust, education (one can see the product), and immediacy will take over again. Large items and ones where where appearance and style are important will do especially well.
I agree that one month doesn’t make a trend and that it would be all too easy for the customer to become bored with a stale offering, so ultimately the department store itself — and there are SO few now — will be the deciding factor. It is up to them to TRULY create an exciting and enticing offering to get the customer in their locations. If they can do that, they will gain share and maintain relevance; if they fail to do that, we will continue to see even more consolidation and store loss. Although we are pretty close to minimum, some day we may only see Dillards, Kohl’s, Penneys and Belk. Macy’s is still in initial execution at present. It will be interesting.