Department Stores Becoming “Cool” Again

It’s a department store revival.  For the past several years department stores have not been thought of as the place to go for the chic, young, and current.  Rather, visions of crowded racks, dowdy merchandise, and uninviting store layouts are what came to mind.  But not anymore… department stores are becoming “cool” again.

Stores like Macy’s Inc., Nordstrom Inc. and Kohl’s Corp. are posting solid sales gains even amidst a recession.  Department stores have seen sales rise 4.4% through August, according to Thomson Reuters, and are expected to increase 4 to 5% in September.  Macy’s saw a 5% increase in same store sales in August, and Nordstrom saw an increase of 6.7%.  Kohl’s and JC Penney saw a slight decrease in comp sales in August due to lost sales from closed stores during hurricane Irene, but have seen increases in same store sales for the year.

What started the revival?  Many department stores used the recession to rethink their strategy.  The result was better scale and a more complex business model using both third-party vendors and in-house lines.  This new way of thinking has resulted in:
  • More flexibility in picking and sourcing merchandise
  • The ability to lure customers in with targeted markdowns versus storewide discounts
  • A renewed focus on exclusive collections
Department stores have an advantage over specialty retailers when it comes to sales and promotions. Unlike specialty apparel stores like the Gap, department stores can offer promotions in those areas that are performing poorly while leaving normal profit levels for those areas that are doing really well.  For example, they can offer a discount on dresses if those are “out” this season while leaving the popular staple of jeans at regular price.

The push toward exclusive collections has also helped store traffic and drawn in a younger consumer base.  Brands that are associated with popular or celebrity names have differentiated the department stores from each other and help make each a popular destination. Examples include Macy’s Material Girl collection by Madonna, J.C. Penney’s merchandise from Mary-Kate and Ashley Olsen and MNG by Mango, and Kohl’s collections by Vera Wang and MTV reality TV star Lauren Conrad.

Department stores have expanded market share for the first time since the 1980s, according to research from Customer Growth Partners.  According to the data, department stores accounted for 2.5% of all retail sales in 2010, up from 2.4% in 2009.  It’s a much smaller percentage compared to twenty years ago when department stores shared 7.5% of retail sales and compared to fifty years ago when the share was 30% to 40% of the retail market.

Nevertheless, department stores are on the rise again and are expected to continue upwards for the remainder of 2011.