As Macy’s pours billions of dollars into launching a national department store chain, some experts are questioning whether department stores matter as much as they used to.
Macy’s executives and mall managers throughout the country have spent months touting Saturday’s transition of Foley’s and 10 other regional department store chains to the Macy’s nameplate.
About 400 stores will make the switch – including 12 in Colorado – yet critics remain wary of the move by Macy’s parent Federated Department Stores Inc.
“The whole department store base is questionable today,” said consumer researcher Britt Beemer. “They’ve got to rebuild their image.”
Researchers say department stores are losing customers – particularly younger ones, who tend to favor big-box discounters, specialty boutiques and the Internet – because their merchandise is widely available elsewhere and service levels have slipped.
Federated chief executive Terry Lundgren has expressed confidence that he can reinvigorate the sector through the creation of the Macy’s national department store brand, featuring an improved environment, better selection and more private-label merchandise. To accomplish that goal, he led the $11 billion takeover of Foley’s parent May Department Stores Co.
The goal, Lundgren said, is to “concentrate on our best national brands and reduce costs so we can deliver outstanding value to shoppers. Continuing to build Macy’s … aggressively across America will accelerate our comp store sales performance and increase profitability, thereby driving shareholder value.”
Industry experts say he faces a big challenge.
In 2005, department store sales dipped 2.4 percent while total nonauto retail sales gained 7.9 percent, according to a July report by Retail Forward Inc., a Columbus, Ohio-based retail analysis firm.
It was the fifth yearly sales decline in six years, according to the report. Generally, upscale department stores like Nordstrom have performed better than their middle-market counterparts.
As evidence of their declining status, some shopping centers have become just as willing to sign restaurants, discounters, big-box stores or hotels to anchor spots once exclusively reserved for traffic-generating anchors.
An executive at Westcor, a subsidiary of mall developer Macerich, earlier this year said the company is considering a hotel for the former Lord & Taylor space at FlatIron Crossing shopping center in Broomfield.
Southwest Plaza mall, owned by General Growth Properties Inc., recently announced it would subdivide its former Dillard’s store into space for a Dick’s Sporting Goods and another smaller retailer. Park Meadows mall, also a General Growth holding, is widely expected to convert its former Lord & Taylor store to outdoor retail space.
Additionally, outdoor lifestyle centers – one of the biggest trends in retail development – are frequently constructed without department stores.
“We don’t believe the department store necessarily drives traffic or drives sales to us,” said Terry McEwen, president of Poag & McEwen Lifestyle Centers LLC. The Memphis, Tenn.-based developer has built three lifestyle centers in Colorado. Only one, The Promenade Shops at Centerra, hosts a department store anchor.
“Department stores need to be concerned with the fact that they’re not a habit for the new generation of shoppers,” said Candace Corlett, a principal at WSL Strategic Retail in New York.
Chanthy Na, a 27-year-old public relations consultant from Arvada, is among the shoppers straying from the sector.
“The styles are more relevant in the smaller stores,” said Na.
He tends to shop at smaller retailers like Banana Republic and Abercrombie & Fitch Co. because they provide better service and better-tailored styles, he said.
Department stores have “cut back on store staffing and are giving customers the kind of service that means they’re not as likely to go there,” said Beemer.
Corlett says department stores have made efforts to correct their problems by tweaking their designs to be more consumer friendly and increasing their share of private-label merchandise that can’t be purchased through other retailers.
The sector is also beginning to experiment with off-mall centers designed to reach customers in the neighborhoods where they already shop.
Some changes are popping up locally. Dillard’s, for example, is constructing a new store at Southwest Plaza. The company says will include many improvements over its existing store design. Additionally, analysts have also commended the J.C. Penney Co. Inc. chain for revamping to better serve customers.
“I don’t think we can write (department stores) off yet,” said Patrice Duker, a spokeswoman for the International Council of Shopping Centers, an industry trade group. “They have done things to improve, but they do have to continue to change to respond to customers.”
Staff writer Kristi Arellano can be reached at 303-954-1902 or karellano@denverpost.com.
