The death of the department store

As reported by the BBC, "The death of the department store," by Stephen Evans a BBC North America business correspondent, on 1 March, 2005  --  Is the department store on its last legs? Should we get ready to mourn an institution that served us well some decades ago but whose time has come and gone?

The questions are begged by the take-over of May Department Stores by Federated Department Stores for $11bn.

There's no doubt the combination is better able to fight its corner - but the question is whether habits and changing ways of shopping make department stores a losing format.

Of course, Terry Lundgren, Federated's chairman, president and chief executive, was confident (how could he not be?): "We have taken the first step toward combining two of the best department store companies in America, creating a new retail company with truly national scope and presence".

But presence where exactly?

There was a time relatively recently when no shopping mall in America seemed complete without a Macy's or a Bloomingdale's (both owned by Federated).

Under threat

But now, not even that is true - Target, Sears and a string of other chains are taking their place as the corner anchors of the big malls.

And the traditional place of department stores in city centres is clearly under threat.

They grew in an age of new urban wealth. Now, the car and supermarkets have changed shopping habits and switched the direction of customers to out-of-town.

And though department stores have tried to follow the customers haven't followed in droves.

Mr Lundgren may well decide to hammer away at the new, merged company's two big brand names, Macy's and Bloomingdale's, perhaps losing some of the lesser known brands to concentrate the strength of the well-known names.

Spruced up

And he may well push through a revamping of the stores.

Federated under his rule has pared down the merchandise on offer to focus on more popular items.

It's jazzed up sections for young people by introducing plasma screens on which teenagers can view themselves and the clothes they're trying on. There are computers for customers to send the pictures to their pals. It's introduced bigger fitting rooms.

But it makes you wonder if it's just like your lovely old auntie trying to look younger by wearing trendy clothes.

After all, Federated's sales in the last year were not much changed from what they were six years ago.

It's true they might have been worse without Lundgren's efforts but they're hardly statistics to inspire cries of joy in the elevators of the nation's venerable stores.

Distinguished history

Venerable they are. Department stores were invented by the French.

Macy's has a long, distinguished history

One Aristide Boucicaut opened the Bon Marche store in Paris in 1838 and that evolved into a department store (a store with different departments for different types of good) in 1852.

The point was that all the departments were under one roof, offering goods at a fixed price.

In 1858, Rowland Hussey Macy founded a "dry goods store" at Broadway and Chambers Street in Manhattan. He was a Quaker whaler from Nantucket who had a red star tattooed on his hand so he took that symbol as the store's logo.

Macy's Herald Square store

By the time Macy died in 1877, the store that bore his name stretched to eleven buildings.

In 1902, the current Macy's was built on Herald Square in New York and it became one of the wonders of the new world as the "largest store on earth" with nine storeys and thirty-three elevators and a pneumatic tube system to whoosh money and messages around the complex.

All very modern at the time. But that was then and this is now. When was the last time you shopped at a department store?  (source: BBC)

The Vanishing Mall

As reported by The Week, "The vanishing shopping mall:  Enclosed shopping centers, clobbered by the recession, are closing by the hundreds. Is our love affair with the mall over?" By The Week Staff, on 26 March 2009 -- Enclosed shopping centers, long the cathedrals of American consumerism, are closing their doors by the hundreds as the recession continues to clobber retail sales. Is America’s love affair with the mall over?

Are malls dying?

The vital signs are not good. Even before the recession hit, consumers had developed mall fatigue, and the classic enclosed shopping mall was in decline. More than 400 of the 2,000 largest malls in the U.S. have closed in the past two years. The last new major mall in the U.S. opened in 2006, and only one big mall is scheduled to open this year—the troubled Xanadu mega-mall in Rutherford, N.J. (See below.) With some 150,000 retail stores projected to fail in the U.S. this year, more mall closings are imminent. Mall mainstays such as Mervyn’s department stores, Linens ’n Things, and KB Toys have already disappeared into bankruptcy, and mall vacancy rates topped 7 percent last year, the highest level since 2001. “It’s an absolute disaster,” says Howard Davidowitz, an investment banker specializing in retailers. “What a mall represents is discretionary spending, and discretionary spending is in a depression.”

Is it really that bleak?

The data suggests that it is. For decades, American consumers could always be counted on to spend more than they did the year before—the only question was, by how much. But in the past 12 months, retail sales in the U.S. have dropped an unprecedented 9.8 percent. The economic collapse has landed especially heavily on the old-line department stores, such as Sears and JCPenney, that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, to the distress of the smaller merchants that depend on the larger stores to feed them traffic. The Turfland Mall in Lexington, Ky., recently lost Dillard’s as an anchor tenant, setting off a cascade of closings. “We have no choice but to leave now that Dillard’s is leaving,” says Bill Parker, who just closed his shoe store.

Have people simply stopped shopping?

No, but they’re increasingly patronizing discounters such as Wal-Mart and Target, not the full-price department stores and high-end boutiques. Sales are growing at Wal-Mart, where shoppers can pick up groceries, fill their prescriptions, and buy socks without leaving the store. Many consumers are also shopping online. “I can’t take a couple of hours out of my weekend to drive down and browse the mall,” says Burlington, N.J., teacher Kari Holderman. Hard times have also meant that consumers are passing up the nonessential items that malls specialize in—things like scented candles, $25 baseball caps, $250 back massagers, and battery-operated guinea pigs spinning on exercise wheels. “The most important fact about our shopping malls,” says social scientist Henry Fairlie, “is that we do not need most of what they sell.”

What happens when a mall dies?

It can devastate the surrounding community. The mall’s site can rapidly turn into a wasteland of overgrown weeds, cracked concrete, and stray animals, with looters picking sites clean of copper tubing, light fixtures, and anything else that can be sold for scrap. When the Riverside Center in Utica, N.Y., closed around Christmas 2007, its owner didn’t even bother to take down the holiday display. The following July, says Peter Blackbird of Deadmalls.com, the roof sprang a leak that drenched the display’s cotton “snow,” which quickly “turned into mold stew.” The fallout goes beyond aesthetics, of course. When a mall closes, unemployment rolls in the region swell, and the loss of property, sales, and business taxes can leave municipalities with serious shortfalls. The city of North Randall, Ohio, is nearly bankrupt following the closing late last year of the Randall Park Mall, once the largest mall in the Cleveland area. “It could simply cease to exist as a city,” says Cuyahoga County Commissioner Peter Jones.

Will anything replace the mall?

Some are being razed to make room for “big box” stores such as Home Depot and discount clubs such as BJ’s and Costco. Still others are being turned into open-air “lifestyle centers,” ersatz Main Streets to replace the real Main Streets that were decimated when malls lured away their customers in the first place. The stores in these centers are at ground level and have entrances facing the street, which helps boost store traffic and sales. Like real Main Streets, lifestyle centers include restaurants, movie theaters, and pedestrian plazas, as well as shopping. The amenities “draw the consumer in for reasons other than to just purchase items,” says Erin Hershkowitz of the International Council of Shopping Centers.

If malls go, could downtowns come back?

In this economy, not likely. Some developers have already tried building “lifestyle centers” in downtown areas left blighted when stores and shoppers fled to the outskirts. But there is no single “big fix” that will pump life back into downtowns full of boarded-up stores, says development expert Teresa Lynch. That means some communities will soon be without a mall or a thriving shopping district, leaving them with no central gathering place. “One of the biggest consequences of mall closings is the loss of a sense of community,” says David Birnbrey of The Shopping Center Group, “a place where people gather and socialize.” And exercise. Retirees Dick and Anne Saplata work out by walking around the largely empty halls of the Metcalf South Mall in Leawood, Kan. It’s likely to close soon, and there’s talk that a developer will raze the place. If the mall goes under, Dick Saplata asks, “where are we going to walk?”

The last mega-mall?

Talk about bad timing. June is supposed to mark the opening of the Xanadu mall on a stretch of New Jersey swampland just across the Hudson River from Manhattan. But it might not happen. When developer Larry Siegel broke ground on the $2.2 billion, 2.4-million-square-foot mall in 2004, he promised that Xanadu would be the ultimate “shoppertainment” experience, with an indoor ski slope, a fishing pond, and even a 30-foot-high chocolate waterfall. But as the recession has deepened, plans have been repeatedly scaled back. Prospective tenants, including Virgin Megastore and Borders, have bailed out, and no anchor tenants have yet been signed. Siegel is vowing to carry on. “We’re not building this for the next 18 months,” he says “but the next 50 years.” The chocolate waterfall, though, has been scaled down to 4 feet.  (source: The Week)

The End of Saks Fifth Avenue?

As reported by the New Yorker Magazine, "THE END OF SAKS AS WE KNEW IT," on 30 JULY 2013, by Amy Merrick -- When Saks Fifth Avenue opened, between Forty-ninth and Fiftieth Streets, on September 15, 1924, shoppers in fur coats and pearls mobbed the sales floors. The first package out its doors was a silk top hat, sent to President Calvin Coolidge. The Roaring Twenties had brought sudden prosperity to a nation tired of sacrifice, and wealthy shoppers were ready to spend. Then came the Great Depression. By 1931, Saks was advertising price cuts on its fur coats. The frenzy was over.

Now, some ninety years later, that narrative is repeating itself, but this time the gilded days may be over for good. The Great Recession halted another boom in luxury retail, when chains like Saks were posting double-digit quarterly sales gains. The announcement, on Monday, that the Canadian retailer Hudson’s Bay was buying Saks seemed to signal the end of an era.

Saks, which tends to change owners every decade or two, was a palace of hushed elegance—the type of store that, as Fitzgerald wrote in “The Great Gatsby,” promised that “the rock of the world was founded securely on a fairy’s wing.” Adam Gimbel, who became the president of Saks in 1926, redecorated the Fifth Avenue store in the Art Moderne style of the Paris Exposition, with velvety sofas and elaborate moldings. His wife, Sophie, was the first American designer on the cover of Time magazine; women crowded into Sophie’s Salon Moderne at Saks for private fashion shows and had their dresses hand sewn in the store. Customers had their hair cut into newly stylish bobs and took golf and ski lessons—indoors—from professional instructors.

Later on, when Saks opened branch stores, shoppers in Palm Beach, Chicago, Miami Beach, and Beverly Hills, and then in smaller markets, could have their own Fifth Avenue experience. The Saks shoe salon in Manhattan grew so vast that it earned its own Zip Code, 10022-SHOE.

As Saks expanded, so, too, did the ways in which people made purchases. Cubicle dwellers developed new routines, starting the work day with a Starbucks latte and a quick browse of their favorite shopping Web sites. Once retailers adopted complex, computerized pricing strategies—similar to those used by airlines to move unsold seats—people realized they could hold out for a bargain, even at the high end.

To purchase Saks, Hudson’s Bay (a chain with its own lengthy pedigree—it began as a fur-trading business, in 1670) agreed to pay sixteen dollars a share, or almost three billion dollars including assumption of debt, a thirty-per-cent premium to the stock price, before merger rumors surfaced. For the Hudson Bay C.E.O., Richard Baker, the deal represents a chance to open Saks locations in Canada, where there is much less luxury competition. Baker, an experienced real-estate investor who bought the upper-mid-scale chain Lord & Taylor, in 2006, and then engineered a takeover of Hudson’s Bay, told analysts that he plans to form a real-estate investment trust to generate cash from Saks’s prestigious addresses.

When executives begin touting minor markets and rejiggering the balance sheet, it’s a sign that their main business doesn’t have much room to grow. The Canadian economy is about the size of California’s—a modest opportunity at a time when the U.S. is opening few malls, but, then, California has Saks Fifth Avenue stores in only five cities. Although sales at Saks rose 4.4 per cent last year, they are still far below their 2008 peak. A hundred dollars invested in Saks stock in February, 2008, was worth only $58.51 five years later.

The sale to Hudson’s Bay is a sign that high-end retailers are struggling to regain the client base they lost during the recession. Over the past few years, as the economy has navigated an uneven recovery and a technological revolution, luxury shoppers have learned to buy differently. At Internet retailers such as Net-a-Porter, which now stocks three hundred and fifty brands, customers will happily purchase high-end merchandise online ($2,990 Proenza Schouler dresses; $1,870 Haider Ackermann blazers), taking advantage of generous shipping and return policies.

They’re even hunting on Amazon, which is stretching into rarefied price ranges by encouraging third-party sellers to hawk expensive clothes and accessories through its site. For customers who want to try on the goods first, it’s becoming easier to visit the fitting rooms at a Saks or Neiman Marcus and then go online for a better deal. (The phenomenon is called “showrooming.”) Buyers have also learned to score bargains on Gilt and other discount Web sites that hold limited-time “flash” sales on designer brands.

By opening so many off-price outlets, Saks and other high-end chains are themselves encouraging shoppers not to pay full price. Saks and Nordstrom now have more outlet locations than they have regular stores. At the Saks annual shareholder meeting in June, the C.E.O., Stephen Sadove, told investors that the retailer has closed twelve Saks stores in the past three years, and that the company will drop to forty locations (from a peak of more than sixty) by the beginning of next year. Meanwhile, the company is opening six or seven Off 5th outlets a year, and it plans to launch Off5th.com this fall. “We see a lot of opportunity there,” Sadove said. Saks has also been working to improve its Web site in response to shoppers’ changing habits.

Luxury retailers argue that there’s little overlap between their regular shoppers and their outlet shoppers; a Saks spokeswoman said that about ten per cent of its customers visit both types of stores, a figure that hasn’t changed significantly in recent years. But that, too, could be shifting. Outlet malls, as a matter of strategy, have traditionally been inconveniently located and designed as sprawling, often open-air centers. Yet on Thursday, the mall developer AWE Talisman LLC is opening a $250-million outlet mall just outside of Chicago, near the O’Hare Airport, where shoppers can admire contemporary art work and bask in the air-conditioning. Among its hundred-plus stores will be an Off 5th and a Neiman Marcus Last Call.

“The reason somebody shops in a regular Saks is for service and the latest fashion,” Sadove said at the shareholder meeting. “The reason someone shops in an outlet is for brand and a deal.” If outlet malls get cushier, however, those customers could increasingly be one and the same. Department stores argue that they can’t afford to be snobbish about where and how they sell their merchandise. “We have to be relevant with all the different ways that a customer chooses to interact with us,” said Colin Johnson, a spokesman for Nordstrom, which bought the flash-sale site HauteLook more than two years ago, for $270 million. E-commerce is the fastest-growing part of Nordstrom’s business, Johnson said, and it’s where the company expects most of its future growth to come from. (Nordstrom also plans to open its first Manhattan store, on Fifty-seventh Street between Broadway and Seventh Avenue, in 2018—around the time driverless cars are predicted to hit the market.)

The next test of the value of luxury stores could be the initial public offering of Neiman Marcus, which filed plans with the Securities and Exchange Commission last month but hasn’t yet set a date for offering shares. For Saks, the sale to Hudson’s Bay is an acknowledgment that, in years to come, high-end shopping will be a whole lot less glamorous than it used to be.[http://www.newyorker.com/online/blogs/newsdesk/2013/07/the-end-of-saks-fifth-avenue-as-we-knew-it.html Amy Merrick, a writer and a former Wall Street Journal reporter, teaches journalism at DePaul University in Chicago.]

Good to Gone to Great: The Circuit City Story

From the Wall Street Journal's Bankruptcy Beat, "An inside look at companies in trouble from Daily Bankruptcy Review," on 25 October 2012, "Lessons From the Death of Circuit City," by By Rachel Feintzeig -- Alan L. Wurtzel spent his adolescence putting antennas on roofs, delivering televisions and listening in on the Sunday night strategy sessions his father—the ambitious, optimistic founder of a Virginia electronics retailer—held in their home.

Over the course of the next sixty years, Circuit City Stores Inc. would grow into a company with 700-plus stores and $12 billion-in-sales—and then quickly collapse into bankruptcy and liquidation. Wurtzel would go on to helm the company and then cut his ties with it only to eventually be drawn back in by the aftermath.

“I wanted to understand what happened,” Wurtzel said.

The former Circuit City chief executive spent years sifting through filings and interviewing scores of former employees, directors, suppliers and analysts in an effort to unravel how the concept that came to his dad in a barber shop devolved into a victim of the global downturn and shifting consumer shopping patterns. His research recently yielded “Good to Great to Gone: The 60 Year Rise and Fall of Circuit City.” The book, which went on sale on Tuesday, is a case study, he says, of a business that found its stride and then refused to speed up when the pace of the industry quickened.

Circuit City wasn’t necessarily fated to collapse in 2009, Wurtzel said in an interview Wednesday, “had it woken up sooner.” Instead, management ushered in the new century with largely the same strategy Wurtzel had developed in 1980, focusing on services that customers didn’t need or want anymore. 2000 was technically the company’s best year, but even in the late 1990s, competitors like Best Buy BBY -1.98% Costco COST +0.05% and Kmart had already begun to chip away at the business’s foundation.

“It wasn’t obvious in sales and earnings, but the rot had set in,” Wurtzel said.

At that time, Wurtzel was a member of the company’s board, having stepped down as CEO in 1986. By 2000, he had also left the board and was completely uninvolved with the company.

“I sold my stock because I didn’t believe in the future,” he said.

Inside the business, management was aware of the retailer’s shortcomings, “but there was an arrogance,” Wurtzel said. He believes Circuit City’s decision makers weren’t scared enough by the shifting pressures in the industry nor nimble enough to quickly change course.

Two former chief executives and a former attorney for Circuit City and its management couldn’t immediately be reached for comment Thursday in response to Wurtzel’s criticisms.

Wurtzel believes that once management finally came up with a plan, it failed to execute it, deterred by pressure from Wall Street. The investments that would have moved Circuit City’s business forward also would have threatened its stock price, he said.

“I don’t think you can turn around a failing company in the full glare of publicity,” he said.

That observation led Wurtzel to a tangible recommendation for struggling businesses: Go private before executing a turnaround. But many of the lessons he learned from studying his family business are vaguer and read almost like maxims. He calls them “habits of mind,” and they include mantras like “be humble,” “run scared” and “curiosity sustained the cat.”

“Don’t think you know all the answers, because once you get complacent, you’re in trouble,” he said.

Wurtzel’s father, Sam Wurtzel, opened a television store known as Wards, the first location in the eventual Circuit City empire, in Richmond, Va., in 1950. The idea came to him when he was passing through the city, stopped for a haircut and heard the barber talking about the South’s first television station, which had just debuted there.

“The day he opened the store, he thought it would be a billion-dollar company,” Alan Wurtzel said of his father.

The business evolved over the years, shifting from smaller hi-fi stores, selling gadgets like tuners and speakers, to bigger footprints offering a wider variety of electronics. The company faced bankruptcy in the 1970s but prevailed, and a name change and billions in sales followed. When the most recent economic crisis struck, Circuit City headed for Chapter 11 and tried to downsize but ultimately failed to pull off a reorganization. Some 43,000 workers were left unemployed.

Wurtzel said it was painful to see the company shut down.

“I think in some ways it’s like losing a child,” he said, adding that he had expected to survive the business and “found it contrary to the natural order of things” to see it dissolve.

Circuit City’s lifespan proves that businesses have to fight hard every day, Wurtzel said.

“The world is always changing, and you can’t rely on your past accomplishments,” he said. (source: The Wall Street Journal)

Good to Gone to Great: The Circuit City Story