OPEN LETTER TO YESTERDAY'S RETAIL GIANTS

Customization, Real Estate Key to Department-Store Survival

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COLUMBUS, Ohio (AdAge.com) -- Dear Department-Store CEO: Did you ever see that “Saturday Night Live” sketch from way back in 1978 about the Scotch Boutique, a store that sold nothing but Scotch tape, which, of course, is universally available, and so was always predictably desolate? Well, as you head out to the Retail Marketing Association annual conference in Chicago, consider that in 2006, you are the Scotch Boutique of retail, and parity is your worst enemy.

Your lure to the consumer once stemmed from housing brands and a shopping experience (glamour, doormen, glitzy window displays) that couldn’t be found elsewhere. Today, not only can I buy a KitchenAid mixer at Target, but a gallon of milk and a set of 400-thread count sheets, to boot. This reality in part explains why for the last 15 years, you’ve lost market share every single year.

Your response? Consolidate, merge and commoditize the department-store experience until it was virtually indistinguishable from any other retail channel.

I know, that’s what Wall Street demanded. Yet in all this upheaval, you lost sight of figuring out what the customer really wanted and they’ve now migrated to big-box and specialty retailers.

No advertising campaign or clever promotional strategy is going to change that. So what to do? Quite simply: Fight commoditization. Be anything and everything Wal-Mart isn’t.

Focus on the shopper
Yes, Federated, you’re now the biggest department-store chain out there, and you’re busy building the Macy’s brand into a national force of a scale never seen before among department stores, merging ad departments, media budgets and buying functions. And maybe you have no other choice. Financially speaking.

But holding on to customers will require you to get personal, not big. “Customization is what is going to make it work,” says Janet Hoffman, managing partner of the retail practice at Accenture’s North America retail practice. “The only opportunity for the department store is in understanding the customer and not doing what mass merchants do by offering a one-size-fits-all format.”

Find a new home
Next, it’s time to figure out a way to win the real-estate battle again. You’ve lost your status with developers. It’s no longer the heyday of ‘70s and ‘80s, when a new mall rose in the cornfields of suburban America every three or four days—in 2005, just nine regional malls opened. Developers used to sign a trio of you and tout the millions in newspaper ad spending that you brought to the table. Now they have no use for you.

(Consider the fate of the 25-year-old Bannister Mall in suburban Kansas City, Mo. In just two years, you fell like dominoes. First J.C Penney, then Dillard’s and next Sears. A massive 1.2 million-square-foot shell with 50 empty storefronts remains.)

“Developers don’t want to build a new Macy’s or even a Bloomie’s when there’s another one just up the road. The brands have lost their niche and developers want something new and exciting to drive traffic,” said Faith Hope Consolo, a retail broker.

At the booming open-air lifestyle centers (the retail format fast replacing the regional mall) rising up often just miles from those dying regional malls, it’s a big-box Target store, a Barnes & Noble, a sprawling cineplex or a gargantuan gourmet food retailer like Whole Foods. Bottom line: You need a new home, or a credible new appeal to the developers.

But there’s still hope. Although 89% of shoppers went to the big-box retailers this holiday season, according to WSL Strategic Retail, you came in second place, luring 73% in a dead tie with online retailers. You need to reinvent yourselves—but you’re not Montgomery Ward just yet.

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