Then shoppers' focus shifted from downtown areas to the suburbs.
Teenagers emerged as a new, powerful purchasing force. Department
stores slowly relinquished their dominance to specialty stores that
catered to niche consumers with specific tastes. The final insult
was the internet. The web gave shoppers the ability to easily
compare prices, igniting a price war that put department stores at
a further disadvantage.
Today, department stores are a shadow of their former selves and
have shed many specialized services, such as gift wrapping and
tailoring, while winnowing their product selection. Each is now
known for just one or two merchandise categories, if it's lucky:
Sears is synonymous
with tools and appliances, while Macy's and Kohl's dominate in fashion and home
Department stores accounted for 10% of total retail sales in the
mid-1980s, 8% in 1990, 5% in 2000 and 2.4% in 2009, according to
Craig Johnson, president at Customer Growth Partners, a consulting
and research firm. As of 2011, department-store spending accounted
for just 2.6% of total retail.
"Department stores gave up space without a fight to specialty
retailers and the web," said Rahul Sharma, retail analyst and
managing director at Neev Capital.
But it looks like some of the fight is coming back as department
stores dust off old concepts and realize the power of their
JC Penney, which has
been one of the most pressured in the space, is undertaking a
massive initiative to revamp its stores. By 2015 all locations will
include more than 100 shop in shops, and a "town center" will
replace old-fashioned jewelry counters.
"If we want to transform the department store we have to
understand what happened. These stores were [a] pillar of the
community. When we want a great product today, we go to a specialty
store -- we might go to J. Crew, we might go to H&M, Uniqlo,"
said JC Penney's new CEO, Ron Johnson, at the unveiling of the
retailer's strategic shakeup.
The 110-year-old department store has already seen success with
shop in shops. Its Sephora mini-shops average sales of $600 per
square foot, compared with $200 per square foot for the rest of the
"In the golden age of department stores, America's families came
for more than just to shop," Mr. Johnson said. "They were able to
have fun experiences and were offered a range of useful services.
We are going to revive that excitement and convenience at JC
Target, often labeled a discount department store, is embracing
a similar strategy. In May, it will unveil "The Shops," which will
feature products from a rotation of independent boutiques in
stores. "The Shops" will extend to the company's website and
social-media outlets where consumers can learn more about the
boutique owners via videos.
"Many retailers are coming to the realization that there's not
much square-footage growth left. They can't continue to grow
earnings or improve same-store-sales just by opening new stores,"
said Paul Lejuez, retail analyst at Nomura. "One way to [grow] is
to revamp stores to drive traffic. Retailers have cash preservation
from the recession. Store remodels were put on hold and now
retailers are playing catch up."
Retailers have spent the past several years investing in
e-commerce, mobile shopping and social outreach, but by
incorporating all those elements into a compelling store
environment, they may have finally found a way to reclaim shoppers
forfeited to Amazon.
"Stores have a ploy they haven't really been taking advantage of
-- customers can actually touch and feel the product and purchase
it right away," Mr. Sharma said. "There's the ability for shoppers
to buy something online and pick it up in the store. Retailers
never made that big a deal about this or emphasized it enough.
Department stores in particular have been remiss."
Macy's is now touting seamless integration of its "omni-channel"
initiatives, bringing online shopping offline. One example is
"Beauty Spots," now in test phase. The concept, located in the
cosmetics department, allows shoppers to access information about a
range of products without having to jump between brand counters. A
sales associate is on-hand to deliver the products for
"By doing this, shoppers can actually see the product in person,
but the process of finding that product is much like how you would
shop online," explained Jim Sluzewski, a Macy's spokesman.
The idea of combining the ease of online shopping with the
brick-and-mortar experience isn't lost on pure internet players.
Giants such as Amazon, eBay, Google and LivingSocial are all
looking into the potential of physical stores.
Google is reportedly opening a store at its European
headquarters, in Dublin. Amazon may be looking into its first
physical location in Seattle. During the holiday season, eBay
rolled out pop-ups in New York, San Francisco and London. And
LivingSocial recently opened a 28,000-square-foot store that
includes a test kitchen for classes, space for dance studios and
craft workshops, and a bar suitable for mixology classes or