This Week, Industry Snapshot Looks at
Department Stores

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Federated Department Stores, Inc.

The May Department Stores Company

The Neiman Marcus Group, Inc.

Nordstrom, Inc.

Saks Holdings, Inc.

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This Week's Industry Snapshot

Department stores are an American institution, and, to borrow from Mark Twain, reports of their demise have been greatly exaggerated. Skeptics have warned for years that specialty chains would gradually erode the market share of department stores. In conjunction with the low-cost retailers it was said that this one-two combination would put department stores on the mat. Granted, these hits have knocked department stores on their heels, coupled with body blows from ill-fated forays into the ring with "excessive leverage" in 1980s. However, department stores have some unique qualities that set them apart from other broadline retailers.

The department store format has a built-in flexibility that allows for the reallocation of resources and merchandising emphasis to meet customer's fickle preferences. In a fast-paced retail environment, department stores can offer the latest "needs" that everyone has to own, while simultaneously providing goods that very few can afford to own. It has been estimated that monthly mall visits have dropped from three times per month in the late 1980s to a little over one time per month today. This drop-off has coincided with an intangible increase in the overall pace of life. Hectic, hurried trips to the mall serve to increase the appeal of shopping formats that can cater to multiple needs, i.e. department stores. After all, they are also closer to the parking lot and don't require a trip into the mall proper.

Overall, the key to department store success was aptly summarized by Louis Lowenstein in his indictment of retail operations and the evil effects of excessive leverage: "In a mature but competitive business, such as department stores, a business with no tail wind to help, execution and implementation are everything. Management needs to devote its energies to merchandising and to stores and to people."

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