When Federated Department Stores CEO Terry Lundgren graduated from college in 1975, he had 13 job offers, including one for a good-paying position at IBM. When he took a job as an executive trainee at Bullock’s department stores, his roommate said he was crazy: Department stores were dying.
When Lundgren left Neiman Marcus in 1994 for Federated, friends again questioned why he would stick with a “dinosaur industry.”
Lundgren has an answer for the naysayers: “I say, ‘Listen, we’re doing $27 billion in sales. Someone is coming to these stores.’”
Department stores are on a roll, recently trouncing the specialty stores that were supposed to be the winners in a long-running retail battle. The department store/specialty store rivalry dates to the growth of regional malls in the late 1980s and early ‘90s, when the smaller specialty stores filled in the spaces between the department store anchors.
More recently, department store sales, led by Federated, Nordstrom and Neiman Marcus, have been climbing. Meanwhile, specialty stores, including Talbots, Ann Taylor, Chico’s and the beleaguered Gap, have been stumbling.
There are exceptions among specialty stores. Luxury and teen retailers continue to shine. Retail analyst Jennifer Black cites Coach, Abercrombie & Fitch and J. Crew as examples of retailers that know their customers and are largely immune to economic downturns.
Selection Critical
But analysts and consumers agree that, as usual, it comes down to product. Some specialty stores have erred by going either too dowdy or too trendy, while department stores have made the most of their square footage by adding more designer and private-label merchandise to distinguish their offerings.
Department stores have “done a really good job focusing in on how to make their assortments more compelling,” says Michelle Bogan, a retail strategist at global consulting firm Kurt Salmon Associates. Some “specialty stores started to rest on their laurels, thinking people would keep coming if they just kept doing what they were doing. But if the customer has a better option, that’s where she’s going to shop.”
“The department stores are using some exciting new vendors, while also keeping the old ones, and they kept the pricing affordable and the quality good,” says Nanci Lee Mora, a frequent shopper and former Bloomingdale’s manager. “The smaller stores have become boring, [and] their prices are too high.”
Mora, who wears petite sizes, says she used to frequent Chico’s, Talbots and Anthropologie but is now particularly fond of Macy’s, where she can shop both for higher-end designers and in the juniors department. “Specialty stores do not offer the variety, prices or size variation that Macy’s or the other department stores offer.”
Talbots was among Soroya Pierre-VanArtsen’s favorite stores when she was single. Now that the aerospace industry accountant is a working mom, she sticks mostly to department stores, especially Macy’s and Lord & Taylor. “I can find everything that I need for the entire family in one store,” Pierre-VanArtsen says. “It’s definitely a time saver.”
