The Death of the Department Store Can’t be Blamed on the Internet
The retail experience is ever-changing. Department stores have been staples of malls and shopping centers, but these stores seem to be closing at alarming rates. JC Penney appears to be the biggest victim in recent years, but other stores are in danger. Sears is farther along in the closure process while Macy’s is heading in a similar direction.
People are quick to blame online shopping, or they might blame “millennials,” but there are many elements contributing to a change on buyer habits. It seems department stores aren’t really trying to combat the changes challenging their existence. Now they find themselves with more stores than customers need.
The truth is, department stores are closing because we don’t need them. Customers aren’t shopping there because they’re not offering reasons, and the cost of maintaining these massive stores outweighs the profits. There are many shortcomings in the current department store model, but there also may be a ray of hope trickling through.
Is The Internet to Blame?
Over the past few decades, e-commerce has become commonplace. Amazon has become a giant, influencing what it means to be an online retailer. For department stores, they’re feeling the impact of an online shift, but are they really competing against Amazon? You can get almost anything on Amazon, but fashion hasn’t been its strong point. In fact, they’re likely a bigger competitor for fast-fashion brands like Forever 21 than they are for a chain like JC Penney or Macy’s.
Online retail is still only a fraction of the size of physical, with the latter earning ten-times as much. This means people are still shopping in stores, and those people prefer to stay offline. Of course, these people also know they can go online, so stores need to understand why many customers prefer to go into the store and what makes online seem like an acceptable substitute.
Brick and mortar stores offer qualities their own experiences, and these qualities have been the basis of the department store model for years. Enter the store and you’ll find fragrance samples, you can feel the material of fabrics, and you can try on clothing. None of these experiences can be replicated online and you walk out of the store with new merchandise on the same day. For many people, this still makes the physical shopping experience a better alternative than going online.
There is something unique about the physical retail experience, and that keeps people shopping in stores. However, the experience at a department store is underwhelming and overly stressful. If you want customers to show up in person, you need to provide them with an experience that makes shopping in store worthwhile. Otherwise, they’ll look to other vendors to make purchases. Yes, this includes going online, but it also means they’ll turn to other physical stores.
Competition from Other Sources
There’s a reason Sears, Macy’s, JC Penney, Nordstrom and other department stores are considered the anchor stores of shopping malls. You walk through these stores to get to the other stores in the mall, the ones without entrances from the outside world. The anchor stores try to attract their traffic using deals on clothing, fragrances, and seasonal gifts. You almost always find the household items in the back, away from the mall traffic, because those items are less likely to be impulse purchases. In the 90’s and early 00’s, stores could get away with using this model. Not any more.
Walking through a Macy’s takes me back to the early 00’s. Walking through Sears takes me back to the 90’s. Those stores haven’t really transformed too much since then. They’re still the big, jam-packed with merchandise, and using the same tactics to get you to make a purchase. Aisles are filled with limited-time discounts, credit cards to save an additional 20%, and more options than customers could ever need. The goal is to influence customers to make a purchase and make one now.
Another aspect of the department store experience is the name brands. If you want Nike, you need to go to a more premium store. Each department has its own in-house brands, but people usually shop here for name brands. Thanks to the Internet, comparing prices is easier than ever. Customers are willing to forgo a discounted Polo sweater at Macy’s when they know they can go online, compare prices, and get free shipping. The customer may ultimately purchase from Macy’s, but they also may find the same product $10 cheaper from another retailer.
The internet poses a threat here, but customers are also enticed more than ever by budget-friendly stores. Household items other than clothing (such as cookware, bedding, or decor) can easily be purchased at Target or Walmart. These stores also stock clothing, essential items, and electronics. If someone needs to buy a presentable shirt, they might go to Target rather than JC Penney. It won’t be name brand, and there are fewer choices, but this makes the purchase easy. Customers can get a shirt and do some of their weekly shopping on the same transaction.
In many ways, competition comes from big box stores trying to undercut the price of department stores. There’s also competition from discount stores like Marshall’s and TJ Maxx. Go into one of those stores and you’ll find products at reduced prices, name brands, and no frills. For the most part, there’s no price guessing. The tag says $20, you pay $20. No coupons and credit cards required.
Both Target and TJ Maxx brands have been growing. Department stores are shrinking. This indicates a shift in customer behaviors, likely influenced by the sheer number of options. When customers go to stores they want convenience and price transparency. These elements are missing from most department stores and the impact is showing.
Nordstrom’s: A Glimmer of Hope?
If there was ever a department store poised to remain successful, it’s Nordstrom’s. The company has built a model designed for two types of people: high-end shoppers and middle class shoppers with high-end tastes.
Compared to a Macy’s, Sears, Kohl’s, or JC Penney, you’ll find a different experience in Nordstrom’s. The stores are brighter, have more space, and are better maintained. They’re also known for their price tags being considerably higher than the aforementioned competition.
They’re designed to give shoppers a more premium experience. Customer service is an emphasis, but they also offer services to ensure satisfaction with your purchase. Whether this is tailoring clothing or providing fashion recommendations, the staff is willing dedicated to the customer experience, not just the sale.
As a company, Nordstrom’s is breeding their customers to get comfortable with the brand before they’re comfortable with the prices. Nordstrom’s Rack is a major part of their business model, featuring an experience similar to TJ Maxx at a same-name store. Admittedly, prices at Nordstrom’s Rack are higher than TJ Maxx, but much of the fashion is on par with the flagship department store.
As a brand, Nordstrom’s is a company that operates with intent. Their model is not designed as a desperate attempt to lure customers. Rather, they’re designed to please customers and ensure they become repeat buyers. The same cannot be said about the experience shopping at Macy’s.
Will Department Stores Survive?
As it stands, not all companies can survive. Sears and JC Penney continue to shed stores while Macy’s is beginning to follow a similar path. Online retailers are going to present competition, but looking at other brick-and-mortar stores will highlight the shift in buyer trends.
Customers aren’t looking for a revolving door of sales and a shopping experience with hidden motives. They’re looking for transparency and service. If customers want cheap clothing, they may turn to Amazon or Target. They know they can get a decent product for a set price without having to dig through coupons. Customers looking for more premium products are going to chase high quality service. They can find this at places like Nordstrom’s where premium products meet premium service. In between the two lies discount stores like TJ Maxx and Nordstrom Rack rather than JC Penney or Sears.
The internet undoubtedly poses some competition for brick-and-mortar stores, but they also allow customers to pick a price point and avoid stores with subpar experiences. People can now spend their whole life avoiding the mall if they want, and they don’t need to rely on a JC Penney for clothing or household goods. Retail stores that adapt to customer preferences seem to perform better than stores relying on twenty-year-old experiences.
Before we blame the internet, we should focus our attention on customer traffic in physical stores. Instead of Sears, they’re going to Target. Instead of JC Penney, it’s TJ Maxx. Instead of Macy’s, it’s Nordstrom Rack. Those stores offer their own experiences and they’re better than a trip to the mall in 2002.
As we watch department stores close, we need to remember why they’re closing. Yes, sales are down, but people are still shopping. Customers are choosing to go elsewhere because they’re offered a better and more transparent experience. They can get the products and services they need while avoiding the frustrations they experienced in years past.