Hindsight may be 20/20, but an analysis of the history and current status of department stores suggests that some of the trends could have been predicted and avoided—if only the key actors had been paying a little more attention. Instead, they forgot several foundational premises of any retailing effort.

In particular, a turning point for the industry came with the massive merger between the Federated and May’s chains. The $11 billion deal created the biggest department store brand in the world, and the executives in charge embraced that status wholeheartedly. They pursued size, with the sense that a larger chain would enable them to realize economies of scale. Furthermore, they wanted a single brand, Macy’s, that they could promote globally and establish with a powerful brand image.

These motives certainly sound promising. But what the executives failed to realize was that prices and brand images can only go so far. If the stores do not stock the products that consumers want, they are not going to buy, no matter how inexpensive the purchase seems or how appealing the idea of Macy’s might be.

In particular, by bringing all the stores under the Macy’s umbrella, the company lost an invaluable amount of local appeal. The most famous example remains the transformation of the Chicagoland retailer Marshall Field’s into Macy’s stores. With its signature location on the “Magnificent Mile,” Marshall Field’s was a symbol of the city. When it disappeared, so did many Chicagoans, who felt “betrayed” by the loss of their beloved local chain.

But even in the face of consumers’ complaints, Macy’s doubled down on its commitment to a singular, efficient supply chain. In its constant pursuit of cost savings and a consolidated supply chain, Macy’s forgot to check with local customers about what supplies they wanted. Stores across the nation thus received similar shipments, with only minimal variations.

Customers were not the only ones irritated by the change. By instituting a top-down approach to inventory policies, the corporate office imposed its will on store managers, rather than listening to their insights from the field. Managers and sales clerks with decades of experience perceived that the company was dismissing not just their knowledge and expertise but their very identity as valued workers. In turn, “Decades of distinct market knowledge ended up devalued and then simply disappeared.”

Without such distinctiveness, a vicious cycle began, in that consumers no longer found any compelling reason to shop at yet another indistinct retailer and drove past Macy’s to get to lower priced generalist retailers such as Target. In response, Macy’s has tried to be even more like Target, lowering its prices and seeking still further efficiencies. Thus the loss of personalization and specialization continues, as do the declines in Macy’s sales and profits. Here again, the effects extend beyond the retailer and its customers. Due to store closings and cost-cutting moves, Macy’s plans to lay of tens of thousands of workers. Such massive layoffs mean the loss of still more knowledge and experience.

Perhaps these outcomes could not have been predicted accurately at the time of the merger. But the way forward seems relatively clear. Department stores need to get back to the characteristics that helped them succeed in the first place: a local presence, reflecting the desires and needs of local customers, as gleaned and recognized by experienced local salespeople. It may not lead to efficiency, but the “ultimate model of survival for physical retailers today is to go local and stay there.”

Discussion Questions:

 

1. Do you agree with the author’s assessment that the Macy’s merger was responsible for the demise of department stores? Why or why not?
2. What is the future of department stores in the United States?
3. Do you shop at department stores? Do your parents? Why or why not?

Source: Lee Peterson, Wayfind, January 25, 2017