Why, after multiple quarters of sales losses and widespread assumptions of their demise, are department stores still a force to be reckoned with in the retail market? The answers run the gamut, from their inherent characteristics to more recent innovations by several department stores seeking to ensure their relevance and appeal.

Let’s start with the bad news. Compared with the $232.5 billion department stores sold at their peak moment in 2000, sales drooped to just $170.7 billion in 2012. During this period, various chains met their demise in bankruptcy and disappeared from view.

But for the survivors, the future looks a lot brighter, and sales trends are starting to creep back upward. Some of the reason might be the essential appeal of department stores themselves: They allow consumers to shop for various needs in a single location, where buyers can consider a range of options, compare offerings from multiple brands, and leave with a full outfit, including pants, shirt, belt, shoes, and even a matching hat, if they so choose.

Because of this capacity, department stores also are appealing to a vast variety of brands that seek access to consumers. Shoppers at Macy’s stores thus can find not just a dedicated section of Coach purses and accessories but also team-logoed caps by the sports merchandiser Lids. In both these cases, the brands might struggle to operate their own independent stores, so partnering with Macy’s enables them to tap into an existing stream of customer traffic. Coach recently experimented with expanding the number of dedicated stores it maintained, but it has since reversed course and now plans to rely increasingly on department stores to push its high-end accessories. Even if they have proven capacity to support dedicated stores, many clothing brands complete a significant percentage of their sales through department stores, giving them good reasons to remain. For example, Macy’s accounted for 12 percent of Ralph Lauren’s total sales last year.

But the impressive growth enjoyed by Macy’s in recent years, and the remarkable recovery of JCPenney from its devastating recent losses, also reflect active efforts by these department store chains to ensure their survival. Both retailers were among the first to experiment with using beacons in their stores, leveraging these high-tech tools to improve shoppers’ in-store experiences. They also have worked to enhance their e-commerce capabilities and expand online orders. Although their target markets differ somewhat, both chains similarly have sought to appeal more strongly to discerning customers by developing and encouraging closer links with appealing brands. Macy’s welcomes strong names in luxury, such as Dolce & Gabbana, and has helped develop brands that appeal predominantly to millennial consumers. JCPenney instead leverages its existing partnerships with Levi Strauss and Izod, which respond with strong support for the retailer, to maintain their effective sales channel.

Discussion Questions:

1. In general, how are department stores doing?
2. Compared with other retail formats, do you tend to purchase merchandise at department stores? Why or why not?

 

Source: Phil Wahba, Fortune, August 12, 2014