The names -- Hecht's and Woodies here in Washington, Jordan Marsh and Filene's in Boston, Strawbridge's in Philadelphia, Marshall Field's in Chicago -- conjure up wonderful memories for those of a certain age. Visiting Santa Claus and the elaborate Christmas window displays. Buying a first suit or a First Communion dress. The satisfaction as you hand the sales lady the quarters and wadded dollar bills you and your sisters had saved to buy a bottle of eau de toilette for Mother's Day, after the initial disappointment at discovering how much the real perfume cost. The lunches with grandma in the tea room. The almost guilty pleasure of bringing home blueberry muffins hot out of the oven at Jordan's or a large bag of Velati's caramels from Woodies.
Unfortunately, business runs on profits, not nostalgia -- and the profits have been slowly draining out of these storied retailers for 35 years. Now the survivors will march together under the Macy's banner in one final effort to reinvent the department store on a national scale.
_____Live Discussion_____
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Transcript: Steven Pearlstein was online to discuss this column.
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It would be easy to spin a tale of how the decline of the department store is really a metaphor for the disappearance of the American middle class who shopped its aisles and manned its counters. But that would be wrong. Mostly it is part of the larger story of the fragmentation of mass markets that is driven by changing technology, consumer tastes and new and better ways of doing business.
The irony is that the department store turns out to have been unwittingly complicit in its own undoing. When developers first offered them sweetheart deals to serve as "anchors" at the early shopping centers and malls, it seemed like a no-brainer -- an easy way to follow their customers to the suburbs while getting the other retailers in the mall to subsidize it. But in time, the Darwinian competition of the mall produced stronger specialty stores with national scale that were able to provide a wider array of more interesting products in more inviting settings. The rest of the mall, in effect, became the department store, leaving the "anchor" to compete with discounters and new big-box retailers at the next highway interchange.
To hold onto customers, department stores were forced to continually cut prices, pare back service and stuff their aisles full of merchandise on sale in an effort to make up in volume what they were losing in profit margins. They were also forced to rely increasingly on name-brand merchandise -- Hilfiger, Lacoste and the like -- which commanded an ever-greater share of the profit margin and subtly shifted customer loyalty from retailer to supplier. In the end, many of these suppliers would open their own shops, competing directly against their department store customers.
By one rough measure, department stores have lost half their share of the retail market, but in another sense, it's not clear what that means. Is Target a discount store and Nordstrom a specialty store -- or is each just the new version of the department store?
My own guess is that Federated Department Stores overestimates the advantages of scale that its purchase of May Co. will bring. Consolidating purchasing departments and media budgets is the easy part. Harder, but more effective, will be finding buyers with confidence, style and an eye for value -- and then liberating them from the current order-by-the-numbers orthodoxy. Much harder will be creating inviting and exciting selling spaces that are simultaneously well stocked and uncluttered, and staffing them with salespeople who really know their stuff. And hardest of all will be weaning shoppers and marketing departments from their addiction to endless sales promotions.
The trick here isn't to beat Wal-Mart at the price game -- it's to lure back customers with the kinds of merchandise and shopping experiences they'll remember fondly 50 years from now, the way some of us remember blueberry muffins and eau de toilette.
On another note: Last week's column on Washington's weather wimpiness generated so many hundreds of e-mails I gave up trying to respond to them all. Please accept my apologies.
Steven Pearlstein will host an online discussion at 11 a.m. today at washingtonpost.com. He can be reached at pearlsteins@washpost.com.
