After a robust kick-off discussion on the future of department stores last week, we return to go even deeper on how department stores went from being the original "must visit" everything stores to also-rans during the past two decades. We unpack how many iconic players have experienced "death by a thousand cuts", dispel the notion that the sector's woes are largely Amazon's fault and consider why stores closings are likely only making the situation worse. We also discuss which players have a chance for a turnaround, what it will take, and whether smaller, "off the mall" concepts (like Nordstrom Local) are the keys to making that happen.
After a robust kick-off discussion on the future of department stores last week, we return to go even deeper on how department stores went from being the original "must visit" everything stores to also-rans during the past two decades. We unpack how many iconic players have experienced "death by a thousand cuts", dispel the notion that the sector's woes are largely Amazon's fault and consider why stores closings are likely only making the situation worse. We also discuss which players have a chance for a turnaround, what it will take, and whether smaller, "off the mall" concepts (like Nordstrom Local) are the keys to making that happen.
But first we open up the episode with our quick takes on recent retail news that caught out attention, including stellar earnings reports from RH and Lululemon, the expansion of Amazon's walk-out technology to Whole Foods and whether supply chain challenges and labor shortages will be the Grinch that stole Christmas.
NOTE: We're now back to regular weekly episodes.
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Steve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his website. The expanded and revised edition of his bestselling book Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a Forbes senior contributor and on Twitter and LinkedIn. You can also check out his speaker "sizzle" reel here.
Michael LeBlanc is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice. He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career. Michael is the producer and host of a network of leading podcasts including Canada’s top retail industry podcast, The Voice of Retail, plus Global E-Commerce Tech Talks and The Food Professor with Dr. Sylvain Charlebois. You can learn more about Michael here or on LinkedIn.
Michael LeBlanc 00:04
Welcome to Remarkable Retail podcast, Season 3, Episode 7. I'm Michael LeBlanc.
Steve Dennis 00:10
And I'm Steve Dennis.
Michael LeBlanc 00:12
Well Steve, we're back with part two of our deep dive into department stores. I've got you on my tip myself today, which is great. And, you know, we're a couple of department store veterans, ourselves. So, you know, we'll talking to each other
Steve Dennis 00:27
Department store dinosaurs?
Michael LeBlanc 00:29
Well, I don't know about dinosaurs, but we're certainly veterans. Let's just put it that way, we came out, came out of the department store sector, so it's part two, but first, let's jump into our news of the week. So, lots of interesting things, happening and again, a reminder to the listeners and viewers that we're now weekly. After the summer, we enjoyed our summer but now weekly, there's so much going on, really excited to be coming at you weekly. And the first thing I want to ask you about is RH, you know, this, Restoration Hardware, became RH they put out some numbers that were just bananas-good. And, I even read in their numbers, but what was it, like, 375% increase in their share price, that doesn't always equate to how good the business is performing in the weir-, weird world we're in. And now they're selling like home communities, that people are buying, sight unseen, like, talk about RH, it's such an interesting business.
Steve Dennis 01:25
Well, I mean, they are becoming, kind of, this next generation lifestyle brand. They, they made the decision six, seven years ago, to go after a particular set of customers with a particular, kind of, design aesthetic, build these temples to home furnishings that they've been opening. And, it has worked really, really well, so far. And, it is, as you said, giving them opportunities to, to look at some, some new things, but if you just look at their core business, it's been on fire for several years now.
Michael LeBlanc 01:57
Yeah, yeah.
Steve Dennis 01:57
The comparisons because they're so physically, store dominant, the comparisons to last year were pretty easy. But, if you look at it over the last several years, it just continues to be really great sales performance, they're converting it to the bottom line really well, planning to open a bunch more stores. Now, they're certainly benefiting from the kind of, distorted spending in-home.
Michael LeBlanc 02:22
Yeah.
Steve Dennis 02:22
But, the flip side, which they talk about in their earnings release is they've had a lot of supply chain issues. So, if they can actually get product, the way they normally could get product. You kind of wonder what these numbers would have looked like. So, the road ahead is a little, probably, choppier for them both because of supply chain and probably some ebbing in this, this home spending, but that's impressive.
Michael LeBlanc 02:45
You know, I think, I think for a brand like that supply chain issues are probably not as problematic as others because people you know, they wait for their order. And, once they've made the decision, they probably wouldn't cancel it. They're like, they're not going to go over to another competitor and re-buy-, redo the buys, I would think.
Steve Dennis 03:02
Well, partic-, yeah, I think I think the big ticket nature of it. And lots of other companies don't have product either. So, it's not, it's not like you've got a ready substitute.
Michael LeBlanc 03:12
Let's stretch our minds now, to Lululemon. Probably a business that's benefiting from the COVID era and the kind of lifestyle, but, you know, outpacing everybody. What are your thoughts on Lululemon?
Steve Dennis 03:24
You know, this is a buis-, I think these are one of these businesses we've talked about before that their strategy of blending digital and physical has been strong for a while. They've invested very smartly. And, then the cherry on the Sundae, I guess is the shift towards athleisure and the product categories they're in,
Michael LeBlanc 03:47
Yeah, yeah.
Steve Dennis 03:47
but I think even if you back out, the category spending, they're certainly gaining share, and they're firing on all cylinders. So, again, probably a little bit like RH, they're not going to have quite the tailwind from some of the spending distortions, but a beautifully executed business and I think the momentum will continue there.
Michael LeBlanc 04:10
And, it seems like, to me, that they've got some airspace to move, I mean, they really have just started to address the, the male side the men's side of the business, they have a male line, but they're really you know, predominantly female and they've bought into, what's that company, Mirror which is that virtual
Steve Dennis 04:25
Right.
Michael LeBlanc 04:26
thing, right. So, then, you know, stretching the business again, not to kill that metaphor, but, you know, stretching the business in different directions that all seem to make sense.
Steve Dennis 04:34
Well, yeah, the Mirror, the Mirror thing was, was a little bit of a question in some of the analysts takes on their earnings report because that was a big acquisition that does seem to really fit into this blending of physical and digital rolls, subscription business, a lot of things that seem pretty attractive people were pretty excited about when the acquisition was made, but they didn't talk very much about Mirror, which made people a little bit suspicious but perhaps it's, it's much ado, about nothing but yeah they've got a lot, a lot of levers to pull, going forward.
Michael LeBlanc 05:04
Let's talk about Amazon, we always seem to talk about Amazon, they always have something interesting going on in their business. “Shop it like you stole it” technology coming to Whole Foods. That's, that's a big deal, right?
Steve Dennis 05:16
I'm not sure they prefer that branding, but the, what people may know from the Amazon GO stores, the walkout technology, I think is what they call it, where you are checked into the store through your mobile device, you're able to just walk out and it automatically charges the credit card you have on file with them. They are experimenting with this in a bunch of places. The most recent announcement is they're going to put it into a couple of Whole Foods stores. So, like we always seem to talk about with Amazon, they experiment with so many things, it's hard to say how they're doing in a couple stores, that this has got any big indication of what's next, but they definitely seem to be flexing their muscles with the, the walkout technology and bringing it to Whole Foods is definitely interesting.
Michael LeBlanc 06:00
And the other little thing that they're doing, which is kind of interesting, in their fresh stores, which is their new, their grocery store con-, concept, is they're doing drive-thrus which, I guess, you know, I got Sears did drive-thrus 50 years ago. So, you know, they're not exactly innovating there, but in some way, it's pretty interesting, right?
Steve Dennis 06:16
Well, when I read this story, there was part of me, which was, has nobody done drive throughs at a grocery store yet, because it does seem in some ways, like a really obvious thing to try, particularly as we've seen more curbside pickup, buy online pick up in store home delivery.
Michael LeBlanc 06:35
Yeah.
Steve Dennis 06:35
So, this idea that you could just drive through and pick up stuff, as opposed to going into a parking space and waiting for somebody seems, kind of, obvious. I do know from talking to some people about this that, logistically, it's like the McDonald's drive-thru, right, if, if you can go through there in a certain amount of time. It's great.
Michael LeBlanc 06:55
Right.
Steve Dennis 06:55
If you start to get delayed, and it starts to get backed up, then everybody behind you is unhappy.
Steve Dennis 07:00
Yeah,
Steve Dennis 07:00
So, I can see why, maybe, this isn't such an obvious thing to do, but again, I think Amazon's always experimenting with things and this convenience aspect is becoming more, and more important for lots of retail. And, so, I think this is just another other step in that evolution.
Michael LeBlanc 07:19
Well, let's talk about the retail industry a little bit, particularly the forecast for Q4, whether it was NRF, or anybody who you wanted to ask was, you know, was, was just a hockey stick, as we would say, it was very strong, very strong growth. But there's been a few spanners in the works, so to speak, you've got supply chain challenges, you've got labor issues, labor issues, I was talking to a retailer today and he said, where'd all the people go.
Steve Dennis 07:43
Right.
Michael LeBlanc 07:43
I don't get it, like, everybody can find people. Where did they all go, like at any level, you've got, you know, you've got supply chain issues, as I said, you, you've got COVID rearing its head, plus or minus still and probably for a while. What do you think, do you, would you, would you think people are going to start resetting their expectations, or is, are consumers on both sides of the border just gonna be the Timex watch that keeps on ticking? What do you think?
Steve Dennis 08:07
I think this is probably the most difficult forecast, kind of, I'm not, I don't do formal forecasts, but to try to articulate what's going to be happening in the coming months. I think this is the hardest it's ever been. There's so many moving pieces. I think, absolutely, most consume-, the consumer overall is in really good, good shape. Equity markets are good, you know, if you're in the market, you're feeling pretty, pretty wealthy, but you've got a lot of things affecting consumer confidence.
Steve Dennis 08:09
The supply chain issues just seem to be getting worse and worse. I mean, anecdotally I've been hearing this, my older daughter sent me an email she got from, I think it was Ann Taylor, LOFT by Ann Taylor, basically saying, we don't know if we're going to have any product and we're sorry. So, so, if you're being that proactive with customers, it wasn't even about holiday, like shopping early, it was just like, hey, we're sorry we're doing the best we can and we just can't get stuff. I think if you're if you're already out there doing that,
Michael LeBlanc 09:04
Yeah.
Steve Dennis 09:04
as well as some of the other things we've, we've all heard. It's a pretty, it's a pretty scary time. So, if you don't have the product you can't sell it. And, for most retail, unlike what we were talking about with RH, people aren't going to wait. They're going to go where they can get the product, if they really need it. The labor side is, is, is crazy. I plac-, to tell one story, I placed a curbside pickup order with Crate & Barrel on Sunday, and I had done pickup from there a couple times before, and I was just, I could easily go into the store and get it, but I was going to be really busy that day. I just wanted to pick it up.
Michael LeBlanc 09:42
Sure, sure.
Steve Dennis 09:42
I still haven't gotten it. I call the store I chatted online and they said basically we are just overwhelmed with orders we can't keep up, and I've seen this happen in a bunch of other places where, you know, restaurants we plenty of tables, but they can't serve you because they don't have enough waitstaff so it is it's clear An issue affecting service levels and it's got to be a barrier to spending. The only positive side and not having inventory is you don't have to mark down as much stuff. So, I think the margins will be good.
Michael LeBlanc 10:12
Yeah.
Steve Dennis 10:13
And the price inflation kind of makes the, the sales number perhaps look a little bit better than it actually is when you look at unit volume. But it's a, it's a crazy, it's a crazy time even, you know, even if you had a crystal ball and where COVID was going to be over the next few months, just what we're walking into from a labor supply chain side, it's really tough.
Michael LeBlanc 10:34
Well, and there's another side of the supply inventory. And, again, talking to retailers this week, they said, listen, I got more inventory than I’ve ever had in my life, because I'm not just buying this order. I'm saying, Okay, give me both orders, because there's so much uncertainty in the supply chain, that they're taking more risk on inventory. So, when it, kind of, the school of thought is, if I can get it, get double, because, you know, I think there's confidence that there's still buoyancy in the economy and demand side for many commodities. But the, the uncertainties in the supply chain so literally retailers are running out of places to put stuff and, and if you think about holiday, for example, seasonal merchandise, the window really isn't, you know, the entire holiday season people are buying their bottles and whatever in weeks, you know, it's very narrow.
Steve Dennis 11:19
Yeah.
Michael LeBlanc 11:19
And, retailers I think are our finger and I'm just going to just when I get I'm going to get it and therefore I'll maybe have a step up against my competitors. Well anyway, let's keep a close eye on it and I'm glad we're weekly because I think it's going to change week to week. My goodness, you know, the news, ebbs and flows week to week. So, that's an advantage of our, of our format.
Michael LeBlanc 11:40
All right, well, let's, let's dip into our episode. So, last week, we had a couple of great guests on, Simeon and Ethan talking about everything from dead CAT bounces to department store valuations, to retail Renaissance department stores, optimism, cyni-, cynicism, we gave you a new name, Steve, you know, invest in CAT bulldozers, because that's where you think, B malls are going to wind up.
Steve Dennis 12:02
Dr. Doom, Dr. Doom.
Michael LeBlanc 12:02
going to be bulldozed into the ground. Dr. Doom. So, on that cheery note, let's frame it in this episode. Again, it's just you and I, take us up in a little bit of history, just to bring everybody up to the same speed. As you've seen, department stores evolve, how they got into so much trouble in the before time. It's not like they were clean sailing and COVID, kind of, upset the cart, what to make as current big-name strategies. Was there a bit of a Renaissance, as I said, because people were doing one stop shop and maybe that's going to continue. And then, and then really put your hat on for the long term and say, you know, if I was running, if you were running, if we were running a big department store, what are some of the decisions that we would be making, so, why don't we start off with a little bit of the, how we got here, first part of the thinking of department stores?
Steve Dennis 12:50
Yeah, I don't want to do too much of a history lesson. But I do think there are some things that might be useful for, for younger listeners, but also just in terms of how retail has evolved. So, if you think about the origins of department stores, going back more than 100 years, department stores were, really, kind of, this palace of consumption. The original department stores were primarily in the, in the big cities around the world and they were the original everything store, particularly on the higher end. So, they were, they were destinations. People would make special trips to go to the, you know, whether we're talking about Harrods or department stores like Saks Fifth Avenue.
Michael LeBlanc 13:29
They'd get dressed up, they'd dressed up to, right?
Steve Dennis 13:31
Yeah.
Michael LeBlanc 13:32
Yeah.
Steve Dennis 13:32
Right.
Steve Dennis 13:33
It could be, I mean, Neiman Marcus, where, some listeners will know, I worked. There are a lot of stories about the original Dallas store of people coming in from, you know, West Texas, Oklahoma, just to, you know, make a special visit, it was almost, you know, both a tourist attraction as well as a place, place to buy things. So, there was a sort of long history of mostly family run kind of iconic department stores in the major cities. And that was, kind of, the way it was, for a long time, as cities grew up, then there were these family run department stores and the cities that became bigger cities, you know, Houston, whatever, then really, kind of, post war was the growth of suburbia, at least in the US, but other markets as well. And the birth of regional department stores. And so, some of the names that we would all know like Sears and Macy's. They started to expand by building expansion versions of these stores in the suburbs partially or in some cities that they were in before.
Steve Dennis 13:34
And the thing that I think was really interesting, that is so much not the case anymore, was they were, kind of, these sort of stores, Sears Penney's, Macy's, omni teller and go climb down a list of these iconic names. They were, kind of, the only place to go to get certain kinds of merchandise, either everything in one place or certain brands. There really weren't a lot of choices and as these malls got built, the malls themselves became this magnet. So, you had this period in the '50, '60, '70s of enormous growth in regional malls and the anchors are the brands that anchored them. You know, Sears was the biggest retailer on the planet. But there were other brands that had huge market share, not only in the US, but Canada, UK, etc.
Steve Dennis 15:29
What started to happen was, first, I would argue, '60s and '70s was the advent of the discount mass merchant off the mall. So, Walmart obviously being the most famous but there were a lot of them. When I was growing up, we had Korvette, EJ Korvette, Kaldor, Woolworth, K-mart, Kresge, Zehrs, I mean, there were a lot of these basically price oriented general merchants that created a different format generally near the mall. In some cases, they went after markets where you could not support a big mall on the three or four anchors, and slowly, they started to gain share.
Steve Dennis 16:07
And, that started to cap a little bit of the growth of the regional malls and the regional department stores, but the thing that really started to shift in the '80s and '90s, were category killers. So, Home Depot, Best Buy, Bed, Bath & Beyond, you know, you, you name it, there was a category focused merchant of some sort that had a great assortment, low price and work convenience because they were located off the mall, you know, William Sonoma, J.Crew, you know, all these different formats, some of which, were located in the mall, but the big hitters were largely located off the mall. And these power centers and so, between dominant assortment, generally lower price, easier access, they started to pick away at the dominance of a lot of these department stores and Sears, Penney's, Ward's, you know, really started to get into trouble. The next wave and this is where, you know, when we talk about department stores, they really peaked in the ‘90s. The department stores, depending upon a little bit how you classify them, have been losing market share since the late 1990s, at least in the US. And so, like I said a lot of it was Walmart, Target, the discount mass merchants, a lot of it was category killers. specialty stores are sort of death by 1000 cuts everybody was trying to go after that.
Steve Dennis 17:41
So, no longer were they the only place or one of a few places. Now, they were just one of many places to go and this is before the internet. Then the next, I think, phase and the, the downfall of the department stores, or the challenges of department stores was the growth of off-price retailers. So, the TJ Maxx, Ross, Marshall's, these kind of players, which really went after apparel, and home fashions and a lot of cases which were really, aside from Sears which had a big appliance and electronics business, you know, the bread and butter of moderate department stores, apparel & home fashions, cosmetics, and so, now you had all these off-price guys, then you start to have the beauty, the Ulta’s, the Sephoras, you know, again, you know, picking off historically strong categories, so, no longer are you the only place, once again you're now just more and more places trying to serve essentially the same type of customer or going after these merchandise categories. So, even before ecommerce there were just huge challenges in the department store business and in regional malls more broadly.
Steve Dennis 18:49
Then you layer on top of that eCommerce and this is when I think we really got this, this idea that I've talked about a lot of moderate department stores at least really being stuck in the middle because you had lots of value oriented players where you get a lower price, more convenience, bigger assortments, etc. And maybe sacrifice some service and ambience, you had other players on the higher-end, or more specialty-end where much more focused assortment, more tailored customer service, nicer experience, maybe more convenient because it's closer to your house, you have to deal with the parking deck and through three levels and everything. A lot of these things again continue to take away from that, then, and then left these guys, kind of, in no man's land, as ecommerce started to become a bigger thing in these categories. You know, that was just another way to get out priced, you know, be commoditized or, you know,
Michael LeBlanc 19:44
Yeah.
Steve Dennis 19:44
have your lack of convenience be made plain. So, it's been a long ride, a long decline in the department store space. And, I guess the question, and, you know, we've also seen a huge number of store closings, I mean, Sears, basically, doesn't exist. Penney's, I think has closed about 30% of their stores in the last five years, Macy's has closed a bunch of stores, Dillards not so many. So, major contraction.
Michael LeBlanc 20:14
Yeah, Kohls.
Steve Dennis 20:14
Long time.
Michael LeBlanc 20:14
Yeah, yeah.
Steve Dennis 20:15
You know, it's a great exploration of the history and, speaking of history, you know, I worked for Hudson's Bay which goes back to the 1600s, for God's sake, as a retailer, so.
Steve Dennis 20:15
So, yeah, we should probably mention Kohl's. You know, one thing that's interesting about Kohl's is they were kind of the first player to pretty much go after the department store, you know, kind of, mid-priced, everyday apparel kind of customer, but package it in a more convenient way. So, I think that, you know, there wasn't that much difference between what a Kohl's is doing in apparel and home fashions and some other categories and what Sears or JC Penney has been trying to do, but they've had better, more convenient real estate, and oftentimes can, kind of, leverage the shopper who was hitting a bunch of places to pick up a bunch of things, I'll just run into Kohls, just running, you know, running into the regional department store or the regional mall. It's not the same kind of, you know, get an errand done. It's more of an excursion.
Steve Dennis 21:13
A lot of years to get this way, you, you'd be surprised.
Michael LeBlanc 21:16
Oh, and then a lot of years to get it right, and they're still trying, God bless them, and, you know, they're buying and selling. A couple of questions, and some of this we've actually touched upon in prior seasons, you know, how did we get here like department stores like a Neiman Marcus, Sears, you know, these are these were powerhouses filled with very smart people who were running the businesses and we've talked about, you know, crisis to make change. But, you know, as, as it felt like department stores, more watched things happen to them
Steve Dennis 21:48
Absolutely.
Michael LeBlanc 21:48
then tried to change. So, how did, how did they get so stuck in the middle that they couldn't see, I'll give you an example. You know, Sears was the place to go for, for Craftsman tools, right, great brand, right?
Steve Dennis 21:59
No.
Michael LeBlanc 21:59
Craftsman tools were great tools too, right. And that was a big part of the section, great products, a nice mix. But they just lost it, I mean, your Home Depot's or the Lowe's just
Steve Dennis 22:10
Right.
Michael LeBlanc 22:11
Took that all away from them. It's a long conversation and it's, kind of, maybe for another topic, or maybe for listeners to go back a couple episodes, but in summary, how did we get here?
Steve Dennis 22:21
Well, I think number one, there was not a recognition on the part of a lot of these brands as to how important distribution strategy was, that it, was, had a lot to do with the real estate first. That, you know, the, the formats that were winning, were more focused on certain customers and were more convenient, in a lot of respects. And I, you know, this is probably another episode, because I've been thinking about this a lot. But convenience is one of those words that I think people throw around. But, you know, it can be convenient for me just to run in and run out very quickly, right, but it can also be convenient for me to go far and take a lot of time, if it's really going to pay off.
Steve Dennis 23:10
So, I think RH, we talked about, if you're interested in that sort of product, and you're that sort of customer, it's convenient to go to RH, because you're going to see everything you like, and you trust them. And it'll pay off, perhaps, for you, which I think with, with moderate department stores, they had a little bit of everything for everybody. But they didn't realize how they were getting picked off by more focused competitors. And so, this everything for everybody strategy was their Achilles heel. And, then they tried to fix their real estate. And they were never going to be able to fix their real estate, fundamentally. They had to be willing to compete with themselves, the argument we had all the time at Sears, because the, the, even if you have strong brands, and an interesting mix, you still have to give the customer a reason to come to the store for a reason to go to your, your website. And the real estate has just been the Achilles heel. Now, some of it, not to get too inside baseball, there's a lot of forces that kept Sears and others afloat because of the way regional malls work or they're very dependent, as you know, on these deals that were forged years ago,
Michael LeBlanc 24:27
Yeah, yeah.
Steve Dennis 24:27
for the anchor tenants where they don't pay much rent, but they have to operate. So, in Sears' case, I know, we didn't pay rent at a lot of these places. And so, we could break even in a store location, even though the economics of it were terrible. And so, our decision was well do we go spend a bunch of capital and sign up for a bunch of rent to build that store that we could build across the street because long term that will give us a chance to save the business, but the dynamics of that, you know, the sort of, some It's cultural. But some of it is just the reality of the way people think about economics. But if you're starting with a clean sheet of paper, you would never build a Sears and you wouldn't, you know, nobody's build any more Macy's or JC Penney, or Dillard stores, right, and it's just, it's a format, that doesn't make any sense. So, so, there's these forces that, that kept these retailers stuck basically, in real estate that has no chance of ever being winning real estate, but also kept them from investing off the mall, which was very obvious what these people, people needed to do 2025 years ago.
Michael LeBlanc 25:35
Yeah. I mean, it's a big discussion, right, it's as big as a department store discussion, it's as big as a physical department store. But let's, let's cast our minds forward a little bit. So, it's pretty clear that Amazon didn't bring death to department stores. So, if anyone's listening and still thinks that I think we can quickly dispel that. But it is also the case that you're fairly pessimistic around the future of department stores and their ability to turn it around. Now, we should also say that department stores have a spectrum as well. I mean, you know, you've got JC Penney all the way up to a Holt Renfrew, or a Neiman Marcus, and a Nordstrom’s. So, so, we are batching them together, how much is their future tied to regional malls and malls, and how much is their ability to, kind of, branch out and be more innovative like the Nordstrom local stores that run at a different pizzazz. So, give me give me a sense of a broad sense of your, your thoughts around turning this
Steve Dennis 26:29
Sure.
Michael LeBlanc 26:30
fairly big ship around?
Steve Dennis 26:32
Well, first thing I would make a bit of a distinction, when we talk about department stores, between the moderate department stores, and the higher end luxury department stores. When we talk about Nordstrom, Lehmann, Saks, Holt Renfrew, Bloomingdale's. Number one, they have a stronger reason for being they have a more unique service model. They have more uni-, differentiated products. For the most part, they have very strong digital complements to what they're doing. And so, I don't see them as being in the middle, you know, they're, they're more, have a potential for a distinctive business model, or they have a distinctive business model, their issue is really more that it's very mature. It's not so much about real estate, especially if there's not a lot of growth potential, for a bunch of reasons, which is probably a different episode.
But, when we talk about the moderate department stores, my question is, you know, if you look at the amount of real estate, they have the fixed cost, they have to operate the business. They have to at some point, whether we're talking about Macy's, or Penney's or, or Dillards, few other regional ones, they have to grow the business. None of them have grown the business in 20 years. But, you know, underlying growth, none. And so, the question is, if you believe that there, it's a slow slide to oblivion, unless they start to acquire new customers, and grow the business with the customers they have, what needs to change, to do that in a material way, and I can't work that out. You know, it's great to add some new products. It's great to update your stores. It's great to have curbside pickup.
Michael LeBlanc 28:19
Yeah.
Steve Dennis 28:20
But, all of those things are not differentiators, to Penney's prototype store. That's not too far for me. They've got a coffee shop, you know, they've got some nice signing. But, for that store to work, they have to steal share from somebody else and my question is, from whom and why, other than price. The department stores have been pretty good at discounting. To drive the business, they haven't been very good at winning loyal customers at the scale they need to. So, my fear is, like I said, I can't really work out what that would be, that would make such a profound difference, and my fear is that what will happen is, because, you know, if the last 20 years are any indication, despite lots of efforts, some of which I've worked on. Not much has changed.
Steve Dennis 29:07
So, the thing that has happened is they closed stores, and the only thing we know about closing stores is that's not helping the customer, that is helping, maybe, your financial situation. But, when I think about a Macy's or a Penney's, think about how many more TJ Maxx's, Kohl's, Targets there are, then these department stores you can, you have to drive by two or three of your competitors. So, they're making themselves less convenient by closing stores. They know, we know that, that you don't make that business up online and what is that compelling reason for a lot of customers to drive past all these other stores I have closer to me that are frankly easier to get in and out of, probably have better prices or, you know, why don't I just order it on the internet. So, I just, I can see some incremental things, you know, what I call this slightly better version of mediocre.
But, in terms of really a profound shift, I haven't heard anybody articulate anything that sounds like, okay, yes, that's going to really move the dial over that something that, you know, none of these other competitors that have stole market share for 20, 30 years can't instantly replicate or, or replicate within six months or just discount to keep the customer, so, I hate to be so pessimistic. I wish it were different. But I don't see, broadly speaking, a ton of hope.
Michael LeBlanc 30:41
Well, let's, let's talk about hope. I mean, I, when I think about department stores doing different things, I do think of Nordstrom as a great case in terms of their local stores, building more presence than less, but at a smaller scale. I do think of an edge case like Kohl's who's taking returns back from Amazon, that they say, I mean, that's interesting. And I do think of some department stores that would, might counter your assertion that they can't make up for the store closure by dot com sales. I mean, we're told kind of by testament that, listen, you don't need as many stores because it's shifting to online.
I think of, for example, I think of Hudson's Bay, they've got two stores in some towns where they really only need one. Yeah, arguably, they still have a presence in the city, and they could arguably still do pretty well on, on their online business. Is that a hope for the future, a smaller footprint and just really step on the gas of digital or you don't think that that's a way to, it's certainly not competitive advantage versus others,
Steve Dennis 31:43
Yeah.
Michael LeBlanc 31:43
Everybody can kind of do it.
Steve Dennis 31:44
Well.
Michael LeBlanc 31:45
you know, is that, is that a path forward?
Steve Dennis 31:46
I think you'd be, you have to be careful, you know, it's a lot about focus and I think the broader challenge with the modern, which is why, you know, I'm more optimistic about the Saks and Neiman’s and Nordstrom’s of the world, than JCPenney,
Michael LeBlanc 32:01
Right, right.
Steve Dennis 32:01
because they are very much in the middle, by consolidating space, and hoping you can make it up online. You're, you don't have strong enough magnets to drive traffic to the website, or to the store, you got a lot of stuff that's pretty easy substitutes. So, I think if you compare it to say, what, and I think Kohl's is definitely much stronger, because they're not in regional malls. You know, you have more differentiated product.
We’ve seen, you know, Target add a lot of, you know, private brands, you know, those, those can be things that can give you differentiation as well as, as online. I think the, the hope for department stores and I think ultimately, we're only going to see one department store on the mall, I think we're going to, we're going to consolidate. And so, as others go out, some of that market share will consolidate.
But I think the strategy that has some chance of working is to invest in more, kind of, flagship, I'm using that term loosely call and say magnet stores, in an area, which are really special. Probably smaller than most of them. I was, just to tell one story, I was at a pretty good shopping mall here in Dallas over the weekend. And a couple 100 stores used to have five anchors and now have four because Sears went out. There's a Dillards, there's a Macy's, there's a JC Penney, they only need one. Those three stores are, you know, practically identical. And all three of them are too big for, for the business. So, this is why I talk about the bulldozer business, because, I mean, that, that mall, itself, should be probably at least a third smaller. And the anchors have to really be reimagined.
Steve Dennis 33:40
But I can see a scenario where you invest in, you know, particularly as competition falls away something really special that happens to be on the mall, then you have kind of a hub and spoke system. So, whether that's the Nordstrom Local, kind of, service center that gives you, brand awareness, you know, solves a particular purpose, not a, I'm going to a store to see stuff, kind of purpose, or potentially, you know, some of these more focused stores like Macy's is trying, with their Market by Macy's and their, their Bloomie's store.
I think the challenge of getting there from here is every Bloomie's, or every Market by Macy's you open, number one: takes some significant capital, it assumes you're going to win enough business away from the neighborhood competition you have, and that one location does maybe if you're lucky, 7 or 8 million dollars. So, if you're one of these big retailers, and you're going to embark on this small store strategy, it takes a lot of time and a lot of capital to get that right. While, your core business, you're closing stores and consolidating and maybe having to invest a ton of capital in those magnet locations and my experience from Sears, when we, I mean, that was essentially the strategy that we were going to embark on, we're gonna open kind of a Kohl's like store off the mall, some specialty stores and migrate to a much smaller number of mall base locations over time, the promise that was the capital and the risk was enormous.
And, most of these companies that don't, I mean, I have to get too into like the capital market side of it, but, you know, Macy's ability to say, hey, you know, investors, we want invest several billion dollars in this strategy over the next 10 years, and it's gonna be pretty messy, and we're gonna lose a bunch of money, but trust us gonna be amazing when we get done. You know, you know, that CEO, you know, say goodbye to Jeff Janetta. That's what he's proposing because no, no board is gonna sign up for that strategy.
Steve Dennis 35:45
So, you know, again, it gets back, kind of, to the earlier question, even if you got a pretty good strategy, if you're tied to the malls and you've got these big, huge stores that you don't pay any money for. And, now you basically have to re-up with a lot of capital, and keeping some, while spending a lot of capital to build out ecommerce and a bunch of other things. I mean, the economics of that are really, really challenging. And so, I just again, I, even if I had an idea, which I kind of do, of what that would look like, it's such a capital intensive, long term, risky strategy and, you know, frankly, the things we're seeing right now for Macy's, you know, are pretty solid ideas. They just should have been done 15 or 20 years ago because they're, you know, they, they run the risk of running out of runway to mount a turnaround and, and losing patience and, and just, kind of, starting a downward spiral in their core business.
Steve Dennis 36:42
So, again, I'm Dr. Doom on this, but, you know, I would, I think Kohl's is in a much better position than just about any of the other moderate department store spaces. I think Macy's has got a little bit more life in them. I don't understand why Penney's exists, I don't understand why Dillards exists, don't understand why Belk exists. And, you know, you can, sort of, insert your equivalents in whatever country you live in. If you don't happen to live in the United States or aren't familiar with the United States.
Michael LeBlanc 37:10
Well, I don't know like, you know, I'm, in some ways, I'm a little more sanguine about the opportunity to open many small stores from a strategic perspective because then it raises your awareness to grow the dot com business,
Steve Dennis 37:22
Yes.
Michael LeBlanc 37:22
like I can get there in that line of thinking, right, so, I'm gonna open, I got 1 big store, but I got 7 little stores and every time people drive by them, they're going, you know, they used the old marketing slogan for Hudson's Bay, it's hard not to think of the Bay. You know, I need to be thought of, like, I think sometimes these big department stores lose because people just, they fall out of the funnel. In other words, they fall out of the consideration set.
Steve Dennis 37:46
You know, I was a proponent of that, sort of, idea when I was at Sears, I was proponent of that strategy at Neiman's, you know, that those, those didn't work out for various reasons, but I think that.
Michael LeBlanc 37:57
You're too early, you’re way ahead of your time. Maybe the issue is here we just,
Steve Dennis 38:01
I'm always way ahead.
Michael LeBlanc 38:02
Your way ahead of your time.
Steve Dennis 38:04
Always way ahead.
Michael LeBlanc 38:04
If they would have done that 20, 30 years ago, I mean, really, we've been in the dot com era, you know, 20 some years, I mean that it feels like as you said a good strategy for 15 years ago. It's been a great episode talking about department stores. I feel like there's a lot more we can talk about. Good thing we're weekly and we've got a whole season ahead of us, I mean, I, we haven't even talked about Amazon's venture into department stores which kind of leads us into, naturally, a discussion about what the heck is a department store anyway, is that a Nike, is that a this, is that a this, so, maybe that's good, folly or good, good topics to talk about in Q1, so to speak, in future episodes.
Michael LeBlanc 38:42
So, for this episode, let's, let's wind it up. In terms of, we've talked about this, part two, we're back next week, we've got a great guest next week back on the rails and again, a call out to anyone listening on the podcast. Visit our YouTube channel, this entire episode actually is going to be up on our YouTube channel, where you get to see you and I in person. And that's, kind of, and how much fun is that I'm wearing a different shirt for anybody's following because I noticed I was wearing the same shirt and every episode,
Michael LeBlanc 39:10
I'm wearing a different color.
Steve Dennis 39:12
Pretty much the same shirt on the last episode, I think.
Michael LeBlanc 39:14
Well yeah, and I got, you know, a different shade of black. So, anyway, listen and if you like what you heard, please follow us on Apple, Spotify, Amazon Music or your favorite podcast platforms. So, you can catch up with all our great interviews. Subscribe, so that it just automatically shows up, tell your friends and also, new insights and new episodes will show up every week. So, tell your friends because that will help us share the word, the good, the good, the good wisdom. Now, be sure and check out, and be sure and check us out on our new YouTube channel. Not so new, anymore. We got a couple episodes up there and just look for Remarkable Retail.
Steve Dennis 39:49
And I'm Steve Dennis, you can check out more of my work at my website, stephenpdennis.com, or on Forbes, or on Twitter and please check out my second edition of my book, Remarkable Retail: How to Win and Keep Customers in the Age of Disruption, available just about everywhere books are sold.
Michael LeBlanc 40:10
And I'm Michael LeBlanc producer and host of The Voice of Retail podcast and a bunch of other stuff. You can find me on LinkedIn, learn about me on meleblanc.co.
Michael LeBlanc 40:19
All right, Steve, great episode. Look forward to chatting again next week. Be safe and have a great rest of your day.
Steve Dennis 40:26
Same to you.
SUMMARY KEYWORDS
department stores, stores, business, Sears, mall, people, Macy’s, big, RH, customers, Kohls, regional malls, supply chain, categories, JCPenney, buying, strategy, brands, retail, retailers