Forced to cut prices up to 70 percent to move holiday goods, what can upper-end department stores do for an encore?
A recession with no end in sight is providing some answers: cut staff, close more marginal stores, stock far less merchandise unworthy of full price and ditch weak labels.
Yes, holiday report cards are in. The department stores that flourished in an eight-year spending binge got some of the worst grades. In December, same-store sales dropped 28 percent at Neiman Marcus, 20 percent at Saks Fifth Avenue, 13 percent at Sears, 11 percent at Nordstrom, 8 percent at JCPenney, 5 percent at Dillard's and 4 percent at Macy's from year ago.
Last week Neiman laid off 375, mostly at its headquarters. Saks wiped out 1,100 jobs. Just before Christmas, Dillard's cut 8 percent of its salaried workers and said 21 stores will close, twice the usual yearly weeding. Macy's stock slid when the chain said it would close 11 of 859 stores, mainly because analysts had hoped dozens more would be closed. Some of the job cutbacks will be less evident at those stores that are big drawing cards to Tampa Bay area malls. But trimmed inventory and fewer deals won't be.
It's all because Wall Street has zeroed in on department store performance again. Nobody's suggesting the death of this powerful form of retailing that's been in a slow decline for 50 years. But the collapse of stock prices and a credit crunch put debt-ridden chains under the gun to improve profitability as demand weakens.
Lenders are forcing tighter credit card terms on their customers. Plus banks are yanking their credit line leashes on stores' ability to overload inventory.
Meanwhile, department stores are MIA from two new lists of the most powerful retailing brands. Not one U.S. department store operator made Deloitte Touche Tomatsu's Top 50 list of global retailer Q ratings, an assessment based on financial performance, scale and investor views of brand strength. A similar rating released last week by Interbrand Design Forum put only two department stores (Nordstrom, 13th, and JCPenney, 24th) in the top 50 U.S. retail brands.
"It's sameness: too many mall stores carrying the same stuff," said Lee Carpenter, president of Interbrand. "Department stores are seen lacking anything different and there's nothing special about most speciality chains."
Plus rampant discounting cost them any pricing credibility.
Stores are addressing shortcomings. Macy's is adding variety with toy departments and is putting restaurants in some stores.
Neiman hopes to ease the most loyal customers (the average customer drops $10,000 a year there) into a buying mood. One tactic: designer appearances for select groups of 20.
"Our customers have the money, but many are afraid to buy anything ostentatious with so many others hurting," said Burt Tansky, Neiman's chief executive. "But retailers must get away from this deep discounting. It is the road to hell."
Mark Albright can be reached at firstname.lastname@example.org or (727) 893-8252.