Retailers Fear the Grinch: What's Happening in the Department Store Industry

Consumer confidence is one of the main driving forces of the U.S. economy. Declining confidence has widespread effects. One industry which immediately reacts to slowing spending as consumers look to their budgets amid worries over credit, debt, and recession is the department store industry. When popular chains like JC Penney, Macy's, and even Target step up sales events, announce store closings or delay previously announced new openings, and cut back on orders for the upcoming holiday season, then you know that something is definitely amiss in the land. Consumers are still likely to increase purchasing for the family-oriented, year-end holidays, but that brief splurge may not be enough to meet the expectations of the major retailers and their shareholders. Further consolidation of the industry over the next year may be one consequence.

Here follows a brief look at some of the leading department stores in the country. JC Penney, based in Plano, Texas, operates stores in all states except Hawaii as well as catalog sales operations and, of course, Internet sales. Its big-book summer and fall catalogs are welcomed by many rural customers as well as by those who actually live near a mall hosting a Penney's outlet. Among the unique private brands in its apparel collection are St. John's Bay and Arizona Jeans Co. Like other upscale and mid-level department stores, Penney's offers its own credit card to customers who are also granted special discounts and other perks in a loyalty-building strategy. The company's response to recent profit declines is a scaling back of expansion plans.

Cincinnati-based Macy's, perhaps best known for its Herald Square store in New York City where the annual Thanksgiving Day Parade sponsored by the company is held, is preparing a major management reorganization intended to cut operating costs and improve profitability. Macy's also operates luxury-level Bloomingdale's stores; a new Bloomie's is set to debut in Dubai in a huge mall with a grand opening late in 2008. Additionally, this year the department store giant is hosting media events, Celebrity Catwalk Challenge on television, and a benefit fashion show, Passport Cinema, in two-dozen movie theaters. On October 28 the store expects to mark its 150th birthday with celebrations in all stores.

Kohl's, a nationwide chain headquartered in Wisconsin, is also considering revising reported expansion plans. Among its exclusive brands are Dana Buchman apparel, Vera Wang shoes, Gloria Vanderbilt sportswear, Elle fashion, Rachel Ray housewares, and Carter's children's items. Promoting such well-known brands is one way of differentiating its stores from other department stores which also offer fashionable clothing, designer fragrances, fancy shoes, giftware, and products for the home, family, and pets. Rival Target, also based in the Upper Midwest, emphasizes trend-setting styles, including clothes by Isaac Mizrahi, at low cost. This company, widely recognized by its simple, red target-graphic logo, operates in all states except Hawaii, Alaska, and Vermont. Although Target is sometimes classed as a discounter, its store design and ambiance, along with its sponsorship of museums in New York, Los Angeles, and Minneapolis, sets it apart from the most well-known discounter in the country, Wal-Mart.

Luxury retailers, Saks, Nordstrom, and Nieman Marcus are also suffering in the current economic downturn, as their customers, against expectations, resist the lure of shopping in pampered, upscale environments. All three operate outlet stores which offer lower-priced versions of the famous-name brands also sold in the main stores. So, should their regular customers suddenly worry about shrinking wallets, there are available options which still bear the cachet of quality and the imprimatur of celebrated names.

Illinois-based Sears, with international operations in Canada and Mexico as well as stores in many cities and towns across the U.S., is working on management restructuring and solutions to recent sales slumps and credit woes. This company, once famous as a mail-order catalog company which helped many in rural areas to purchase clothes and household supplies, differs from other department stores in that its offerings also include tools and other hardware, electronics, and automotive items. Sears has tried diversification and mergers in the past and may well do so again in the future.

The upcoming Halloween holiday celebration may bring out shoppers weary of money worries. And the big dates of Thanksgiving and Christmas may also entice consumers into loosening up on the discretionary funds. At any rate, department store retailers everywhere are keeping their fingers crossed and their sales signs handy.

Stephanie Rosenbloom, "Retailers' Sales Fall Sharply at Both High End and Low", New York Times

Reena Jana, "Ducking the Price War, Target Highlights Fashion", BusinessWeek

Carrie Coolidge, "Discount Chic", Forbes

"Macy's Celebrates Milestone 150th Birthday on October 28, 2008", Wall Street Journal/MarketWatch

"Bloomingdale's to open in Dubai", National Jeweler

Jonathan Birchall, "JC Penney suffers as shoppers cut back or seek other options", Financial Times

Pallavi Gogoi, "Bargain Hunting: Luxury Retailers Find an Outlet", BusinessWeek