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An Endangered Species Makes A Comeback


Cover Story

AN ENDANGERED SPECIES MAKES A COMEBACK

Just a few years ago, department stores looked like an endangered species. Their prices were too high, specialty and outlet stores qere stealing their customers, and the wares looked the same whether you were in Macy's or Marshall Field's. But the death knell was premature. "The shock and surprise of the mid-1990s is department stores' viability," says retail consultant Alan Millstein. "Their bottom lines are a lot healthier than anyone would have forecast."

The resurgence is visible in every region. As part of a $5 billion, five-year expansion plan, May Department Stores Co. in St. Louis says it will open 125 stores around the country and remodel 100 others by 2000. Bloomingdale's Inc., which just a few years ago was closing stores, is expanding into California with plans for as many as six stores. And in 1997, Minneapolis-based Dayton Hudson Corp. plans to open its first new Dayton's store in the Twin Cities area in 19 years, along with a new Marshall Field's in Columbus, Ohio. "We wouldn't build them if we couldn't pencil in a good return," says Stephen E. Watson, Dayton Hudson's president and CEO of the department-store division.

PRIVATE LABEL. What's behind the renaissance? After the battering in the 1990-92 recession, department stores have refocused on their most defendable niches--upscale apparel and home furnishings. Within those niches, they've differentiated their merchandise and cut prices by aggressively developing private-label apparel offerings. "Department stores know they can't compete with the big-box stores and category killers, so they're specializing in what they do best," says James Lowry, marketing department chairman at Ball State University in Muncie, Ind.

Like superstore rivals such as Wal-Mart Stores Inc., department stores are cutting costs by demanding more from suppliers. And their reputation for lousy service is improving, too.

One of the biggest comeback stories is Sears, Roebuck & Co. The 800-store chain posted a $2.9 billion loss in 1992 after discounters such as Wal-Mart eroded its franchise. But in 1992, new management led by Arthur C. Martinez, then CEO of Sears Merchandise Group, launched a campaign to turn the chain around. Sears renovated its stores and aggressively recruited name brands, especially in high-margin women's apparel. Then, it ballyhooed the changes with its "Softer Side of Sears" ad campaign. The result: Sears Merchandise Group posted $1.6 billion in operating profit during 1993 and 1994. "People thought Sears was dying a slow death. Its comeback is really a testament to the department store's concept of one-stop shopping," says Robert Buchanan, an analyst at NatWest Securities Corp.

Will department store rebirths continue? If they stay focused on what they do best and keep improving efficiency, there's no reason why not, say consultants and analysts. These dinosaurs are acting awfully frisky.

Department Stores On The Move

MAY

Opening 125 new department stores and remodeling 100 others as part of a $5 billion, five-year expansion plan.

SEARS

Opened 17 new department stores and remodeled another 120 in 1995.

FEDERATED

Opened four department stores in 1995. Will open three more by 1997.

NORDSTROM

Continuing its steady expansion, opened four new stores this year and will open another four in 1996.By Susan Chandler in Chicago


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