Are Department Stores Dinosaurs?

The uncertain future of department stores has been discussed for more than 30 years, with the rise of specialty stores, consumer preference for lifestyle shopping centers instead of enclosed malls, and--of course--online shopping.

During the 1980s and 1990s, department stores and mass merchandisers were making significant changes behind the scenes. Point-of-sale terminals replaced cash registers, and personal computers brought data analysis to management's fingertips. Managers could see hourly sales trends instead of waiting for end-of-month numbers.

In those days, department stores like Saks and Sears still offered private-label credit cards, which in turn allowed them to see who bought what and how often. Credit was frequently a source of profits, not just an engine for supporting sales increases. (Today, nearly all store cards are operated by non-retailers). Remember, Sears founded the Discover card, using its expertise in the credit industry. Here's a case study about Sears that offers clues to some of the retail challenges of the time. And here's a quick look at how Sears evolved over the years.

The question of whether department stores are dinosaurs bound for extinction is still being asked. A real estate analysis firm recently estimated that department stores would need to shutter hundreds of branches to return to the sales-per-square-foot productivity levels of 2006. That translates into a sea of empty anchor stores all over the country. Malls are trying to update the shopping experience to bring consumers back, to go to the movies or for specialty stores that are especially in demand.

In a world where promotional pricing attracts shopper attention, department stores are joining in, and that's making waves for high-end brands. Michael Kors is going to limit the number of products it sells to department stores to avoid having its lux image affected by promo pricing.

Department stores are also making some other adjustments. Macy's is closing a few dozen stores, and Sears/Kmart is closing some stores as well. Macy's has begun rolling out "Backstage" off-price stores within stores to utilize space and attract price-conscious shoppers who might otherwise go elsewhere. Sears is leasing some of its space to other stores, such as Primark.

It's still too early to deem department stores dinosaurs.

Have Malls Jumped the Shark?

Definitely. Reports may be exaggerating the imminent demise of the American shopping mall, but there has been a distinct downward spiral during the past decade or so.

Consider these headlines which appeared during the past six months or so:

• The economics (and nostalgia) of dead malls (NY Times)
• A dying breed: The American shopping mall (CBS News)
• Malled: The hollowing out of an American institution (Bloomberg)
• Here's what's becoming of America's dead shopping malls (NPR)
• The death and rebirth of the American mall (Smithsonian)

PBS News Hour has an educational page titled "Why malls across America are dying" and that's where I found the graph at the top of this post. Supply is too high while demand is too low. Period.

There are too many enclosed malls and stores chasing too few in-person shoppers. Between the economy's problems and the meteoric rise of online buying, malls don't have the foot traffic they once did. Plus malls are often homogenous, meaning one mall has nearly the same stores as the next (not always, but often), which means little novelty.

Not to mention growing interest in shopping locally and patronizing small businesses who can't afford mall locations. Plus, until recent months, high gas prices discouraged some people from driving to large regional malls for a day of browsing, eating, and perhaps buying. In addition, consumer behavior has changed and now shoppers appear to prefer open-air lifestyle shopping centers where big-box or destination stores are spread along a street with smaller specialty stores and restaurants a walk away or a quick 30-second drive. No more long walks from outside parking lots to inside stores on the 2d or 3d level of an enclosed mall.

So malls have jumped the shark -- meaning they're way past their peak -- and now are using various experiments or innovations to either attract shoppers or . . . . worst case, to breathe new life into a location now devoid of stores.

Woe Is Mall

Shopping centers are suffering, as you certainly know. A few are closing, many are trimming operating hours, more are simply covering the windows where small boutiques or specialty stores once proudly stood.

On last night's reconnaissance mission to a nearby mall, I was able to park 2 spots away from the entrance--unthinkable just 6 months ago. The Bertucci's restaurant was busy but Macy's and other stores had many more employees than shoppers.

Saks--which kicked off a pre-Christmas discount frenzy among high-end retailers--admits profit margins are down but says the steep markdowns were necessary (but may be a thing of the past). Fortunoff's is running a giant going-out-of-business sale. The list goes on and on. Woe is mall.

Still, some malls are actively trying to attract shoppers by opening big sit-down restaurants, offering free Wi-Fi, setting up children's play areas, and more. One of my local malls has gotten rid of those by-the-week pushcart retailers and is attracting families with a bungie jumping activity.

America is over-malled and getting mauled by the economy. This is where smart marketing will weed out the creative from the ordinary. Here's one example of mall experimentation. Local stores and shoppertainment, anyone?