Neiman Marcus is closing 25 percent of its Last Call outlet stores to focus on its full-price business. Good luck with that.
The tony department store, whose sales per square foot have declined 11 percent over the past decade, is gambling on the allure of premium products at premium prices like it’s 1999.
It’s a curious move when in 2017, the full-priced business at department stores is all but dead or at least in intensive care, depending on whom you ask.
The big designer brands that have long been the meat-and-potatoes of department stores’ full-price business have fallen prey to their markdown mania, the massive popularity of off-price chains that department stores have themselves perpetuated, and the sector’s waning appeal.
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The result is that department stores have unwittingly turned into “a discounting mechanism more than a real retail” venue, hurting fashion brands’ equity and pricing power along the way, said Katherine Black, principal of retail and consumer strategy at KPMG US, at a retail roundtable discussion in September.
Le SportSac Exits Macy’s 670 Stores
Some brands are fighting back by pulling out of department stores.
I visited a freestanding LeSportSac shop a few weeks ago, and asked the sales associate why I couldn’t seem to find the iconic bag company at Macy’s. “We got out of department stores this summer,” she said. “They’re not a good place to be.”
LeSportSac’s president Hiroaki Oura confirmed via email that the brand exited Macy’s 670 stores, “purely [because] we are focusing our own operated business,” he said but did not say what other department store chains Le SportSac might have also dropped out of.
Le SportSac is following in the footsteps of Coach, Michael Kors and Kenneth Cole, which have either dramatically reduced their department store presence or, as in Kenneth Cole’s case, closed all of its namesake stores, which were mostly outlets (save for two locations) in a bid to expand its full-price and online retail footprint internationally.
Indeed, the struggling full-price apparel business is not only a department store problem. Brands like Kenneth Cole, Coach, Fossil, and Ralph Lauren, which shuttered its Fifth Avenue flagship in New York this spring, are closing swaths of their freestanding stores.
“There’s more and more [discounted] product in more and more places,” said Kathy Gersch, executive vice president at strategy execution and change management firm Kotter International.
Even Nordstrom’s full-line department stores, which limited discounts to twice yearly sale events, now hold year-round markdowns, she said.
The TJX, Burlington Blow
Off-price chains like T.J. Maxx, Burlington and Ross Stores have dealt the full-price business at department stores its harshest blow as shoppers can’t get enough of the treasure hunt appeal of designer goods at bargain basement prices.
The off-price channel will continue to outperform while department stores will continue to decline, according to an October Moody’s report. “We see [off price] operating income growing 6.9 percent in 2017
and 5.4 percent in 2018.” By contrast, “Department stores will continue to decline, with our forecast calling for a decrease of 9.3 percent and 2.7 percent in 2017 and 2018, respectively.”
Self-Inflicted Wounds
Now department stores’ frantic plunge into the off-price sector is in danger of killing off the full-price apparel business for good, experts warn.
In addition to discounting merchandise in their full-line stores, marked-down goods are increasingly feeding the pipeline in department stores’ ever burgeoning off-price channel, from the already heavily promotional Macy’s expanding its Backstage spin-off concept to Nordstrom’s Rack format.“The off-price business is driving growth and getting bigger than the full-price channel,” said Susan Lee, a partner with consultancy Simon-Kucher.
Today, Nordstrom operates 216 Nordstrom Rack off-price stores, nearly double the number of its 122 full-line stores, just as Saks Fifth Avenue’s 39-store full-line chain is a fraction of its 118-store Off 5th outlet fleet.
The Amazon Factor
Amazon isn’t doing the full-price apparel business any favors either. While fashion brands are by no means flocking to the site, still fearful of losing control of their brand image, the discount-aggressive e-tailer is gunning for apparel, and has scored some big symbolic wins, such as its partnership with Nike.
Lord & Taylor department stores, for one, recently started pricing matching Amazon. (Not to mention partnering with Wal-Mart in an online mall venture.)
Trying To Shake The Funk
Just as department store discounting has hurt sales, profits and the mystique that apparel brands rely on, fashion brands are at the mercy of department stores working to get climb out of a funk.
“They’re giving more space to experiences and other kinds of products like electronics, phone cases and water bottles, while bulking up on cosmetics,” which can diminish the space and effectiveness of apparel brand displays, Gersch said.
Department stores have long served as showcase destinations where shoppers looked for the latest merchandise and designer collections and fashion trends, launched at full price. And while they still commit ample floor space to often-majestic designer shops that romance staple brands such as Ralph Lauren, Calvin Klein and Tommy Hilfiger, that purpose is becoming obsolete, when consumers can see and buy products today from their phones or laptops.
“If the department store was [once] the only game in town, [brands] now have more options,” she said.
Date: Nov 03, 2017