Macy’s, Nordstrom, Other Department Stores Need Better Drama Quotient

It’s hard to find things to like about the department store sector these days. Macy’s reported earnings last week, and it didn’t help naysayers change their minds about the format’s future, as the retailer reported a 21 percent drop in in-store sales and a marginal increase in eCommerce sales. Nordstrom is set to report on Tuesday (Nov. 24), and it’s doubtful that it will show a dramatic improvement on those numbers.

And while earnings announcements are still the most reliable indicator of financial performance, they are not a gauge of future performance in the COVID-19 era. That’s because future guidance for Q4 2020 or even Q1 2021 doesn’t exist – and rightfully so. For example, Nordstrom could report a generally optimistic attitude for Q4 on Tuesday, just as Macy’s did. But with the new surge in COVID-19 cases, it’s quite possible that a large percentage of its stores will see another lockdown. Quite simply, no one has an accurate crystal ball for retail at this moment.

And while it’s hard to like anything happening in this sector, there’s a lot to be pessimistic about. The factors that led a Columbia University professor to call the format “toast” are even more exaggerated now. Malls are still facing anchor tenancy issues and overall attraction problems. According to a Verizon retail report released at the beginning of November, there was an 82 percent bounce in eCommerce-related web traffic compared to November of 2019. It found that people are moving to and around malls 20 percent less than they did last year at the same time. That correlates almost exactly with the numbers from Macy’s. On the other hand, people are moving to and around malls 59 percent more than they were when pandemic restrictions were at their peak in April of 2020.

“Our report confirms what we expected to be true: significant shifts continue from in-person, brick-and-mortar shopping to online shopping,” said Michele Dupre, VP of sales vertical markets, retail and hospitality for Verizon Business. “What’s surprising and promising for retail stores is that while mobility around U.S. malls is down from last year, it’s up significantly at 59 percent since the height of the pandemic. Online retailers will need to continue to invest in creative and innovative customer experiences, to capture revenue and offset lost sales from in-person shopping.”

One of the ways to do that is through inventory assortment. But that assortment is still better online via fashion sites, both branded and aggregated. And the other strategic changes made so far by department stores, like stepped-up loyalty programs, are not built for dramatic change.

And if there’s one thing missing from hearing department stores talk about themselves, as we did on the Macy’s call last week, it’s that dramatic element. Department stores don’t need strategy adjustments – they need drama. They need dramatic executives like RH Chairman Gary Friedman, who doesn’t apologize for the past or future and is ready to embrace the kind of reinvention necessary to succeed in the long term.

Want more proof? Check this quote from Friedman:

“We have built an integrated, multi-channel platform that expresses our brand seamlessly across physical, digital and print,” he said in a statement at the beginning of the summer. “Our physical galleries are architecturally inspiring spaces that blur the lines between residential and retail, indoors and outdoors, home and hospitality, with seamlessly integrated restaurants and brand-amplifying services like RH Interior Design, all of which render our brand more valuable while creating a customer experience that cannot be replicated online.”

That’s what a more dramatic approach looks like. What else does drama look like? We picked two areas where department stores could step up the drama quotient.

Let’s consider Target: It would be completely understandable if the retailer rested on its laurels heading into Q4. After all, its same-store comps are up by double digits, and its eCommerce take is up by triple digits. But Target didn’t rest on its laurels. Quite the opposite: CEO Brian Cornell is not afraid to roll the dice, as shown by his acquisition of Shipt in 2018.

Target headed into Q4 with two fairly risky partnerships – Ulta Beauty and FAO Schwarz – which bring people into stores for a specific purpose and puts Target in the news. It creates a reason to engage – and department stores simply aren’t creating those reasons.

We’ve seen Macy’s, Nordstrom and Neiman Marcus all re-evaluate their store locations and triple-down on their in-store technology and online businesses. But again, it’s not enough. If mall locations are no longer as viable as they once were, and if sales are off 20 percent, it’s time to make the hard decisions before they become forced decisions.

Examples of how this can be done come from Korea, which has seen a spate of its department store players add cultural centers to attract consumers. Lotte Department Store, for example, recently started setting up experience-focused cultural facilities. The company’s flagship store in southern Seoul is running a cultural space called 291 Photographs, which hosts a variety of photo exhibitions and offers profile photograph services for professional writers, in addition to camera and book sales. Hyundai Department Store has debuted an art museum of sorts that focuses on installing a variety of artworks, including sculptures and paintings, on each floor of the store. Again, it’s a dramatic change aimed at fixing a dramatic problem.

One thing is for certain: Strategy plays will not produce the speed or scale that department stores will need, especially if another lockdown is imminent. Macy’s deserves credit for its Polaris strategy, which re-focuses on the customer with a stepped-up loyalty program, commits to private-label fashion and accelerates its eCommerce plans. Macy’s did get some more new and younger customers buying from its iconic chain, and found a new direction for its future when it was desperate for one. However, noble and necessary as those efforts are, they won’t fix a 20 percent in-store comp problem. But reconfiguring stores is a better look than closing them – and finding new, innovative partners will build synergies that cannot be quickly found internally.

Bottom line: Department stores need a better drama quotient. Let’s see if they can find it in time.