MCPETE-SEZ
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U.S. department stores need radical
make-over
By Anna Driver
CHICAGO, Feb 14 (Reuters) - Big-name U.S. department stores like Macy's and J.C.
Penney need to follow Kohl's into the middle ground if they are to win back fickle
consumers from increasingly popular discount stores, experts said.
Described as a hybrid retailer, Kohl's Corp. (NYSE:KSS - news) stores have the look and
feel of a department store, but sell at lower prices. And, in a world where consumers have no time to go the mall, Kohl's 320
stores are more conveniently located.
``Big changes have to occur,'' Sid Doolittle, a partner at consulting firm McMillan/Doolittle LLP said of struggling department
stores. ``I think they need to rethink their whole format and structure. The only two things that really matter in retail is where
you put your stores and what you put in them.''
In a sign that the sector is struggling, Federated Department Stores Inc. (NYSE:FD - news), Sears, Roebuck and Co.
(NYSE:S - news) and J.C. Penney Co. Inc. (NYSE:JCP - news) have all recently announced store closures and job cuts.
But department stores need to go beyond cost-cutting to recapture customers who have defected to chains like Kohl's and
upscale discounter Target Corp. (NYSE:TGT - news), rethinking their location and revamping their stores, industry experts
said.
``What's happened is that Kohl's and Target have fitted themselves between Wal-Mart and the middle-end department stores,''
Irwin Cohen, global managing director of consumer business practice at Deloitte & Touche. ``They've done a good job moving
into that space.''
The climate for department stores will only worsen as the U.S. economy and consumer spending slow.
U.S. retail sales data released Tuesday showed signs of life in January, growing 0.7 percent compared with growth of 0.1
percent in December. But Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economy may face a rocky
transition as it downshifts from the super-charged growth rates of the past several years.
Kohl's, which consistently turns in better sales growth than department stores, can attribute its success to lower prices, better
location and the fact that its stores are easy to shop, consultants said.
In January, Kohl's reported a 7.1 percent increase in same-store sales, while Federated reported a 3.7 increase, J.C. Penney
reported a 6 percent decline, and May Department Stores Co. (NYSE:MAY - news) said its same-store sales grew 3.4
percent.
Shoppers don't have time for a trip to the mall and they don't have time to wade through the the vast amount of merchandise
offered at department stores.
``Mall shopping is a time waster for a lot of customers today,'' Doolittle said. ``They like to park out front, run in and get what
they need.''
Most Kohl's stores are located away from malls or in smaller strip malls, and it carries fewer items than department stores.
``Kohl's doesn't try to carry everything in every size and color,'' Candace Corlett, a principal at consulting firm WSL Strategic
Retail. ``You can walk through the aisles and sort through the racks. At department stores, there is too much to look at and
they don't have enough labor to keep it neat.''
Sears is already in the midst cutting the number of its apparel vendors and offering fewer styles in more sizes and colors. It has
also introduced shopping carts in all of its stores and has tested widening store aisles and moving cash registers to the front of
stores, a nod to the Kohl's layout.
``All retailers are trying to make their stores more shoppable, I don't think we're trying to be like Kohl's,'' Peggy Palter, a Sears
spokeswoman, said. ``People have a lot less time. She (the Sears customer) doesn't want to spend as much time shopping as
she did.''
J.C. Penney, battling sagging sales and profits, is in the process of centralizing its merchandising and purchasing operations. Its
new chief executive, Allen Questrom, has said that the company's merchandise was not competitive in ``depth, fashion or
price.''
Those types of changes are a step in the right direction, but more sweeping actions are needed to revitalize department stores,
consultants said.
``We need to see a revolution in the way the floor is merchandised,'' Corlett said. ``It's really going to take some smart
merchant to turn things around.''
NO ROOM TO GROW, BUT SOME BRIGHT SPOTS
In retail, the key to growth is opening new stores, but the number of new shopping malls being built in the United States has
dwindled. Discount and other types of stores have more opportunity to build new stores because they are less tied to the mall
format.
``In terms of real estate it's a mature market,'' Irwin Cohen, global managing director of the consumer business practice at
Deloitte & Touche, said. ``Developers are not building very many regional shopping centers now.''
Shopping mall development peaked in the 1980s, but growth rates have stagnated around 2 to 3 percent in recent years,
according to data from the International Council of Shopping Centers.
Discount stores open stores at a much faster pace than department stores. In January, May bought nine department stores from
Saks Inc. (NYSE:SKS - news) and plans to open 13 more in 2001. In contrast, Kohl's plans to open 55 to 60 stores in 2001,
and Wal-Mart Stores Inc. (NYSE:WMT - news), the world's largest retailer, plans to open at least 365 stores this year.
But some department stores with well-known brand names such as Bloomingdales, Neiman Marcus Group Inc.
(NYSE:NMGa - news) and Nordstrom Inc. (NYSE:JWN - news), may have the opportunity to branch out internationally,
Cohen said.
The Internet also offers opportunities for department stores to grow their business by offering shoppers another channel to do
business, he said.