The Demise of the Department Stores

I should go back through my blog posts over the years and see when I first began to think the department store era was near its end. There are so many things to say about Saks’ going bankrupt. Saks also owns Neiman Marcus, and purchased Barneys for a ridiculous amount of money to make Barneys label products, which haven’t seemed to pan out except for private equity holders in Japan.

So, why did they never innovate? Where did all the good merchants go? Why did they take on this massive amount of debt? Why did someone even give them this cash? Was it just a write-off against gains? Will all the vendors just get screwed? Will the banks swarm in and sell all the real estate? What will all those empty buildings become? How will they affect Main Street and communities? Does it even matter?

Two stories come to mind. One thing Fred learned in business school. A company began importing champagne from France and decided to crush the market by selling its bottles for $19.99. What happened is the opposite. Nobody bought the bottles; they just sat there because customers perceived this champagne as bad. After all, champagne is known as a “luxury” product. The company regrouped, pulled the bottles, and repriced them at $99, and the product flew off the shelf.

What that says is know your customer, because consumer behavior is challenging to change. Just as Macy’s decided in the late 80’s to shift to higher-end products, but the majority of people walking into their stores were not, just as Target leaned into anti-DEI. They lost their base.

The other tale was at Gilt Group, which shockingly still exists today. Gilt Group started as a place to buy top brands at discounted prices from vendors with surplus inventory. The catch was that when those products dropped at noon, you had to be at your computer to jump in and buy them before they sold out.

There are so many things I never understood about this model, as someone who started their career in retail and then moved to wholesale. Eventually, the vendors improved their inventory management, so instead they began making best-selling products with lower-quality fabrics to match last year’s numbers. Customers are not that dumb.

Remember, tech entrepreneurs started the Gilt Group, as during that time, everyone was attempting to disrupt everything. Fast forward, and the powers that be noticed that many customers were lurkers. Customers would log in to the sale at noon but never purchase. Perhaps, management thought, they wanted those items but couldn’t afford them, so we should build a secondary site for them at lower price points.

If they surveyed their customers or reached out to merchants who have been in business for years, they would have better understood the business. What they did do was build an entirely new website with this concept, throwing a lot of capital at it. Think about how Donna Karan built DKNY, the less expensive line, but that worked. After months and months, the new, less expensive site finally launched, and instead of an onslaught of business, all they got was crickets. Why? Those lurkers wanted the high-end products and were willing to swoop in only occasionally, not every day. No shit.

There are more stories to tell when it comes to companies being purchased by private equity companies, which are financially focused, not product-focused, where they have killed great companies or just sold them off at a massively discounted price to another private equity group.

Back to the demise of Saks. There is so much we do not know, but I gather that those losses work out financially for everyone involved, except, of course, for all the employees in the stores. Retail is a tricky business, and for some reason, merchants in Europe and Asia have figured it out. Nordstrums has figured it out. It isn’t e-commerce that killed them all. Those stores are listening to their customers, innovating when needed, and surviving in a new environment, because in retail, you must innovate all the time or you end up like Saks. That doesn’t mean the same four-way with constant discounts. Let’s at least hope that all the buildings left empty are sold to each state government to become public housing. That is definitely something we need, because it appears that customers no longer want that many uninteresting department stores.