Macy’s, Nordstrom, and Saks, are hobbling toward Black Friday. Someone send them a Christmas miracle.

Why Nordstrom, Saks, and Every Other Department Store Desperately Need a Christmas Miracle

Why Nordstrom, Saks, and Every Other Department Store Desperately Need a Christmas Miracle

Moneybox
Commentary about business and finance.
Nov. 23 2015 1:33 PM

Department Stores Need a Christmas Miracle

But this year, it’s not just Macy’s. Fancy chains like Nordstrom and Saks are ailing too.

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At Nordstrom, the slowdown started in August.

Photo courtesy Mike Mozart/Flickr CC

It’s a shame Macy’s fabled Santaland exhibit isn’t scheduled to open until Black Friday, because the nation’s department stores—beset as they are by brutal earnings reports and lackluster sales—could use all the extra cheer they can get. “Why Macy’s Is Having Its Worst Day in Six and a Half Years,” the Wall Street Journal blared earlier this month. Two days later, it was CNN Money: “Nordstrom’s worst day in 15 years.” The following week, Bloomberg reported, “Dillard’s Becomes Latest Victim of Department Store Slump.”

Even Donald Trump piled on last week. Macy’s dumped Trump’s eponymous clothing line this summer shortly after his controversial comments about Mexican immigrants. Never one to remain silent in the face of an enemy’s setback, Trump kicked Macy’s in the ribs on Twitter:

Helaine Olen Helaine Olen

Helaine Olen is a former columnist for Slate and co-author of The Index Card. She was the host of the Slate Academy series the United States of Debt.

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So what ails America’s department stores? No, it’s not Trump. Think of it as what happens when an industry confuses a brief remission for a permanent cure. As it turns out, the surge of global shoppers and flush 1 percenters that briefly spared some department stores from broader retail trends couldn’t cure their long-term woes. Which means the entire sector will hobble into the holiday shopping season this year.

Whether they appealed to lower-, middle-, or upper-income shoppers, department stores once epitomized our seemingly limitless consumer economy. Now they’re experiencing what economists call a long-term cyclical decline. According to market researcher IBISWorld, sales across the entire department-store category, which includes everything from high-end retailers like Bergdorf Goodman to lower-end establishments such as Walmart (a place few of us think of as a department store at all) fell by a 4.5-percent annual rate between 2010 and 2015.

But things had been looking up recently, especially at the upper end of the market.

So perhaps it’s telling that for high-end Nordstrom, things got ugly toward the end of this summer. “Beginning in August, we experienced a slowdown in our full-price and off-price businesses,” explained Blake Nordstrom, Nordstrom’s co-president, on a recent earnings call. He was baffled. “There are a number of economic indicators that look real positive for U.S. and the consumer and spending, yet all we can tell you is in our business, we saw a slowdown.”

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August?

That’s the same August when the stock market began to resemble Disney World’s Tower of Terror, with the Dow experiencing one intraday plunge of 1,000 points. The month ended with headlines like “Awful August.” Did anyone really think the affluent Nordstrom shopper would go out and purchase a four-figure puffer jacket after that, even if the fall weather hadn’t been unseasonably warm?

Yet you can’t blame Nordstrom executives for being stunned. It happened fast. As recently as last spring, stock market and retail analysts had been making rosy predictions for this segment of the economy. Falling gas prices and an improving job market would surely send ever more Americans to the mall.

You know the story. For the most of us, income has stagnated. According to the Federal Reserve Bank of St. Louis, not to mention the Census Bureau, when measured in adjusted dollars, it’s still not as high as it was in 2007, prior to the start of the Great Recession. The vast majority of income gains in the post-Recession period went to the 1 percent. And those people? They went shopping. High-end sales exploded across the board. In 2011, for example, same-store sales increased at Saks by 9.5 percent. Nordstrom’s same-store sales increased by more than 7 percent in 2011 and 2012.

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That was good news in an industry that needed it. Department stores have been getting pummeled every which way for decades. The last time anyone really thought of a department store as a happening place was in the 1980s, when New York’s Bloomingdale’s was considered so iconic, so fashion-forward (some claim the store was instrumental in the 1980s craze for Guess jeans) the character played by Robin Williams in the 1984 film Moscow on the Hudson defected from Russia while on a shopping trip at Bloomies, hiding among the make-up and perfume counters (and Maria Alonso’s skirt).

But less than 10 years later, Bloomingdale’s was in bankruptcy court. A number of others, including New York’s Bonwit Teller and Washington, D.C.’s Garfinckel’s went out of business. “Is the department store as a species doomed to the fate of Tyrannosaurus rex?” the New York Times asked in 1992. The excitement had left the department store industry, never to fully return. Mergers saddled companies with debt. Stand-alone, fast-fashion giants like Zara and H&M began to pick away clothing shoppers. Time-strapped and budget-conscious consumers turned to the convenience of online and mobile shopping.

Many department stores, are, in part, victims of demographics, Pam Danziger, a retail consultant and the author of Putting the Luxe Back in Luxury, told me. The typical Saks shopper might enjoy an annual average income of $250,000, but she’s also about 45 years old. That’s a big problem, Danziger says. Baby boomers, now pushing 70, are no longer in their prime shopping years. Generation X is not only a smaller cohort but a less wealthy one.

As for the millennials, retail analysts say they’re not only suffering from record amounts of student debt, but many never acquired the department-store habit at all. The behavioral finance finding that we ultimately enjoy dining out with friends and other activities more than picking up another item at the mall seems to have taken hold among this group; 78 percent of Americans born between 1980 and 1996 surveyed in a 2014 Harris poll said they would rather spend their funds on experiences than on purchasing goods. “Millennials feel that shopping in department stores is a chore,” retail analyst Walter Loeb noted in Forbes earlier this year. “The theatre is gone.”

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In retrospect, it seems likely a surge of international buyers to stores ranging from Macy’s to Saks masked some of the less-than-salutary currents buffeting the department stores that appealed to affluent and upper-income shoppers. But that was so last year. Now, China’s economy is rapidly cooling, and Japan is officially in a recession. The dollar is surging against the euro. By this spring, Macy’s was reporting falling customer traffic from tourism at their stores located in such popular destination cities as New York, Las Vegas, and San Francisco. Sales at Saks are all but stagnant, something Jerry Storch, chief executive officer of the Hudson Bay Company, the parent company of Saks, attributed to the same thing. “Saks continues to struggle a bit with the global tourist and the slowdown in spending because of the strong dollar,” he said in September. It’s telling that Kohl’s, one of the few department stores to beat the slump, isn’t known for its jet-set appeal. Instead, analysts praised it for strong back-to-school sales.

For now, department stores continue to invest in mobile shopping, not to mention their bargain outlets. Bloomingdale’s, for example, opened a branch of its lower-priced outlet store on New York’s Upper West Side this past Saturday. “It’s an opportunity to introduce the value-conscious shopper to Bloomingdale’s,” a spokesman said.

Others are doing their darndest to appeal to appeal to those experience-hungry millennials. Saks is renovating its premier Fifth Avenue store (“a Fifth Avenue Face-Lift,” the New York Times wrote), adding a champagne bar and hairdresser-to-the-stars John Barrett. Macy’s recently debuted One Below, an offering for millennials where clothes, electronics, and handbags are all mixed together. Don’t see what you want? There’s a 3-D printing boutique, too.

Will it work? Who knows. October’s retail sales report was not encouraging, but the stock market is now back up, though Nordstrom’s stock has yet to recover the majority of its sudden loss. Most retail analysts and market research consultants say we can expect heavy discounting in the all-important holiday season—a win for consumers, if not necessarily the merchants. If you visit Santaland, check out who’s lining up to meet St. Nick: No doubt a few department-store executives have some desperate Christmas wishes of their own.