November 8, 2019 by Sujay Seetharaman

Department stores are no longer in their heyday. Between 2007 & 2017, department stores experienced a massive 30% drop in sales. According to Morgan Stanley, department stores will only account for 8% of the apparel market by 2022, down from 24% in 2016. The rise of eCommerce and D2C has triggered store closures of major department store chains across the country, with nearly 9,000 stores closing (so far) in 2019 alone, way more than what we saw in all of 2018. Various studies show that this figure might go upto as high as 12,000 by the end of the year.

US Department Stores Sales Figures

 

In an earlier blog post, we looked at 10 major department store chains that are reimagining their businesses as the retail landscape evolves. In this blog post, we take a look at the high-end department stores where the wealthy shop. How are these upscale department stores performing?

Neiman Marcus

Neiman Marcus is an American chain of luxury department stores owned by the Neiman Marcus Group, headquartered in Dallas, Texas. Following a pair of disappointing years, the luxury retailer returned to growth in its 2018 fiscal year. Unfortunately, growth has been slowing over the past few quarters. Comp sales fell by 1.5% in its most recent quarter (Q3), after a 7.3% gain in the year-ago period. Net loss touched $31.2 million, topping the $19.9 million loss in 2018. The retailer has credited its fledgling performance to a decline in demand for some of its key brands, poorly executed promotions, increased stock market volatility and a reversal in international tourism trends i.e., a drop in the number of Chinese tourists visiting the stores.

Besides, it has been hampered by a debt of around $4.5 billion. After being rescued by two leveraged buyouts between 2004 and 2014, the retailer has now been granted some relief in the form of a deal with lenders that extends term loan maturities by a couple of years to 2023 and 2024.

Neiman Marcus Store

It is amidst this struggle that Neiman Marcus threw its doors open to three floors of handbags, lipstick, and blazers at the Hudson Yards development in New York – a melting pot of luxury fashion retailers, art galleries, hotels and wellness centers. Neiman’s approached the new space as a testing ground for experiences and services that it hasn’t provided before. Unlike other Neiman Marcus stores, the location at Hudson Yards includes a beauty salon, a spa, a pop-up florist, and a kitchen offering cooking demos, tastings and mixology classes.

The unveiling of all these new spaces points to the importance of diversifying into new categories and complementing the traditional luxury shopping experience within a department store, with more service-driven or cultural experiences, ranging from art and beauty to wellness and food, to lure the millennial and Gen-Z shopper.

Barney’s NY

Barney’s, a luxury department store on the upper east side of New York, is known for its over-the-top catalogs and elaborate holiday window displays. From selling discounted suits to buttoned-up salesmen in downtown Manhattan in 1923 to declaring bankruptcy in 2019, the retailer has fallen prey to management squabbles, over-expansion and changing consumer behaviors.

After its glory days in the 70s, this upscale department store chain went bust for the first time in 1996. It closed a few boutiques and emerged from protection three years later and began expanding across the country again. But it reportedly never replicated the success that it experienced back in the ‘70s. Ownership changed hands several times before Perry Capital, a hedge fund run by Richard Perry, took control in 2012.

Barney's New York Store

He swapped the retailer’s $540 million debt for equity in a restructuring that cut the company’s debt load to $50 million and helped it avoid bankruptcy. The company also made investments in eCommerce, which today account for more than 20% of sales but with so many physical stores, eCommerce was only part of the problem. There were reports of Barney’s downsizing its Madison Avenue flagship department store in an effort to reduce the $30 million annual rent. Barney’s denied these claims. However, the retailer announced earlier this month that it has filed for Chapter 11 bankruptcy protection as it struggles with more than $100 million in debt, rising rents and increased competition in the luxury market.

It has now reached an agreement to sell its assets to brand developer Authentic Brands Group and investment bank B. Riley Financial, a court document showed. Authentic Brands Group, which also owns Juicy Couture and Sports Illustrated brands, emerged as the winning bidder for the bankrupt Barney’s after two rival attempts fell flat.

Saks Fifth Avenue

Saks Fifth Avenue, owned by Hudson’s Bay Company is an American chain of luxury department stores. The retailer’s main flagship store is located on Fifth Avenue in Midtown Manhattan, New York City and is reportedly in full swing all year round, even as its parent Hudson’s Bay Company reported falling sales. 

During the recession days of 2007, Saks had to close some stores to cut prices and profit margins. It reportedly took about three years before it could start selling at near-original prices. In the years that followed, the retailer closed stores in multiple locations including Orange County (2010), Denver (2011), Pittsburgh (2012), and Chicago (2012/13). As of 2013, the New York flagship department store, whose real estate value was estimated between $800 million and over $1 billion at the time, generated around 20% of Saks’ annual sales at $620 million, with other department stores reportedly being less profitable.

Saks Fifth Avenue Store

Ever since Rich Baker bought Hudson’s in 2008, it has been a rollercoaster ride for the company. After an eventful first few years, during which Hudson’s Bay expanded globally, profits began to dry up. After bringing Helena Foulkes on board as CEO, Hudson’s department stores have managed to steady the ship one store closure at a time. 

In its Q32019 earnings, Hudson’s Bay reported that its comparable sales fell 3.4% while Saks Fifth Avenue’s comparable sales grew 0.6% and Saks Off 5th comparable sales increased by 3.4%. “At Saks Fifth Avenue, we feel strongly about our position in an increasingly competitive environment and remain committed to driving further upside to this business,” HBC chief executive Helena Foulkes said. 

However, the loss amounted to $984 million, which accounted for not just its Hudson’s Bay department stores, but also its Saks Fifth Avenue chain of stores. The parent company said earlier this year that it would shutter 20 of 133 Saks Off 5th stores as part of downsizing its portfolio. 

In order to better compete with retailers, HBC acknowledged that it needs significant investment and has decided to reverse its course and take the company private in a deal that values the retail giant at $1.9 billion.

Nordstrom

Nordstrom — the luxury department store retailer with a reputation for superstar customer service — has been battling for business as shoppers embrace cheap fashion chains, D2C brands and eCommerce sites.

Primarily a mall-based retailer, Nordstrom has also fallen prey to dwindling store traffic, which has resulted in the closure of a few full-line stores, generally secondary locations in markets where it’s continuing to serve customers in other full-line department stores. However, it has been relatively quicker than some of its competitors to rethink customer experience, retail strategy and brand partnerships.

On the digital front, Nordstrom has learnt to leverage shopper data in real-time for product recommendations and personalization; made it possible for customers to buy items from Instagram and find items based on  Pinterest favorites, and expanded online offerings by building an eCommerce site for Nordstrom Rack too.

Nordstrom Local Store

On the store side, the retailer has launched a unique services-focused chain of department stores carrying no inventory called Nordstrom Local, which it is expanding. Other initiatives include a partnership with Rent The Runway, revamping its hallmark loyalty program which is responsible for 51% of its sales and testing curb-side pickup and BOPIS in major markets. 

Just two weeks ago, the upscale department store major finally arrived in Manhattan. The brand opened its doors to 320,000 square feet of retail space across seven-levels located at the base of Central Park Tower (the tallest residential building in the world).  

Bergdorf Goodman

Bergdorf Goodman is a luxury department store located on Fifth Avenue in Midtown Manhattan in New York City. It was founded in 1899 as a tailor shop and has been in the same Fifth Avenue location since 1928. The upscale department store retailer operates from two stores situated across the street from each other on Fifth Avenue between 57th and 58th streets.

It stands uninterrupted and operational amidst the changing retail landscape, even its parent company, Neiman Marcus, continues to be hampered by a large debt load resulting from a PE buyout.Bergdorf Goodman store

Rather than expanding the Bergdorf brand widely around the country, as department store chains like Macy’s and Lord & Taylor have done, Ira Neimark – the man at the helm, concentrated solely on the store’s New York presence, expanding the women’s department store three times and moving the men’s store across the street.

The store has been upgraded over time with new boutiques for brands like Chanel, Gucci and Versace, and has its share of loyal customers who trust the quality of merchandise and service. However, with Nordstrom’s arrival in Manhattan now, a potential shift in the wave of luxury store shoppers is on the cards and a strong Bergdorf will matter to Neiman Marcus even more.

Bloomingdales

Bloomingdale’s is an American luxury department store chain, founded by Joseph B. and Lyman G. Bloomingdale in 1861. It became a division of the Cincinnati-based Federated Department Stores in 1930, through which it came to be affiliated with the Macy’s department store chain. The holding company was renamed Macy’s, Inc. in 2007.

Bloomingdale's Storefront

Bloomingdale’s is one of the few traditional retailers that have announced their foray into the rental clothing business this year. In September, the upscale retailer launched “My List at Bloomingdale’s” touting it as “the first ever subscription rental service offered from an upscale department store.” As recently as last week, it has brought in a K-beauty pop-up in its South Coast Plaza store, signalling that it is keeping up with changing times in retail. The upscale retailer also features as one of the top 100 omnichannel retailers of 2019 and with good reason. 

It’s mobile app offers a “Scan & Send” feature, which enables in-store shoppers that can’t find their size or color to scan an item to check for its availability, and then have it shipped directly to their home; BOPIS; store guides that enhance the in-store shopping experience with event listings, directories, store hours and more; targeted in-store push notifications that alert users to nearby items that are on sale; and a dedicated loyalty portal through which members can look up and redeem reward cards.

In addition to its app, Bloomingdale’s omnichannel commitment can be seen on the company’s website as well. From bloomingdales.com, customers can purchase items for pick-up in-store the same day, as well as book a complimentary appointment with a personal shopper and stylist, beauty consultant, or registry consultant.

As of February, 2019, there are 35 full-line stores, 3 home, clearance and specialty stores and 17 outlet stores under the Bloomingdale’s banner in operation throughout the United States. Its headquarters and flagship store are located at 59th Street and Lexington Avenue in the New York City borough of Manhattan.

Want more specific insights about department stores in the US?

Sujay Seetharaman

Market Analyst @ PipeCandy

Currently donning the Researcher's hat. Talks to himself.