Department Store Consolidation

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Welton Blount

When Macy's Inc. (then known as Federated Department Stores) bought Marshall Field's parent company in September 2005, many Midwesterners were outraged to see the iconic stores rebranded in Macy's image^[1]. However, this highly publicized takeover serves as one instance in a broader trend over the past few decades towards consolidation across the department store industry. Increased competition from specialty stores and large discount chains have cut into the market share of department stores: between 1987 and 2004, department stores' share of non-automobile retail sales had decreased almost 60 percent^[2]. As department store sales nationwide are lagging, many regional chains (including Hechts, Filene's, and the aforementioned Marshall Field's) merged or were bought out by larger companies.

Affected Companies

Further consolidation of the department store industry has the potential to negatively affect clothing manufacturers. As department stores merge, the often close stores as part of their restructuring: e.g. in the twelve month period following its acquisition of May Department Stores, Macy's shut down some 80 stores^[3]. These closings lead to reduced product orders from the department stores. In addition, the department stores gain greater negotiating leverage, and are able to push for lower rates from clothing manufacturers.

• Jones Apparel Group: Jones' ten biggest clients, most of which are department stores, accounted for almost half of gross revenues in 2006^[4].

• Guess?: Guess? also has a heavily concentrated client base, with sales to Macy's accounting for some 6% of consolidated net revenue^[5].

• Phillips-Van Heusen: Sales to Phillips-Van Heusen's five biggest customers, including Macy's, J.C. Penney, and Kohl's, accounted for around a third of revenues between 2004 and 2006.

• Polo Ralph Lauren: 67% of Polo's revenue comes from its ten biggest customers, with two-thirds of that total coming from Macy's and Dillard's alone^[6].

Driving Forces

One of the major factors affecting department stores is a change in where and how shoppers are spending their money. Department stores were once viewed as a "one-stop shop" to service a broad range of consumer needs. Increasingly, however, consumers appear to be adopting a high/low mentality when it comes to making such purchases: they spend readily at discount stores like Wal-Mart, Target, and Kohl's, while saving up and/or financing purchases at higher-end "concept stores" like Saks Fifth Avenue and Neiman Marcus. Competitors have put further pressure on department stores with the increasing popularity of affordable collections by guest designers (e.g. Issac Mizrahi for Target and Karl Lagerfeld at H&M). As these companies take bigger shares of the retail business, department stores have had to find new ways to survive in a more competitive market.

References

1. ↑ "Historic Marshall Field's Stores Get New Name", National Public Radio (September 21, 2005)
2. ↑ Attention Shoppers: Great Deals in Retail Mergers, The Washington Post (February 27, 2005)
3. ↑ Phillips Van Heusen 2006 10-K
4. ↑ Jones Apparel Group 2006 10-K, p. 13
5. ↑ Guess? 2006 10-K, p.16
6. ↑ Polo Ralph Lauren 10-K, p. 20

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