Department Stores: the Domestic Dimension

Exactly one year ago this week, department stores like Macy’s were announcing the closure of as many as 11 locations annually. The American chain’s CEO, Terry Lundgren, tried to reassure the markets and the media by explaining that the demise of a dozen or so stores per year was in fact typical for a company of Macy’s size (one with over 800 stores across the country).

But Lundgren’s words did little to restore confidence among scaremongers. The story had already added to the panic that the great recession would continue to shrink profits at upmarket retailers for a long time to come.

In the global context, it also somewhat tarnished the luxury credentials of cities like Indianapolis, Nashville and Colorado Springs which were listed as Macy’s “underperforming” stores. Despite the substantial number of wealthy consumers still present in these cities and the many thriving retail establishments where they continued to shop, there was a sense that provincial luxury markets like these were retreating in mature, saturated markets like the United States.

And this is precisely why a seemingly routine report in WWD this week makes for revelatory reading – if you manage to read between the lines. The author concedes that the creation of 725 new e-commerce positions at Macy’s is “the single biggest growth maneuver to date in the 15-year-old online operation” and that it has “broad implications for the retail industry, which in the past two years has done more firing than hiring but now sees e-commerce as the biggest avenue for growth”.

But one important angle that reports like these tend to omit is that the growth of e-commerce at retailers like Macy’s may very well add to the number of future closure of department store branches in smaller cities as more and more consumers find what they need from old and new luxury purveyors online.

How this could – quite literally – change the luxury landscape outside the major metropolitan markets is a point that is worth some serious consideration. In the years to come, such change could be dramatic and the absence of big bricks-and-mortar chains in these cities might even open up new opportunities for smaller specialty luxury retailer entrepreneurs.

A rendering of the future Printemps department store in Cagnes-sur-Mer, on the French Riviera

The week’s news also provided indicators that growth for high-end department stores is not limited e-commerce in mature markets or to franchised outlets in exotic emerging markets. Optimism for continued expansion of domestic bricks-and-mortar locations around old world markets came by the way of an interesting story in the Financial Times which reported on an upmarket retail boom happening in Manchester around new developments like The Avenue and an announcement in WWD that department store Printemps would open its first French branch outside of Paris in 30 years at a mall located between Nice and Cannes. Clearly, even old-fashioned luxury markets like France and the UK are still ripe for the picking if you know exactly where and when to drop anchor.

Reflecting and Ruminating over the Bigger Picture

Needless to say, the first week of 2011 produced an almost endless supply of pensive column inches, where commentators tried to get to the heart of new movements in luxury or endeavoured to encapsulate the big themes of the year. And although several managed to offer thought-provoking tidbits and entertaining snapshots, there were two pieces which stood out as recommended reading.

The first is entitled ‘The Rise of the New Global Elite’ by Chrystia Freeland which appeared in The Atlantic, presenting a rich social narrative for today’s ever-evolving luxury market. Here is an excerpt to whet your taste buds:

“The rich are, as F. Scott Fitzgerald famously noted, different from you and me. What is more relevant to our times, though, is that the rich of today are also different from the rich of yesterday. Our light-speed, globally connected economy has led to the rise of a new super-elite that consists, to a notable degree, of first- and second-generation wealth. Its members are hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition—and many of them, as a result, have an ambivalent attitude toward those of us who didn’t succeed so spectacularly. Perhaps most noteworthy, they are becoming a transglobal community of peers who have more in common with one another than with their countrymen back home. Whether they maintain primary residences in New York or Hong Kong, Moscow or Mumbai, today’s super-rich are increasingly a nation unto themselves.”

The second reflective New Year’s piece worth reading came via Forbes and was penned by Marianne Bickle in what she called ‘The “Brave New World” Begins Anew’. Although less inventive than the The Atlantic article, this summary crammed an entire decade of market changes into a few succinct paragraphs. The one dedicated to luxury went like this:

“Once upon a time (before 2000), there was a group of consumers who enjoyed luxury. These consumers were able to possess all items of wealth and excellent quality. Then something quite unique happened; couture designers started to talk about luxe over luxury. Mixing high quality items (Hermes scarf and cashmere sweater) with lower cost items (fossil watch) is a concept of luxe. Consumers and retailers alike have readily adopted the theory of luxe. Retailers such as Target and Kohl’s have achieved significant sales and profits by attracting a wide consumer base; they offer designer labels at mass market prices in clothing and home goods.”