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Department stores battle discounters

Isadore Barmash

Isadore Barmash, who formerly covered retailing for The New York Times, is a writer and lecturer based in New York.

Nearly one-stop shopping: the goal for both the nation's discounters and department stores. And the battle between the two is becoming increasingly heated as they desperately seek market share.

Discounters now have about 28% of the nation's merchandise sales, while the department stores' share has been cut to 11%. Some 20 years ago, each had a roughly equal share.

Yet it is an oversimplification to conclude that the discounters have taken over U.S. retailing. The scene has been complicated by consolidations and bankruptcies in both camps; by Bentonville, Ark.-based Wal-Mart Stores' reaching $100 billion in sales [$118 billion in 1997]; and by the volatility of specialty stores.

The gap with Wal-Mart notwithstanding, the next two biggest discounters -- Kmart with its $32 billion sales, and Target, with sales of $20-billion plus -- together do as much as several big department stores combined.

But, competition has become so fragmented that some department store executives don't think of discounters as their big rivals.

"Yes, the discounters are a challenge but not as much as they used to be," said Michael Gould, chairman and CEO of Bloomingdale's. "It's more the proliferation of outlet stores and their getting closer to the regional malls that's the real competition."

On the other hand, one of off-price retailing's leading figures, Bernard Cammerata, chairman and CEO of TJX Cos., Framingham, Mass., said he believes department stores have lost ground for external and internal reasons.

"In our case we restructured our company to give individual focus and yet synergism to both our TJ Maxx stores and our Marshalls' stores," Mr. Cammerata said. "The synergism allowed us to reduce operating expenses and to increase our buying power."

In contrast, department stores found they could not make money by maintaining the promotion levels they initially achieved after consolidating, he said. "That helped us get new business."

But is it only the price differential that lures U.S. consumers to the discount stores? No, but it helps. That, and the fact that most department stores have allowed customer service, their most precious attribute, to deteriorate, said Robert Kahn, a retailing consultant in Lafayette, Calif., who is a former Wal-Mart director.

Department stores have lost a lot of ground in this respect, he said. "Department stores always had a loyal following and their advertising was believable. Now, they have neither."

In contrast, Mr. Kahn asserted, discounters provide better service in one important aspect, at least -- checkouts.

"There are always cashiers waiting there," he said. "But in department stores, they're also sales associates, so that customers have to wait for them to get back to the register."

Discounters, particularly Wal-Mart, have more believable pricing than department stores, Mr. Kahn said.

"Wal-Mart, unlike a lot of other retailers, puts out only one tab or circular a month plus one on Thanksgiving Day weekends," he said. "That's only 13 a year and that's all they still do, which encourages the public to believe in the chain's pricing. Their prices are more stable, too."

Wal-Mart has three price categories, each of which accounts for about one-third of its merchandise: everyday low pricing; one-time, special buys; and reduced prices.

"Discount store retailers have been steadily gaining market share, primarily at the expense of department stores, since the early 1990s," said Daniel Barry, retail analyst at Merrill Lynch, New York. "We expect this trend to continue as consumers maintain their value orientation, discount merchandisers improve the breadth and quality of their assortments, and supercenter expansion accelerates."

One of the department stores' troubles is that many have not established "a good consumer brand image," said Allen Adamson, managing director of Landor Associates, a New York-based brand marketing firm. With Sears as the one possible exception, he said, "The department stores do a lot of advertising in in-store brand names, but little on their own name."

Many stores carry the same name-brands and designer names so that there is little apparent difference among them, Mr. Adamson said. "I think the department stores are in for some real, long-term troubles unless they change that."

Not surprisingly, Mr. Gould of Bloomingdale's disagreed with that contention.

"With all the fine brand names we offer our customers, we are really a sort of vertical mall," he said. "We happen to own the overall store name but you could easily call our Manhattan store 'The Lexington Avenue Mall." Customers want more than price, he argued. "They want fine merchandise. And still today, that's where the department store comes in."