Department store guru says discounts are like 'a cancer'

Dive Brief:

Department stores are relying too much on discounts to drive sales in place of an inspirational strategy to win over consumers, says Allen Questrom, who over the past decades has served as CEO of department stores including J.C. Penney, Macy’s, Neiman Marcus and Barney’s New York.
"The sale has become a cancer,” Questrom told CNBC’s Squawk Box Tuesday. "When business gets tough, we add another sale.” Several retailers like Uniqlo and Zara maintain traffic and sales without constant promotions, Questrom noted, adding “Product, presentation, excitement in the stores,” as well as customer service from salespeople, are lacking and sorely needed.
Retailers must also find a better way to leverage e-commerce while operating under the reality that brick-and-mortar stores are here to stay, Questrom added.

Dive Insight:

Department stores have been hearing this song for a while now. Over-stored and a fair distance from their former glory days as exciting retail emporiums, many do now rely on a steady stream of promotions to boost traffic and sales.

A lot of department stores these days are stymied by shifting demographics, changing consumer priorities and behaviors, confounding competition from Amazon and a precarious economy that's dampened spending. Department stores in general may have doomed themselves as far back as the 1960's, when they began to trade their place in the urban landscape to become mall anchors, forsaking beautiful Beaux Arts buildings for mundane adjuncts to suburban shopping centers (sites that are themselves in steep decline).

“Those places were the town center, with a big one in the middle of town, maybe a couple near the outskirts," Lee Peterson, executive vice president of brand, strategy and design at customer experience consultancy WD Partners, told Retail Dive earlier this year. "They had amazing atmospheres and amazing service — they’d get something to your house! Before online shopping, especially in apparel, there was always this element of surprise. ‘What’s Ralph Lauren coming out with? What’s up at Calvin Klein?’ And you’d have to go to the stores to see that stuff.”

That has led to a dissolution of their brands, which in turn has sparked flight from some of the wholesale partnerships that once led loyal customers to their stores. Upscale accessories retailer Coach and apparel retailer Ralph Lauren are among the brands that have begun to cut back on their wholesale shipments to department stores.

Macy’s, Neiman Marcus and even Nordstrom have further faltered as younger customers look to specialty retailers, off-price retailers, and eschew the accumulation of material things in favor of experiences. Yet Nordstrom is still something of a standout, despite a few quarters of disappointment, as it works to maintain its reputation for stellar customer service. The Seattle-based department store has been cutting lower-performing e-commerce merchandise, partnered with brands popular with millennials and increasingly blurred lines between its flagship, off-price and online channels.

While Questrom said that department stores are relying too heavily on the baby boomer generation to sustain them and are failing to attract younger customers due to a lack of understanding of what appeals to them, there are plenty of signs that consumers of all generations have turned away from department stores. In fact, some research has found that millennials enjoy shopping in stores even more than baby boomers do.

And in that could be department stores’ saving grace. Questrom Tuesday noted that department stores still have a major asset — their brick-and-mortar -focused operations remain vital, as evidenced by e-commerce upstarts like Warby Parker and Bonobos, which are opening their own stores and department store channels.

"Even Amazon sees [that] for them to continue to grow, they need to be able to have a visual, personal space, which is a store," Questrom told CBNC.