Though the press has had a lot of fun with the retail apocalypse storyline, former Macy’s CEO Terry Lundgren said the reality is a lot less dramatic.
Speaking to CNBC, Lundgren said rumors of the demise of department stores circulated throughout his 40-year career, but even with the recent turmoil, it’s not going to happen. “There will be a shake out,” he said. “There’s going to be winners and losers.”
On one end of that spectrum is Amazon and on the other, he said, there’s The Bon-Ton Stores, which recently began liquidation sales following the company’s February bankruptcy filing.
“Amazon has done a great job of attracting this loyalty customer through their Prime program but they’re the only pureplay—if you can still call them that—online retailer in the top 100 retailers,” he said. Further, he said those who are putting too much stock into e-commerce at the expense of brick-and-mortar, are missing the fact that it still only accounts for 10 percent of retail.
As for Bon-Ton, he said the company, which had a mountain of debt, made a fatal mistake that’s all too common these days. “The key is don’t be a highly leveraged retail business because you cannot survive the ups and downs of consumer changes.”
With Bon-Ton out of business, Perry Kramer, senior vice president and practice lead at Boston Retail Partners, a retail management consulting firm, told Sourcing Journal the effects will be felt across the landscape, resulting in a boon for some and a misfortune for others.
Given that Bon-Ton’s travails were well documented, Kramer said it’s likely the retailer’s competitors were already laying out plans to capitalize on the vacancy.
“The biggest winners will be the regional competitors who already have a strong understanding of the merchandise mix and customer experience that resonated best with Bon-Ton’s customer base,” he said, listing Boscov’s and Belk as possible benefactors. “The most opportunistic competitors have already been working to negotiate discounted merchandise for the next few seasons to take advantage of the procurement gap that will be created by the Bon-Ton closure.”
Beyond snapping up stock, he also sees opportunity for these stores to tap into Bon-Ton’s credit cardholders, who could be wooed with favorable perks.
Ultimately though, Kramer sees a dim future for some of the company’s landlords. “In many cases, the closing of these stores, which are most often an anchor store in malls, may be the straw that breaks the back of several malls impacted by the store closures across 26 states,” he said, adding the smaller stores in those centers may be hurt as well.
It’s the opposite outcome of what’s transpired with better mall properties when department stores have vacated only to be redeveloped into more productive spaces.
“The opportunity to replace that box with something else different is the way to go,” Lundgren said, adding some shopping centers are on their way to transforming through the addition of gyms, new food concepts and online pureplays. “There has to be more reason than just going to shop for a dress or a pair of shoes. And I think that’s the opportunity when one of these businesses goes out.”
And malls aren’t the only ones diversifying. Kevin Mansell, the outgoing CEO of Kohl’s, has been positioning his department store chain to offer more.
The company teamed up with Amazon in September, adding shop-in-shops hawking the online behemoth’s gadgets and it allows Amazon shoppers to make returns inside Kohl’s. The retailer also announced in March that it will welcome Aldi grocery stores into 11 of its rightsized locations.
“We think our biggest asset still remains our stores. We think amplifying the role and relevancy of our stores is the right strategy for that,” Mansell told CNBC in separate interview, adding Kohl’s locations, most of which are off-mall and in good areas, make them attractive and flexible.
While some remain skeptical about the company’s decision to sleep with the enemy, as the relationship with Amazon has been described, Mansell sees that development as well as the retailer taking on landlord responsibilities as a way for his business to compete in an omnichannel world. In fact, he said, he can see the two companies growing even closer if Whole Foods were to co-locate in Kohl’s stores.
“If you’re invested in your physical assets, the most important thing is to be a headquarters for people to shop at,” he said. “Driving traffic remains the No. 1 priority because we do a good job of converting that traffic.”