It started with upscale brands like Eddie Bauer and Pier One Imports, but now the wave of retail closings is hitting mainstream retailers that are a part of Americans’ daily lives – JoAnn Fabrics, WaldenBooks, Rite Aid Pharmacies, Advance Auto Parts, Whataburger, Advance America Cash Advance Centers and PacSun to name just a few. Their demise didn’t start with the recession, however, according to Darlene Quinn, a former senior executive with the Brooks Wilshire department store chain and author of the novel Webs of Power, from Emerald Book Company (www.darlenequinn.net). Quinn was there when corporate raiders started consolidating the big chain stores and siphoning them dry. Quinn knows the inner workings of senior retail chain management, and has a unique insight to how the industry has found itself sitting on the ledge, looking down.

Discussion Topics

• What chains are closing locations, and which ones are closing altogether?
• Which ones are on the bubble, and on the verge of closing more stores?
• What led them to this situation? Is it just the rise of Wal Mart, or is there  something more?
• What can shoppers do to prevent their favorite stores from closing? Is it as  simple as buy more stuff, or can they appeal to senior management?
• What is the chilling effect on the retail industry when giants like this fall?
• Like the banking industry, are the heads of these chains now rewarding  themselves with bonuses for their failure?
• Is there anything on the horizon that could turn the situation around for  any of the major chains?

Topic Summary

Darlene Quinn has seen the inside of the retail chain boardroom, and she has witnessed the demise of major chains like Marshall Fields firsthand, so she saw the recent spate of retail closings coming a few miles away.

“Many of our favorite department stores are vanishing,” Quinn said.  “While the predatory, corporate raiders got the ball rolling through hostile takeovers in the 80’s, we are all, in part, responsible for their demise.”

The train started moving toward disaster nearly 20 years ago with a wave of leveraged buyouts in the retail sector that led to a great number of popular chains being owned by a smaller number of conglomerates and holding companies, Quinn added.

Here’s a list of the most recently announced retailers who are closing stores, reducing their number of locations, or just flat out closing altogether.

 “The buyouts in the 80’s allowed corporate raiders to swoop down on businesses (many of which they knew little or nothing about) purchase them, using mostly Other People’s Money, and drive them into chapter 11,” she said. “In many cases, the raiders cared little about the businesses they were taking over. The business of America became the taking over of business. The goal was not to grow these businesses; the goal was to line their own pockets.”

By the late 70’s through the mid-80’s, many reputable, well-established department store conglomerates began to go under. The eighties marked the beginning of great change in our future shopping options and experiences. Many existing malls were renovated. They tended to cater to two extremes—upscale and discount malls. Renovated malls and several well-know department store chains catered to a more affluent clientele.

It seemed that the major business in America became the taking over of businesses in the decade of the 80’s. Larger department store conglomerates began to acquire stand-alone department stores, and entire department store conglomerates fell victim to hostile takeovers. Many department store chains experienced hard times as local or regional chains were bought by investors. The debts incurred in these buyouts proved disastrous for many well-known department stores. Financial problems, combined with a consumer propensity for buying merchandise only after several markdowns, caused large losses to retailers. In efforts to cut expenses and improve their bottom-line, department stores, as well as other major industries, across the nation were swept-up in the phenomenon of down-sizing. Reductions in staff were most notable in our department stores, where consumers had come to expect good service. As a result of down-sizing, takeovers, and store closures, department store employment grew at only half the average rate of other industries. However, due to the large number of individuals employed in department stores, the industry was among the top thirty employers of the 1980’s.

Although department stores were experiencing troubled times, some apparel chains experienced great success. Other mall stores also fared very well. We continued to enjoy a variety of shopping options. The dwindling number of sales associates were of concern, even in some of the up-scale department stores, however, there remained a large number of wonderful stores steeped in history and tradition. Customers who desired chic, sophisticated shopping were drawn to the elegance of department stores steeped in Art Deco and modern decors with Lalique chandeliers, bronze elevator doors, and antique mirrored cabinets, where they were sure to find remarkable merchandise selections and wonderful service.

Champions of the rampant wave of takeovers in the late eighties have argued that change is good and has brought tremendous benefits to the American economy. They claim that managers, driven by the need to pay off debts, employ corporate assets more efficiently, or sell them to those who will. They contend that the rise in stock prices of the acquired corporations offer proof of the economic benefits to come. However, the number of bankruptcy

The wave of downsizing, hostile takeovers, and mergers has left an indelible mark on the world of department stores. From coast to coast, many of us mourn the end of the era—the loss of the unique department stores we’ve know and loved. Others embrace change and look forward to new opportunities.

The rise of department stores in the mid-1850s was a major phenomenon, and has played a prominent role in all of our lives, not only for business but also for society.

Many historians credit the department store for liberating women by creating jobs and opening new career opportunities for them. Department stores changed society’s values, making it acceptable for women to shop on their own. Department stores provided a window on the world and a valuable meeting space for women.

Department Store have faced and met, head-on, numerous challenges throughout the decades. In the 1940s, with war rationing and supply problems, buyers were cut off from the fashion houses of Paris. They met that challenge by keeping stocks low, selling goods quickly, and convincing customers that they wanted what was offered for sale. At the same time, they began aggressively promoting American designers and turned to Hollywood for inspiration. Casual dressing was introduced. By 1945, business again boomed. Consumer demands skyrocketed with the postwar baby boom, but as families moved to the suburbs, traffic clogged city streets and people preferred to shop closer to home. Parking in the cities was an overwhelming problem.

Downtown business stalled, then declined. As the consumer demographics changed, department store branches opened in the suburban shopping malls, keeping their corporate parents afloat in the 1960s. The three biggest U.S. department stores in the mid-1960s were Macy’s, Hudson’s, and Marshall Field’s, in that order, with matching sales volumes.

By the late 1970s and early 1980s, many reputable, well-established department store conglomerates began to go under—unable to compete with fellow retailers who were doing anything and everything to capture and retain customers. During this period, midnight sales, early morning sales, and all sorts of new sales were initiated. Merchants cut the prices on new merchandise that had not yet hit the sales floors of competitors. No longer did customers line up outside their favorite department store for the “after Christmas” sale. Sales had become year-round events or, perhaps, non-events. By the early 1980s, department stores faced the strongest adversary of all—other competitive department store merchants. Larger department store conglomerates began to acquire stand-alone department stores, and entire department store conglomerates fell victim to hostile takeovers.

Since the late 1980s to the present, we have seen more and more of our favorite department stores disappear. The looming threat that more departures are on the horizon is cause for concern—a concern which is both personal and business-oriented. The lose of high-end retailers, that served as magnets for their local shopping districts, will be felt in a day-to-day routines of many. Some customers see the closings as an inconvenience. They are resistant to the change in shopping options they have enjoyed over years or even decades. Many small merchants, already struggling to compete with modern malls and large discount retailers, who relied on the department stores to generate traffic, gloomily predicted the demise of their local retail hubs.

We have not yet seen the end of store closings, nor new store openings. In response to the concern of the New York State Attorney that the merger between Federated and R. H. Macy would reduce business competition, Federated agreed to close several stores. They also agreed to keep those stores open until it was able to sell them to other retailers who would be willing to hire their employees. More store closures were called for with the acquisition of the Robinsons-May by Federated’s (corporate name changed Federated to Macy’s Inc on June 1, 2007).

Not all store closings should be viewed as death knells; they may provide added opportunity. A store closings might provide a market adjustment that will ultimately help create stronger, more focused businesses. Most would agree that it makes sense to close older, underperforming stores in over-stored competitive markets and build new stores in more viable locations that could generate greater volume. Consumer research has reinforced the preference among consumers for newer, cleaner and more convenient stores that are also easier to shop. Many observers believe that in today’s competitive market, fewer stores generating higher volume must be the strategy of choice —ultimately the strategy for survival. However, that is far too simple and short-sighted to apply to every situation. In the world of department stores, there is no one right answer. For many, in their hearts and souls, there are certain stores which are icons in the communities. They have provided experiences that are unique and are therefore irreplaceable.

In 2005, the $11 billion addition of Robinsons-May was considered a retailing masterstroke. As the first national department store chain, Macy’s gained unprecedented clout with suppliers. The architect of this merger, Terry Lundgren, was initially lauded as a visionary. Then the trouble began.
Former May shoppers groused about the decision to replace the beloved stores in their communities, such as Filene’s, Foley’s, and Marshall Field’s, with the largely unknown Macy’s brand. They were angered by the reduction of promotions-those 20% off coupons they’d become accustomed to in the department stores. Protests were mounted and Macy’s stock took a significant hit.

The shock of Macy’s decision to eliminate beloved names such as Marshall Field’s, Kaufmann’s and Famous-Barr is proving a more difficult and time-consuming fight than expected. Cohen, a retail analyst, estimated that sales plunged 11 percent in November from a year earlier at Field’s and the other former May department stores, all now Macy’s. Another analyst put the stores’ sales decline at anywhere from 20 percent to more than 30 percent for the three months that ended Oct. 28. Cohen attributes the sales slump to a sharp reduction in promotions, dramatic changes in merchandise assortments, a lack of compelling marketing, and little change in store environment and service levels. He also says too much was done too quickly at Field’s and the other department store chains previously owned by May Department Stores. He further states, “Chicagoans are increasingly bitter at what they see as lower levels of merchandise and customer service at Macy’s compared with Field’s.”

Terry Lundgren, CEO and President of Macy’s Inc, is a savvy merchant and business man. He has done a lot more right than wrong, but candidly admitted to a reporter from Fortune Magazine that he learned a great deal through the acquisition of the May Company. “We thought by reducing the number of coupons, we’d be giving our customers more everyday value. What we learned is that many customers had become accustomed to shopping with coupons. In retrospect, I would have phased out the coupons more gradually, rather than try to change customers’ buying habits overnight.”

I’ve recently come across pages and pages of protests over what is taking place in our world of department stores. Cherished department stores are disappearing at an alarming rate, many of which have been replaced by cookie-cutter type stores with poor merchandise selections, a loss of elegance, and waning service levels. What I have not come across is any focused rebuttal. Having been on the management team of large a group of department stores, I realize there is an up-side. Why haven’t the major department store retailers communicated the benefits to the consumer? Obviously, a retailer who can offer greater volume to a supplier will be able to negotiate a lower price for the merchandise. Will this savings be passed on to the consumer?

Are there more important issues than price?

Coast to coast, consumers are echoing their concerns, it seems that it’s time that those concerns be addressed.