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1992: the year of the department store.

So far, 1992 is shaping up as the year of the department store, with Macy's and Alexander's vying to create the most dramatic retail news. In fact, every department store in New York is experiencing its share of problems because of the recession and changing consumer shopping patterns.

As a result of the recession, the vast majority of consumers have become more price conscious, purchasing during sales and shopping at discount specialty store instead of department stores. The traditional incentives of service and quality that full-price department store offer no longer carry the same weight among consumers as they did in the past.

New York department stores are experiencing stiff competition from neighboring New Jersey, Connecticut and Long Island, with lower prices and parking facilities. Every borough has specialty stores such as The Gap and The Limited. Consumers who use to buy housewares and appliances exclusively at department stores can now choose among a wide variety of discounters and specialty stores such as Lechters and The Pottery Barn.

In terms of how specific stores are faring, there is some cause for optimism.

Macy's will not only survive but emerge from its problems stronger than ever. While its bankruptcy created an abundance of adverse publicity for the store and its merchandising policies, Macy's decision to file for Chapter 11 helped the store focus on solving its problems. Today, the store is extremely viable and has very competent management. By eliminating some of its most problematic store, Macy's will fare far better in the future.

The recent closing of Alexanders poses a different type of problem. The closings of its stores on Lexington Avenue, and Third Avenue and Fordham Road in the Bronx have severely hurt these neighborhoods. All three sites are in excellent locations and have superb development potential. The Lexington Avenue store, with its proximity to Bloomingdales and a wide variety of restaurants and movie theaters, occupies one of the finest and most valuables site in New York. If the time is not right to build here, the site could remain dormant and hurt the surrounding areas.

Bloomingdales is thriving despite its bankruptcy and had finally emerged from Chapter 11. A recent article in Crain's New York Business indicated that Saks and Macy's were not doing well, but that A&S and Lord & Taylor are clear winners despite the recession. In my opinion, Saks must become more promotional, while A&S and Lord & Taylor have a strong consumer following and offer a friendly atmosphere that is conducive to shopping.

Not much has been said about Bergdorf Goodman and Barney's. Bergdorf Goodman has found its own niche in the market, but its men's store has not attracted a consistent following. One of Barney's major advantages is the fact that it is the only department store in New York that offers parking. It remains to be seen whether the store will be able to attract customers to its planned Madison Avenue store, especially if it keeps the downtown store as well.

I don't think we will see any new players in New York City at any time in the future. The only exceptions will be department stores with a very specialized niche, or major American or foreign retailers that desire a New York presence. This was true of Galleries Lafayette, which is still struggling to find the right market and image.

At this point, every New York department store is struggling to keep its customer base and compete with a plethora of discount retailers, specialty store and power centers. I believe that even after we start feeling the nation's economic recovery, the recession's impact on consumer shopping patterns will remain a lingering and lasting legacy. In order to remain viable, department stores will have to find new ways to compete and attract consumers.
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Title Annotation:Review and Forecast, Section V
Author:Friedman, Edward A.
Publication:Real Estate Weekly
Date:Jun 24, 1992
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