Is the era of department stores finally ending? Join us in a thought-provoking conversation with department store and specialty store expert, Jeff Sward, as we dissect the downfall of department stores from a booming 10% market share to a staggering 2%. We take a hard look at TJ Maxx and similar discount store business models that have successfully capitalized on this downfall, leaving us to wonder - does TJ Maxx have the most bulletproof business model in contemporary retail?
Transitioning customers, dwindling sales, and the struggle to maintain brand image - department and specialty stores are in the fight of their lives. But there's no space for doom and gloom in this episode. Instead, we analyze the transformation strategies that these traditional retailers have adopted to compete with the likes of discount stores. We examine the role of sales and discounts, consumer psychology, and the potential rewards of a business model with fewer sales. Dive into the world of brand reinvention as we shed light on Abercrombie & Fitch and Ralph Lauren's recent brand revamps. We wrap up by exploring the future of department stores, and the inevitable reinventions that need to occur for them to remain culturally relevant. Brace yourself for an intriguing deep-dive into the turbulent tides of retail.
RetailWire is the retail industry's premier source for news, analysis, and discussion. With a focus on the latest trends, technology, and consumer behavior, RetailWire provides a platform for industry experts and thought leaders to share their insights and perspectives. Whether you're a retailer, supplier, or service provider, RetailWire is your go-to destination for staying informed and ahead of the curve.
Be sure to leave us a comment and let us know what you think. You might even hear your comment read on the next episode!
To learn more, or to join our Daily Discussions, visit RetailWire.com.
Is the era of department stores finally ending? Join us in a thought-provoking conversation with department store and specialty store expert, Jeff Sward, as we dissect the downfall of department stores from a booming 10% market share to a staggering 2%. We take a hard look at TJ Maxx and similar discount store business models that have successfully capitalized on this downfall, leaving us to wonder - does TJ Maxx have the most bulletproof business model in contemporary retail?
Transitioning customers, dwindling sales, and the struggle to maintain brand image - department and specialty stores are in the fight of their lives. But there's no space for doom and gloom in this episode. Instead, we analyze the transformation strategies that these traditional retailers have adopted to compete with the likes of discount stores. We examine the role of sales and discounts, consumer psychology, and the potential rewards of a business model with fewer sales. Dive into the world of brand reinvention as we shed light on Abercrombie & Fitch and Ralph Lauren's recent brand revamps. We wrap up by exploring the future of department stores, and the inevitable reinventions that need to occur for them to remain culturally relevant. Brace yourself for an intriguing deep-dive into the turbulent tides of retail.
RetailWire is the retail industry's premier source for news, analysis, and discussion. With a focus on the latest trends, technology, and consumer behavior, RetailWire provides a platform for industry experts and thought leaders to share their insights and perspectives. Whether you're a retailer, supplier, or service provider, RetailWire is your go-to destination for staying informed and ahead of the curve.
Be sure to leave us a comment and let us know what you think. You might even hear your comment read on the next episode!
To learn more, or to join our Daily Discussions, visit RetailWire.com.
Welcome to the Retail Wire podcast. On today's episode we have an interview with Jeff Sward. We're going to learn a lot about his expertise and we're going to dive deep into a topic that he wrote about on RetailWirecom about TJ Maxx and discount store business models. Looking forward to jumping in, Jeff, how are you doing?
Speaker 2:I'm doing great. Good morning, Chase.
Speaker 1:So tell us a little bit about your role in your background, just so the listeners know what perspective you're taking.
Speaker 2:Sure, I started in the department store business with a division of Federated Department Stores many years ago, long before any of the consolidations. I spent about 14 years at Bullocks in Los Angeles, went to Macy's, saks, fifth Avenue, abercrombie, fitch and American Eagle Outfitters, so I was very lucky to have both the department store and specialty store background in there and then made the jump over to wholesale with Oxford Industries and I had roles in Polaroid Flooring Boys and Donna Karen Girls, and then my last role at Oxford was group president for merchandising and design and that was for our whole private label and product development business. So I've had the good fortune to have a number of different exposures in the business.
Speaker 1:Well, that's a lot of experience to back up some of your latest insights. One of the things that we want to talk about today is the article you wrote, and it starts out by saying the demise of the department store has been happening for longer than many people realize, and you mentioned the internet and e-commerce. And then there was a graph that you saw that really helped you. It says I didn't fully grasp the degree of this shift until I saw the graph below. Tell me more about that. Were you researching at the time? How did you come across this and what was the realization you had?
Speaker 2:It was really just part of my daily scrolling through different business articles and just kind of general background reading, and I saw these two graphs and I really found them quite mesmerizing in that, having lived through this evolution and this demise, if you will, of department stores, I never really fully recognized the degree that the role of the department store had 20 and 30 years ago and has today, the dollar sales decline. But what really caught my attention was going from almost 10% market share to these days 2%. That just took my breath. I started to do a little homework and looked at then the growth of TJ Maxx and Ross and some of the other off-pricers. It was just they didn't trade dollars dollar for dollar, but as department stores were doing this, the off-pricers were doing this. And what struck me was that it's one thing to say, well, of course the department stores and lots of retailers lost business to the internet, but during that whole window the off-pricers weren't driven by the internet. That was physical retail, foot traffic, getting your car go to the store kind of business. So literally the mall was losing not just to the internet but the mall was losing to the discounters. And then what really kind of shook me was the understanding and the realization which I've had for a while now, but this kind of put an exclamation point on it was that the way that market works, in that the discounters, the off-pricers, literally live on the excess inventory of the mall retailers, either at the factory level or at the store level, that the department stores over the years and the mall retailers in general have been continuously feeding the growth of the off-pricers season after season with their ending inventories that they wanted to liquidate. They just serve it up to TJ Maxx and TJ Maxx says thank you very much and their business grows and thrives. And I'm oversimplifying a little bit here, but I think that's the essence of the model.
Speaker 2:And then I read an article from just a couple of weeks ago where the CEO of TJXx was saying how he's looking forward to the abundant opportunities in the marketplace for further market share growth, which means the mall retailers are going to continue to feed TJ Maxx all of this excess inventory. And you know. So I kind of asked myself the question what would it take for TJ Maxx to have a tough year? Because when everybody else is having a tough year, that just means abundant inventory for TJ Maxx and customers looking for a bargain.
Speaker 2:So that works okay for them In a good year. There's still plenty of growth to go around. So really, what would it take to have for TJ Maxx to have a difficult year? And that's where the headline came from. Is that, you know, does TJ Maxx really have the most bulletproof business model in retail today? I kind of just marveled at the whole scenario when I really stepped back from it and looked like it like that. So yeah, therein, you know, was the premise for the whole article and I really had hoped it would percolate some very energetic conversation and it did.
Speaker 1:So there are different perspectives on this too. Some might say that the department stores had it coming due to their failure to adapt. What's your response to that?
Speaker 2:Completely agree. You know, again, I was oversimplifying a little bit in that I think department stores have relied on a basic business model and a basic physical retail presentation that dates back to the 80s and 70s and 60s of the prior century and they literally have not evolved, you know, in a manner that makes them more current in their role as an omnichannel player versus, just, you know, basically, when they did not have the internet as competition. They have not evolved. So it really one magnifies the other in that, you know, they're losing this giant chunk of business to the convenience and the breadth of offering on the internet is one giant siphon. And then the other siphon is well, you know, whatever's available in the department stores is available sooner or later at TJ Maxx at a fraction of the price. So as a customer, I just have to be a little bit patient and I'll visit TJ Maxx. So the department stores, really, they got a double whammy on that whole thing, and therein lies their slide from 10% of market to 2%. It's a tough, tough hit.
Speaker 1:You know there's that advantage of having a consistent source of discounted supply and who did most of the brand equity building right? It's not TJ Maxx who started doing advertising and helping boost some of these brands, the brands and the retailers at the department store level. We're pushing these brands in building up that value. Do you see a connection to there? It's almost like discounted physical goods but also kind of a very cost-efficient brand awareness for the brands that they carry.
Speaker 2:Yeah, I think you put it quite quite nicely there. Department stores spent decades building up the perception of brands in the eyes of consumers for either moderate or better goods, and TJ Maxx really didn't have to do any marketing other than we're here for value, value and low price. So all of the brand equity, all of the perception, was invested in and built by the brands and the department stores and the mall players. And again TJ Maxx said thank you very much for building all that great brand equity and everything. We will now happily offer all that product at a deeply discounted price. And you know, in the beginning I think it played beautifully because in the beginning, meaning 20 and 30 years ago, brands and retailers told themselves that the TJ Maxx was invisible, that there were so few outlets selling the stores that it really wasn't an issue then, and it happened to be a really efficient way of getting rid of excess inventory and, by the way, in the beginning, not having a constant presence of sale on the floor.
Speaker 2:At some point you remove it, it goes away to TJ Maxx and the department store floors then can be maximized for regular price selling. Well, that's not the market these days. It seems like everything is on sale all the time anyway, and it's just that. Well, so is TJ Maxx, but at probably lower prices. So, yes, tj Maxx was able to take advantage of all of that brand equity that everybody else built for them, that they could simply just then, you know, offer the product in their stores with, by the way, not having to invest in elegant fixed ring or elegant shops or any of the other you know better levels of presentation. They put it all on racks and the customer is happy to say thank you. Well, I'll go on my treasure hunt now.
Speaker 2:So, yeah, that treasure hunt mentality was just a beautiful thing to watch evolve.
Speaker 1:Well, I can't help but connect the dots there with today's forms of user generated content or kind of lower quality advertising that looks more authentic. The pattern I'm seeing is people associate more authentic brands and sometimes a better deal, better prices, when there's not a high glossy advertisement or a very expensive looking commercial right. And it works well for certain brands that want to play the value price angle. It probably doesn't work that well for selling a BMW.
Speaker 2:Yeah, I can't really speak with authority on that. I look at a lot of user generated content and I find it amusing and entertaining, but I don't necessarily view it as brand building in the way that I used to. To me, let's face it, I'm a boomer. I grew up in literally the stock rooms and the selling floors of retail in a very hands-on manner. So to me, brand building a huge part of a brand loyalty for me is experiencing the product in person in my hands. Again, I'm used and entertained by everything I see online, but to me it's not really real until I experience the product in person. So it's additive to the whole thing, but I can't say that I relate to it like somebody let's face it several decades younger than I would be.
Speaker 1:Yeah, but in a TJ Maxx, the way the displays are set up, it's really nothing too fancy and it gives you that feeling of I think I'm gonna find something. Like you said the word treasure hunt, I think I'm gonna find something that's unique. Even if it's not, it just feels like you're gonna discover something new because it's not set up in a visual way that amazes might set up.
Speaker 2:Right, I, you know, look, I still go to TJ Maxx every now and then because it happens to be down the strip mall from my grocery store and I figure, from both a personal and a professional point of view, I'm just gonna go spend 10 to 15 minutes and see what's there, and sometimes I buy something and sometimes I don't. But it is the curiosity about saying to myself I wonder if I'll find something today. And you know, I don't have that same level of curiosity about the mall or about department stores. I do about a couple of particular retailers. But in general I don't have high expectations when I go to the mall.
Speaker 2:And it's not even that I have a high expectation when I go to the TJ Maxx. But if I find something it's because it really is. I guess it goes to the treasure hunt mentality. I really wasn't expecting to find anything but oh my gosh. You know, look at this gem I've found and look at the great value it's. You know the whole treasure hunt thing is a tough phenomenon to describe, but I think it is a huge part of what makes TJ Maxx tick and all the other off-pricers.
Speaker 1:It sounded like this advantage was just handed to the discount or the off-price retailers. Do you think that the department stores selling to them knew that they were giving them this advantage? You said that they saw them as invisible, not really a threat, but do you think many in those positions were thinking this was a threat that we should be aware of?
Speaker 2:I think it's classic frog and boiling water scenario in that in the beginning, again, it was a relief just to be able to get rid of the inventory and the sheer number of off-price outlets wasn't a threat.
Speaker 2:And then over the years the water kept getting hotter and hotter and hotter. And then one day everybody wakes up and says oh, the water's boiling. Wait a minute, I'm in trouble. And I think you know, for instance, when Macy's, within their own four walls, did those last call departments where they segregated all of their sale goods and put them into one big room. And then there's the other end of season offering that they've got this name escapes me for the moment, but Macy's literally tried to create the TGMX off-price phenomenon within their own four walls. So you know, in a way I think that was both brilliant and its own problem, in that it's now all of a sudden that much easier for the customer to walk right by all the regular place stuff and back into the sale room. But at least they're walking into the Macy's sale room and not TGMX. So it's a damn if.
Speaker 2:I do damn if I don't scenario.
Speaker 1:Do you see any of the customers transitioning from being a full-price buyer to an off-price buyer? I mean, a lot of times people would say these are two completely different segments so they might walk past the full price to that sale stuff. But are you seeing any patterns where people who normally would buy the full price they're going well, why would I buy full price when I can get the same thing kind of in the clearance?
Speaker 2:That's a little bit difficult to answer because you know, I guess I view a store at the Nordstrom level as to still be a department store that operates on selling product at regular ticketed prices.
Speaker 2:When the customer walks into Nordstrom, they expect, or at least they're willing to pay, full price, because that's the game at Nordstrom. When they walk into Macy's they are immediately greeted by sale signs or discount signs of some nature on an overwhelming number of the fixtures. So immediately the internal competition just between this fixture and that fixture in Macy's is immediate competition between regular price product and sale product. Or when I get the email from any given retailer that says wait a minute, why did?
Speaker 1:they have to earn your business when you were about to shop.
Speaker 2:You're not even gonna try to sell it at regular price. It's new and it's instantly on sale. And that is the kind of the retailer malady these days, that if they don't offer some level of promotion or discount or Bogo or something, then either the next store does or the next fixture in their own store does, and I don't know how they extract themselves from that scenario.
Speaker 1:Well, the psychology of a consumer and we're all consumers. And so when I see a discount on something when it just came out, I'm thinking, well, why did they artificially put that? Why did they put it so high? You know, if it really is valued here and if I'm trying to sell something, yeah, the first attempt really should be convey the value and have someone buy it for the value that you've placed on it. It's a little bit counterintuitive. It kind of makes it look like it didn't sell for that or it shouldn't have ever been priced that high.
Speaker 2:Well, right, and I think that's the corner that so many retailers have painted themselves into that the prevalence of sales and discounts and promotions is so ubiquitous that if you as a retailer aren't offering some level of your own sale or discount, then the customer is just gonna walk 10 feet then to the next store. So you know, I think there are solutions, but I think that it means that stores would probably have to shrink in sales as they forgo promotionally driven business. But it might mean that they could do more business at higher margins. Might be less business overall, but it would be a healthier, more profitable business. That would be better in the long run.
Speaker 2:I guess I'm thinking about the Macy's move from full line huge department store mall based department stores to smaller footprint strip mall locations, which I think is absolutely the right move.
Speaker 2:But if all they do is take the same merchandising and sale driven posture in the small stores as they do in the big stores, then that's just kind of a real estate strategy.
Speaker 2:It's not a reinvention of the business strategy. So again, I think there are solutions, but I think ultimately those kinds of solutions are gonna be scarcity driven. So that you know, there's a whole what I call limited edition kind of thinking where as a retailer I'm gonna say, look, I'm only gonna offer so many of these items and they're this price and when they're gone, they're gone Now. So that in itself limits the sales upside but it does protect the image of the brand. I think in saying that, you know, I'm gonna make myself distinction, make myself distinctive, simply by saying I'm gonna offer, you know, more distinctive product on a limited edition point of view than just having rack after rack after rack of goods with a sales sign on top of each one. So I think that you know, the pursuit of growth has, you know, in this whole subject of overconsumption and that whole thing has really been a complicating factor for retail Felt good while we were doing it, but it kind of put us in a tough spot.
Speaker 1:Is there a pattern as department stores grew and malls kind of grew? It's like you become a large marketplace and there's this assumption that you have to serve every kind of customer so you no longer have. When you talked about, I'm thinking of Dillard's because we have a Dillard's nearby, but you said Nordstrom. There's an assumption that you walk into a Nordstrom and you are looking to pay more of a regular price, not so much of the sale driven and because they have a large footprint. Is there more of an assumption that they're more of a marketplace for everyone and they have to have options for everyone? Would a smaller footprint store play better into full price, just like a luxury boutique would?
Speaker 2:I think there's probably a role for both large and small footprints. I think that's more market size and demographic driven. I think what you're talking about is more of a how does a retailer want to define their brand promise? What kind of boundaries do they wanna give themselves? And I think a lot of retailers over time kept thinking that they should stretch their boundaries both up and down.
Speaker 1:Yeah.
Speaker 2:I understand the temptation to do both, but I think that what has happened is that people say that the market has just flat out bifurcated. Anyway it's either Nordstrom or Walmart and the whole middle has just collapsed. And, speaking as really as a customer of what would still be the middle market, I mean as much as I like to shop in Nordstrom every now and then. I would really much rather shop at a Macy's or a Dillard's or a, but the attitude is almost well, I just might as well go to TJ Maxx because what's offered at Macy's isn't special enough and I don't have the same appetite for Nordstrom or the product as I used to. So the definition that a retailer wants to create for their brand promise I think most retailers need to revisit that.
Speaker 2:I think a retailer that has done well two retailers that have done an outstanding job at it is American Eagle Outfitters, who have a focused customer that they talk to and I think they talk to them brilliantly and consistently, and it happens to be a retailer that has continually very little end of season inventory.
Speaker 2:And American Eagle Outfitters has stayed pretty consistent with what they've been all about for at least 25 years, and I worked for them for a little while, so I have some feeling for what the DNA is there. The other retailer that I think has done a really good job is Abercrombie and Fitch. Again, I worked for them for a little while, a long time ago. But if you watch how Abercrombie has redefined their brand promise and redefined the attitude and the aesthetic that they use to talk to that consumer, I think it's been a brilliant kind of reinvention, of a refocusing not up or down, but just kind of a refocusing and a reinvention of an attitude and an aesthetic where they've got distinction. They can no longer be confused with American Eagle Outfitters For a while there, if you lined up Abercrombie and American Eagle and Arapa Stahl and Pax.
Speaker 2:Sun. They were all on one continuum of genes and hoodies.
Speaker 1:I remember that. Right 2005 to 2010.
Speaker 2:Exactly, exactly, and that worked okay for a while, but for a lot of reasons, abercrombie had to reinvent themselves and now look at the results they're getting. They're now getting terrific results again as a result of redefining their boundaries and their attitude and their aesthetic. So, but, man, they went through some tough times to do it, but I give them huge credit for what they've accomplished.
Speaker 1:Well, you make a I love this topic because everyone goes through tough times but it depends on what you do with that and if you kind of have a minor freak out and change your brand and go this way or go that way, or if you stay the course. I don't know where Arapa Stahl went. I think they went discount Like. I always remember them as like the cheaper alternative to Abercrombie and American Eagle, and I don't know where they went. But I know when I traveled in Latin America I went to South America and Central America I hadn't seen Arapa Stahl clothing in probably 10 years five, five, 10 years and when I went down there everybody was wearing it. So there's that secondary market where all the clothing like just pallets of clothing gets end up kind of sold as new there. They also were really into limp biscuit and some of those old music bands.
Speaker 1:So but back to this staying the course and being able to take your brand and mature it or define it or even sometimes make it more exclusive. It's so tempting to say we're losing out to our competitor, let's try to be like them. But you gave a couple of examples. I don't know if you have any more background on that. But it just. I love those stories where brands say we're hitting hard times but let's say the course, let's find a way to define ourselves and keep that original vision, keep that original personality of the brand and just see where we can take it with the new market, with the latest changes in the economy.
Speaker 2:I think, if I made it into a general statement, for a retailer to survive and ultimately thrive, I think it's all about differentiation and distinction. If it becomes about price, it's an immediately you're into this race to the bottom conversation. But some level of distinction and differentiation is critical to being able to establish some kind of moat to all of the pretenders to the throne. Another great example Polo Ralph Lauren, where you could take some of his current designs and if you told me they're from 2007 or 1980 or 1987, I'd have to say, okay, that's possible. But somehow Ralph Lauren, with their marketing and their store presentation and just the way they behave as a brand, they somehow managed to keep it fresh.
Speaker 2:And again, there's another brand where at one point you could line up Ralph Lauren and Naughtica and Tommy Hilfiger, and they were all these huge department store brands that were directed at the traditional market or the oh God, what's the word I'm missing. But they were kind of three birds of a feather, each with their own point of view, but Ralph Lauren is the one that has survived and thrived. Tommy's doing well. I don't see much of Naughtica these days, but it's not. As if preppy was the word I was looking for, but it's not as if preppy traditional menswear.
Speaker 2:is this new thing? But Ralph Lauren has kept it fresh. It's really a great example of a DNA that dates way back but is just as meaningful today as it was way back when.
Speaker 1:Those are the type of brands that when you see young, just a new trend, a new fashion trend, and people are throwing back to these nostalgic styles it's almost ironic. You go, that's so funny, especially you've seen it through the years so you can see someone young wearing it. You're like they don't even know what that means. But it's like an ironic fashion where someone might say this is what people used to wear in the early 90s. I'm going to wear it because it's kind of ironic, it's different and they're back to that word differentiation, and it takes on a new life because it's part of the language. It's part of that language of culture.
Speaker 1:This is something that meant something to someone, and young people might not even know what it means, but they take on and give it a new meaning and that brand survives.
Speaker 2:That's the beauty of that, is the challenge of brand management, is the continual freshening of the point of view, and I think that's what back to our original original. That's what department stores just failed to do. They failed to keep it fresh over the years. They got into this price driven, race to the bottom, and that's a very, very difficult spot to now extricate themselves from.
Speaker 1:I wonder how they'll stay in the midst of culture when they've kind of placed themselves in a, in a spot where they're more of a stale low. They don't, they don't feel like they're in the center of culture. I think there's a rise in shopping mall frequency, people kind of looking for more of a communal place place to walk around. There was one article we did about Gen Z looking to shopping malls as sort of a nostalgia that they never had, especially when a lot of them were in high school. The last few years during COVID, when things there wasn't much for third spaces out of the house, any hints to the future of the department store. Are they looking to get into the center of culture again and what are you seeing?
Speaker 2:I, I, I don't know, that's probably above my pay grade to try to answer a lofty question like that, but but what I do think is that it's as much about the reinvention of the mall as it is the reinvention of the department store. Obviously that's a that has to be a highly partnered venture. But to your whole point about the mall as town square, as as a place to visit and be entertained, and you know the whole experiential, you know conversation, you know I, when my kids were little the mall was a fun place to visit. As an adult, you know I, I had too much. It was too kind of a clue too close to me to to be fine anymore.
Speaker 2:But but I do think that the mall as, as as a town square kind of environment, does have huge potential. Everything can't be on the magnitude of, you know, the mall of America in in Minneapolis. That's an amazing place. But I, but I think there are smaller versions of that that a lot of malls really are going to want to convert themselves into so that they are a headquarters for that kind of social visit. And it doesn't have to be. You know, you don't have to have a one day sale to to populate the mall. You don't have to have a prime day or some you know retail discount event to populate the mall. You know movie theaters and restaurants and you know the whole town square phenomenon. But a department store can't do that by themselves. That has to be very much partnered with the mall owners of America and I'm sure that process is underway. But the mall owners probably wish they'd started this five to 10 years ago, but they didn't. So here we are.
Speaker 1:That's a really good insight. These seem like monolithic department stores, but they really are an anchor in a space where they sit most of them, and so that partnership. They can't do it alone. Even though they seem large enough to make things happen, they really can't do it alone.
Speaker 2:Well, I think it just demonstrates how different the thinking has to be from 30 to 40 years ago. But that kind of retail blueprint just lived too long. It didn't start its process of evolution early enough. Macy's building smaller, off-mall stores would have been a brilliant, bold move 15 years ago. Today it's like why did we wait so long? There need to be some brilliant, bold moves so that in another 10 years we're not still slapping our foreheads going. Why did we wait so long for? Yeah?
Speaker 1:Well, perhaps the charts that you showed would inspire some bold moves. Sometimes, in the worst of times, those are when the bold moves happen, when people are willing to take risks.
Speaker 2:We shall see.
Speaker 1:Jeff, this has been a great conversation. I absolutely enjoyed it. Glad I could stump you with a few questions. I learned so much from you every time we chat and I hope our listeners loved it too. If anyone has any extra questions, follow-ups, definitely find our comment section and check us out at retailwarcom. That's where the conversation happens every day. Subscribe to our podcast on any of your favorite podcast platforms. You can even catch our daily newsletter, retailwarcom slash subscribe. Thank you, jeff Swart, it's been a pleasure.