For decades, department stores were symbols of American retail success, but their shine has long since faded. Overexpansion that began in the 1990s, the growth of e-commerce and the decline of many malls has left a saturated market, with more stores than there is demand. Major department stores have been struggling for decades to adapt to changes in the way their customers shop, with little to show for it.

"These challenges existed ten years ago, but the problem we have today is that it’s getting later and later, and more and more desperate for these department stores. Time is running out, and they still haven’t figured out the solution,” says retail editor Cat Chen.

In this episode of The Debrief, BoF senior correspondent Sheena Butler-Young speaks with Chen about why department stores are struggling to stay relevant, how activist investors are complicating the picture, and whether following the approach of European department stores like Selfridges can save this iconic segment of the retail industry.

Key Insights:

Activist investors have been targeting department stores like Macy’s and Kohl’s, but they are more interested in these companies’ real estate portfolios than retail. Chen highlights the parallels with Sears, where the investor Eddie Lampert spun out Sears’ real estate into a separate entity, ultimately leading to its bankruptcy. “The sentiment in the industry is that if these companies were bought out by activist investors it would not be a good sign for the health of these department stores. There wouldn’t be a long-term strategy for maintaining their health,” she says.

Nordstrom's strategy for revival includes focusing on experiential retail, enhancing customer service, and possibly going private under the Nordstrom family’s ownership. These moves would allow them to invest in the long-term health of the company without the pressure of quarterly earnings. “The Nordstrom family is really set on making some radical, transformative changes to Nordstrom that they just can't make as a public entity,” Chen explains.

European department stores are a potential model for American department stores to replicate. “Look at Selfridges or look at Le Bon Marché. People love spending time in those stores — tourists but also locals,” Chen says. Explaining how European stores are treated like flagships, with significant investments in customer experience and meticulous attention to detail, she adds, “these companies invest in the layout of the store — fixtures, carpeting, lighting — all of these details matter, and European department stores have done a great job making it happen.”

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