The Rise and Fall of Department Stores

Will the few department stores left survive the COVID-19 pandemic?

Photo: Steve Morgan- Former Fredrick & Nelson

Department stores have been around for ages, but it is not certain that the few left will survive the COVID-19 pandemic. In light of these recent events, stores have had make rapid large-scale shifts to e-commerce or other methods, while remaining as resourceful as ever. A plethora of former powerhouse department stores have struggled to maintain relevancy long before the Coronavirus pandemic. As these stores have adapted to a rapidly changing retail landscape in the past decade, they've been faced with the decision of where to invest their time, energy and finances, be it through brick and mortar or e-commerce. This often created a uneven focus for these stores, which during even the best of times signaled a rocky future.

The department store concept originally founded in Paris via the Bon Marche and quickly followed by Printemps gave rise to their prominence in the United States during the 18th and 19th century, when industrialization and urbanization led to the growth of the middle class. The ability to mass produce garments brought down prices and allowed fashion to be less utilitarian.

Seattle as a major port city has been home to many department store operations from Lamont to Fredrick & Nelson to Nordstrom. Nordstrom has remarkably survived all economic downturns, but in light of the Coronavirus it has furloughed a significant portion of their workforce. In a regulatory filing the company stated, "A majority of the company's workforce has been furloughed or assigned zero hours of work, although any or all of such employees may be called back to return to work at any time as the circumstances permit." According to Market Watch, the company which has drawn down $800 million of revolving credit can survive 12 months of store closures.

Photo of Nordstrom Store at Bellevue Square in Bellevue, WA

Back in March, Nordstrom called off all purchase orders of fall inventory and most importantly their annual Anniversary Sale, that most influencers plan their year promoting. Nordstrom has said recently that the Anniversary Sale will be postponed until August, as they plan down the event by roughly 50%. Profits will go towards new orders for trending categories such as home, cozy and beauty/self-care. In lieu, Nordstrom has planned many large online sales this spring, the current being a Grad Sale, 60% off Clearance and their normal price matching efforts. In addition, they have enhanced their online offerings such as contactless pick-up/returns, online stylist appointments and have marketed their off-price offerings. Just last week, Nordstrom announced that it is permanently closing 16 stores across the country this year in an effort to reduce overhead costs. According to CEO Erik Nordstrom, “More than ever, we need to work with flexibility and speed.”

Dallas-based department store Neiman Marcus, who also owns New York-based Bergdorf Goodman, has filed for Chapter 11 bankruptcy to eliminate about $4.3 billion in debt. Last week in an Instagram post the company stated, “We have reached an agreement with lenders to undergo a financial restructuring that will sustainably reduce our debt load and provide us access to a significant amount of financing to ensure business continuity via voluntary Chapter 11 bankruptcy.” Neiman’s CEO Geoffroy van Raemdonck said in a statement that, “Prior to COVID-19, Neiman Marcus Group was making solid progress on our journey to long-term profitable and sustainable growth, however, like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic.”

Instagram Post From Neiman Marcus to Customers

Neiman Marcus is not the only department store facing bankruptcy. J.C. Penney Co. is planning to file for bankruptcy this week, which could mean permanent closures for roughly a quarter of their 850 stores. According to Reuters, the total debt accrued by the company is nearly $4 billion. The company has been struggling to stay afloat in the changing retail landscape, long before COVID-19. Similarly, Macy's founded in New York City in 1858 has recently acquired a new shareholder. Czech billionaire Daniel Kretinsky bought a 5% stake in Macy’s Inc. and plans to help improve its performance. According to Bloomberg data, Kretinsky is now one of the company’s top five shareholders. However, the company has pushed back its earnings report. As for its affiliate Bloomingdale’s, it seems to be faring fine amidst this pandemic, most likely due to their established online presence, online promotions and their enhanced safety protocols as stores begin reopening.

Photo of Neiman Marcus at The Bravern in Bellevue, WA

The nation’s oldest operating department store, Lord & Taylor owned by clothing rental service Le Tote, is also headed for bankruptcy and is not likely to survive. It is preparing to liquidate all 38 of its remaining stores when restrictions are lifted, in order to generate cash.

Saks Fifth Avenue parent company Hudson Bay Company has laid off 507 New York City employees. The company states that these employees were only temporarily furloughed. Toronto employees accused the firm of shortchanging more than 90 employees on severance benefits, according to Global News, however, the company has denied their claims.

Photo of Former Sears Store at Overlake Plaza in Bellevue, WA

These department stores are struggling to maintain their footing in a time of uncertainty for many. On top of that they are vying for market share as consumers rethink their traditional shopping habits. According to Moody’s, “This shift is accelerating the pace of online retail sales growth and prompting a hard reassessment about how many physical stores will be needed in future.” While Seattle begins a phased in reopening approach, time will tell what is in store for many of these department stores.