Cause of Department Stores' Decline: Changing Spending Habits

Consumers last year continued a six-year trend of steering away from department stores during the holiday season, in part because these stores are not meeting their needs, according to a shopping study sponsored by Cavallino Capital, writes Retailer Daily.

Overall, only 51% of consumers visited a department store this holiday season, compared with 73% who visited Wal-Mart (WMT), the study found.

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The Ninth Annual National Shopping Behavior Study measures consumers’ purchases rather than their intent to shop, and finds that department stores’ share of consumer spending continues to deteriorate. For example, nearly 25% of consumers reported that they visited Macy’s (M) less in 2008 than 2007, while only 7% visited Macy’s more.

When considering where they plan to spend more money, 23% of consumers surveyed say they are likely to spend more money at mass merchants, while only 1% say they plan to spend more money at department stores

While the conventional wisdom is that consumers had less to spend this holiday season, the actual story is that department stores’ way of doing business also has less appeal to consumers, according to John Rittenhouse, chairman of Cavallino Capital.

“It appears that it is not the department store business model that’s broken, it’s the current execution,” said Rittenhouse. “The issues are directly related to management[’s] not following customers’ ‘rules.’”

“Shopping at stores that carry overpriced branded merchandise, use hi-lo pricing, coupons, and loyalty programs have limited appeal according to consumers interviewed in the study.”

In contrast, consumers say that ensuring desired items are in stock, offering fair everyday pricing, having easy return policies and hiring helpful employees are the top ways retailers can generate customer loyalty:

Analyzing where consumers’ spent the most money during the past six holiday shopping seasons, the study found that department stores’ share declined from 11% to 6%. Moreover, department stores’ appeal to core affluent customers is on the decline, and they are moving their shopping to catalogs and the internet to find the selection they want.
Other findings from the study:

• Nearly 20% of consumers spent more than a year ago, while 54% reported spending less.
  

• For the first time in the nine-year history of the study, the primary driver was price over selection as the reason for why customers changed the store where they purchased.
• For the first time in many years, Wal-Mart was more effective in attracting new customers than Target.
• 54% of consumers gave more practical gifts.
• 30% of consumers relied more on cash as gifts.
• 54% shopped closer to home. Economic conditions and retailer advertising had little effect on when during the holiday season consumers shopped.

The findings of the National Shopping Behavior Study do not apply just to the holiday shopping season and the current economic conditions, according to Rittenhouse.

“Over the nine-year history of the study, consumers’ rules for shopping at one store over another have been constant,” he said. “These findings are consistent with data from the Back-to-School Study conducted in 2004 and The Gordman Group 2008 Retail Trend Tracker studies. Selection of merchandise the consumer wants is the main driver of purchasing.

“When the economy turns around, those retailers that offer products consumers want to buy at fair, everyday prices will have sustained, profitable growth. However, those retailers that rely on gimmicks such as contests, meaningless loyalty programs and hi-lo pricing will see their market share continue to erode.”

About the study: The survey was underwritten by Cavallino Capital, LLC a private equity and consulting firm; it was designed and managed by The Gordman Group. The study was conducted nationwide through random telephone interviews with 815 consumers between December 6 and December 15, 2008. Consumers answered questions that showed how the current economic environment has affected what motivated them to shop, where they shopped, and what mattered to them most when making a purchase. All store data was collected by specific store name, catalog, or website.

Comments

[markg:]

Barely touched on here are internet sales. Hugely convenient, great variety of products, it's much quicker, and quite alot less expensive. As long as you buy from a company in a different state than you live in, there is no sales tax, which is am immediate 7-1/2% (approx) savings if you live in California, and even more if you live in LA.

Jan 09 09:29 AM

[william j v...:]

Walmart sells food and gasoline. Take out sales from these 2 catagories and then tell me traffic numbers.

Jan 09 09:36 AM

[Garland Pol...:]

Good insight. The other thing you didn't mention. Macy's has eliminated regional brands that are quite beloved..Marshall Field raised a stink in Chicago, and people were visibly angry..a NY/Chicago rivalry that hit home the old "second city" inferiority complex. But what Macy's missed is that most of their brands were over 100 years old, and were expressions of civic identity. Atlantans loved Rich's, and Floridians loved Burdine's. It would be analagous to the NFL deciding, for economy's sake, to name all its teams "NFL" or "Giants" and expect the fans to come back. Even if the game is just as good and the teams were the same, they've lost a bit of local identity.

Jan 09 11:47 AM

[Ron Chapman...:]

Not surprising at all. Teenagers roam malls to hang out with friends. Busy adults want to get in and out as fast as possible. Going to a place like Walmart is much easier than 8 different stores looking for stuff. When you throw in e-commerce, I'm surprised some of these places still exist.

Jan 10 02:48 PM

[Urbane Gori...:]

Re: william j veach: "Walmart sells food and gasoline. Take out sales from these 2 catagories and then tell me traffic numbers. "....

Sounds like one-stop shopping to me... If they had a dentist and rented rooms, you could live there.....

Also appreciated the comment about online shopping. Nothing like going to Amazon.com. You can scan the items, pull up descriptions and warranties, read reviews by other people. Great return policies and an amazing selection. **And** to top it off, the item shows up on your doorstep 5 days later. What's not to like. I've never owned AMZN, but I do shop pretty exclusively there. They seem to hit the first 10 of the 14 ways to maintain customers.

jegan

Jan 10 06:56 PM

[xander:]

stores with shopping carts will usually beat those that don't have ; note kmart did better than sears, for example.

Jan 11 05:48 AM

[xander:]

department stores usually do not provide shopping carts ; walmart , target, home depot ,lowes, dollar tree do. I am old and definitely prefer pushing a cart over carrying my selections as I move from one part of the store to others. not providing carts is stupid

Jan 11 06:33 AM