Thursday, July 20, 2006

Reinventing the Luxury Department Store

The Wall Street Journal

The epitome of old-world elegance, Bergdorf Goodman has long been a leading destination for wealthy ladies who lunch. The very layout of its Manhattan flagship -- with its circular maze leading shoppers past $5,000 Oscar de la Renta gowns -- takes for granted that shoppers have platinum credit cards and hours of leisure time.

So those getting off the elevator on the fifth floor this summer could be forgiven for feeling slightly disoriented by the sight of a deejay spinning lounge music, a panini bar and racks of clothing from cutting-edge designers.

For decades, luxury department stores have stuck to the same formula: offer expensive designer clothing in an elegant setting to win over well-heeled middle-aged customers. But amid fierce new competition -- from "cheap chic" emporiums like Target to high-end designer boutiques -- that is now changing.

Nordstrom is testing "girlfriends" dressing rooms for as many as five friends, while Barneys New York is aggressively expanding its standalone Co-op stores to cities like Troy, Mich., and Austin, Texas. Later this month, Neiman Marcus will open the first of four stores, called Cusp, geared to the Gen-X crowd.

Is any of this working? We evaluated high-end department stores across the country, surveying the merchandise, testing the knowledge of staffers and evaluating everything from restaurants to fur salons. Along the way, we assessed such factors as which chain has the best lineup of top designers -- and which store's salespeople give off the most attitude.

For all of Nordstrom's vaunted reputation for helpful service, when it came to getting useful advice on putting a work outfit together, the staff at Barneys came out on top. For shoppers who want to take care of everything on their list at one store, Neiman Marcus wins out. And those who appreciate a luxe bathroom should head for the loo at Bergdorf's in New York City, where there are Central Park views.

We also saw evidence of how these stores are changing in ways that may seem odd to their longtime customers. At its new store in Boston, Barneys has introduced two "smelling columns," chamber-like structures to inhale fragrances without environmental impurities. At Bergdorf's men's store, a deejay will download and organize music into customers' iPods and create a customized library of music for shoppers.

The biggest driver behind many of these changes: demographics. Like so many other industries, luxury retailers are struggling with the aging of baby boomers and the movement of money into the hands of younger generations. Children of the wealthiest generation in American history, the echo-boomers (teens through early 20s) and Gen-Xers (30-somethings) have grown up bombarded by designer brands since they were toddlers.

Unlike their parents, this so-called millennial generation is unapologetic about ogling $1,600 Marc Jacobs handbags or $900 Zac Posen jeans, even if they can't afford them. That's one reason why wealthy Gen-Xer households spent an average of $52,781 each on luxury goods in 2005 -- including travel, cars, home goods and fashion. That's 6.3% more than wealthy boomers spent last year, according to Unity Marketing, a Stevens, Pa., firm that tracks spending through quarterly online surveys of 1,200 consumers with average household incomes of $140,000.

"We realized that [the typical younger customer does] a lot of her shopping in specialty stores, and thought, what if we did a specialty store for a younger customer?" says Karen Katz, president and chief executive of Neiman Marcus Stores, whose new Cusp stores will sell pricey designer goods, such as Chloé handbags, as well as less-expensive lines, such as J Brand jeans.

There's a lot riding on this. While overall retail sales rose some 24.2% over the past six years to $2.2 trillion, department-store sales declined nearly 14% to $86.7 billion last year from $100.3 billion in 2000, according to the National Retail Federation, a Washington trade group. And the youth pursuit is a tricky strategy for luxury stores to execute. A sudden move into giant platform heels, micro minis and low-riding jeans can easily alienate boomer parents and older shoppers, who remain the most important clientele for luxury stores.

"I am not 20-something, and I wouldn't want to go into Nordstrom's and see a bunch of stuff for 20-somethings, which would dig into the inventory of stuff I like," says Dick Evans of Roswell, Ga., a 77-year-old retired IBM sales executive and longtime shopper at Nordstrom's men's department.

Saks Fifth Avenue learned the hard way that moving too quickly to attract a younger clientele can backfire. Over the past several years, Saks, whose average customer is 45 to 48 years old, added more young designers and launched an irreverent marketing campaign last year called "Wild About Cashmere" featuring goat-shaped mannequins and logos. Saks turned off many of its core 40-something consumers, the company's new CEO, Steve Sadove, admitted at last month's annual meeting. Saks's sales at stores open at least a year consistently lagged behind competitors'. Saks shook up management in January, replacing its CEO with Mr. Sadove.

To repair its image and recapture defectors, Saks is refocusing marketing and merchandise. It is reintroducing its own Saks Fifth Avenue lines, while petites departments return in November -- two features that appealed to older customers but had been discontinued. At the same time, the chain is targeting 20-somethings by renovating the contemporary-clothing sections of its stores and adding a denim bar, equipped with "denim doctors" who help shoppers choose jeans with the best fit.

Other stores are moving cautiously as they figure out what young consumers want. "We are finding that the young shopper isn't like her mother, who might wear the same designer head to toe," says Ms. Katz at Neiman Marcus Stores. "The daughter is all about mixing high and low."

While traditional luxury items, such as Hermès Birkin bags, Louis Vuitton bags and Ferragamo ties, can appeal to both parents and children, the younger group has its own distinct tastes. It considers many of the designers that their parents love -- such as Valentino, Chanel and St. John -- just plain old-fashioned.

"The children of wealthy boomers are more style-driven than people in the same age group were in the past," says C. Britt Beemer, chairman of America's Research Group, a Charleston, S.C.-based consumer-behavior research company. "But unlike their parents, they aren't loyal to particular brands or individual stores."

Experts say many Gen-Xers are better informed about designers and new trends than their parents and often pride themselves on being first to discover what's new. Priya Sopori, a 33-year-old lawyer in Los Angeles, dresses in Chloé and Dolce & Gabbana and occasionally buys shoes at Barneys in Beverly Hills. But she doesn't rely on department stores for fashion guidance. "By the time a particular designer is carried in department stores, it's usually already gotten too publicized."

To distance itself from its more conservative parent, Cusp won't use the Neiman name anywhere in its stores. As opposed to the extravagant marble floors and authentic Picassos hanging at Neiman's, Cusp will feature flea-market-finds, store-room shoe-racks and ottomans covered with 1970s car upholstery as part of its interior designs. Opening in Georgetown, Los Angeles and McLean, Va., Cusp will sell an eclectic mix of books and CDs, and edgier labels like 3.1 Phillip Lim, Morphine Generation and Salvador Sapena.

The new stores will compete directly with Barneys's new Co-op stores, which the New York retailer is rapidly expanding this year and next. Geared to 20- and 30-year-olds, Co-ops carry less-expensive but hip merchandise such as $200 Radcliffe jeans, a $300 LuLu Frost Plaza Hotel-inspired necklace and $260-to-$330 studded Co-op brand sandals. The Co-ops will number 14 by next year, outnumbering Barneys's flagship locations. Barneys, which Jones Apparel Group bought in 2004, hopes expanding its flagships and Co-ops will help more than double its current sales volume to at least $1 billion by 2008, says CEO Howard Socol.

Seattle-based Nordstrom boosted its hip factor recently when it bought a majority interest in the ultra-chic Jeffrey New York and Jeffrey Atlanta boutiques. With that deal, store founder Jeffrey Kalinsky became the director of designer merchandising at the chain, with an eye toward bringing in more cutting-edge brands.

For talented young designers, Nordstrom is adding "via C" areas to its new stores. Eager to boost its sales online, Nordstrom also just added virtual designer boutiques for Michael Kors, Dolce & Gabbana and others on its Web site. For now, shoppers have to call an 800 number to order the merchandise, though come fall, online orders will be accepted.

But for all the new efforts, some evidence suggests that when it comes to deciding where to shop, many consumers consider more basic factors. In a recent survey by the Luxury Institute, a New York consulting firm, U.S. consumers with a net worth of at least $750,000 said they consistently value superior quality, exclusivity and a department store's ability to make a customer "feel special." For our test, we also worked with Harris Interactive to survey 680 luxury-store shoppers around the country about how they decide where to shop. The two attributes that came out on top: service and selection.

One thing that stood out when we tested the country's top five luxury department stores, is each chain's distinct personality. For instance, those interested in top designers and understated, elegant looks, should look to Bergdorf Goodman; although it has only one store, in New York, it has built an impressive Web site for online shoppers around the country. We found one of the broadest selections of house-brand clothing and shoes at Nordstrom's stores, except when it came to women's suits, which had only limited choices when we visited the Short Hills, N.J., store.

Even within a chain, some stores stand out. That's partly because stores put most of their bang into their flagships and key markets, with mall outposts more uneven. Also, top designers such as Chanel and Jimmy Choo intentionally limit the distribution of certain of their merchandise to just one or two retailers in a local market. For example, up to half of the 99 Nordstrom stores nationwide don't carry any clothing from runway-caliber designers.

At Neiman Marcus in Dallas NorthPark, we found Chanel sunglasses, shoes and makeup. But the highly sought-after Chanel clothing -- $1,000 blouses, skirt suits starting at $5,800 -- is stocked at the downtown Dallas flagship. A Neiman spokeswoman says about 23 of its 36 stores nationwide carry Chanel apparel, and any store can call it in.

One point that favors all the chains we tested over many boutiques is their relatively generous return policies. Nordstrom, for one, has no time limit on returns, while Bergdorf's store credit never expires.

Department-store officials say the millennial-generation efforts are paying off. Since it introduced the "5F" floor with a deejay and merchandise geared toward younger shoppers, Bergdorf's sales of pricey contemporary clothing "have been phenomenal," says CEO Jim Gold, who provided no additional specifics.

Still, the new ventures will need to win over a generation of shoppers like Ms. Sopori, the 33-year-old lawyer who is wary about department stores in general.

"If there's a particular designer collection you like, it's much better to go to the boutique where you can see the collection in its entirety," she says. "At department stores, you're essentially at the whim of the store's buyers, who might be from a different age group."

No comments:

Post a Comment