Department stores are failing. Executives don’t know why

Department stores are failing. Executives don't know why
Courtesy webandi

Bloomberg published an article on Friday about department stores’ recent horrible quarter. Specifically, the article quoted top executives trying to explain what was happening.

The backstory is that the Commerce Department released data showing that retail sales climbed in April by the most in 13 months. Against this backdrop of increased consumer spending, department stores saw sales fall dramatically. That’s a problem.

Here’s the quote that killed me, from Kohl’s Chief Executive Officer Kevin Mansell:

[I]t was definitely a difficult start to 2016. It’s hard to gauge how much of the sales shortfall is related to macroeconomic factors and how much is related to company-specific factors.

How about neither? I don’t think anyone can find a macroeconomic story that would support declining retail sales. The Commerce Department data is too clearly opposed to that story. And the probem sure doesn’t look company-specific, since all the department store chains are hurting so badly.

So what else could it be?

The business model. You have new competitors that either sell online or sell in boutiques. Your casual customer is increasingly succumbing to the convenience of online shopping. Your diehard brand advocate is visiting boutiques. The department store as we’ve known it for decades is dying.

I frankly find it fascinating to see intelligent, capable people ignore obvious, uncomfortable truths. When I write it out like that, I shouldn’t be fascinated. Human beings are wired to avoid uncomfortable truths. I suppose the fascination comes when we’re talking about businesses worth billions of dollars, with thousands and thousands of jobs on the line. Those kinds of stakes should be sobering.

At the same time, I can imagine the story the executives are telling themselves. Some of their individual stores are still profitable. The department store model has worked with great success in the past. The retail landscape is always changing, so why couldn’t a resource-heavy, experienced behemoth navigate these turbulent waters?

If your livelihood depended on the success of department stores, you’d craft a compelling narrative in a hurry. You’d find plenty of ways to justify sinking a lot more time and energy into resurrecting these retail relics.

Anything is possible, right? Apple came back from the dead. Once you find the right people, the right store locations, the right incentives…you’re golden.

Unless your model is antiquated. Unless customers simply aren’t showing up, no matter how many tweaks you make. Unless your sales plummet, even in the face of macroeconomic tailwinds. Then it doesn’t look so good.

I’m making it sound pretty black and white. It’s not. That’s part of the reason department store executives and investors keep putting up a fight. While none of these chains are likely to flourish, some may succeed on a smaller scale. Others will die. It won’t be a complete bust across the board.

I wrote an article last month about sinking energy into saving dying companies, with a focus on department stores. I asked a question, whether it was really worth all the effort trying to save formerly successful companies that appear doomed. In the end, I indirectly answered yes, it was worth the effort, if people felt compelled to try. That kind of thing happens in a market economy.

It is a strange twist, though. The people who are least invested in the success of the company see nearly certain doom. The people most invested try painstakingly to tell, and defend, a different narrative.

We have a bunch of classic stories of heroes pulling businesses out of tailspins. Steve Jobs and Apple is the best-known story. Lee Iacocca and Chrysler is another well-known example.

The bias of illusory superiority is at play, in the department store world. That’s the bias you find when over half the population thinks they have above average intelligence. All of these executives think they’re the special snowflake that will save their dying business. And almost all of them are likely to be wrong.

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