Department Stores’ Decline Due to Changes in Consumers’ Shopping Habits
Consumers this year continued a six-year trend of steering away from department stores during the holiday season, but the uncertain economic times were not the only reason.
Department stores are not meeting consumer needs, such as having desired items in stock, fair everyday pricing, easy return policies, and helpful employees, according to
(pdf) the Ninth Annual National Shopping Behavior Study.
The annual study measures consumers' purchases, not intent to shop.
Department stores' share of consumer spending continues to deteriorate, according to the findings. For example, nearly 25% of consumers reported that they visited Macy's less in 2008 than 2007, while only 7% visited Macy's more.
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 LLC
, sponsor of the study.
"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."
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 key 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% gave more practical gifts.
- 30% 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 apply not 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
. This year's study was conducted nationwide through random telephone interviews with 815 consumers between December 6 and December 15. 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.