Is it time to eulogize the department store? The most recent retail sales data from the Commerce Department show a retail species in trouble. In June, department store sales were down by 3.2 percent from one year ago. In the second quarter they were also down 2.4 percent from one year prior. Altogether, department stores' sales have declined considerably since 2001, when they approached $20 billion per month. Now, they are at around $15.1 billion.
But that's not the whole story. According to figures from the National Retail Federation, upscale department store Nordstrom saw impressive sales figures last year, with growth of 12.7 percent and store growth of 10.3 percent, and sales at high-end Neiman Marcus grew by 8.4 percent, while Macy's saw more modest growth, at 5.7 percent. Meanwhile, sales plummeted at JCPenney (-2.9 percent) and Sears (-4.3 percent).
In a field of flagging department stores, luxury is still living large. The stores further down-market, however, could potentially fade from view.
"Middle-market department stores like Macy's or Kohl's haven't been performing well as compared to Saks or Nordstrom," says Eben Jose, industry research analyst at business research firm IBISWorld.
There are plenty of explanations as to why the upper crust stores are faring well—one is their place in the upper crust, with clientele who have money to spend. But that's not everything.
"High-end [shoppers] enjoy the customer service. There's more emphasis on good customer service" at high-end stores, says Jose. "Those clients enjoy making the trip to make their purchases."
Nordstrom's customer service has a particularly strong draw on its client base. "They have a degree of loyalty from a customer base that a lot of other retailers don't," says Leslie Hand, research director at IDC Retail Insights.
At other points on the spectrum, times are tougher. Mid-market stores are hurting, with their customers lured to cheaper stores. Last year, a few of those mid- and lower-market stores maintained growth, though often more modest than that of their high-end peers. TJX, parent company of TJ Maxx and Marshall's, grew by 3.8 percent, and Kohl's added 2.2 percent in sales, though Ross skyrocketed to 9.5 percent growth.
A spokesperson for TJX Companies points out that the “value-oriented retailer” has “posted significant top-and bottom-line gains for many years, including the last three.” Numbers provided by TJX show that total sales growth declined slightly last year--from 8 percent in 2010 to 6 percent in 2011. However, a recent earnings report shows the company's June sales up 9 percent over the same period in 2011.
These retailers are in a precarious position, however, threatened on two fronts. One is from big-box stores. Walmart and Target now increasingly offer not only low prices but a broader variety of goods, like groceries, that can't be bought at Kohl's. Over the last five years, these store and warehouse clubs like Sam's Club have siphoned sales from department stores, says a recent IBISWorld report.
Then there is the technological threat that grows by the day.
"I think that E-commerce is more so affecting low-end department stores than middle-market ones," says Jose. "Lower-end ones, people are more often making those orders online."
That threat just got scarier, with E-commerce behemoth Amazon's potential move into same-day shipping. Customers' new ability to click, wait a few hours, and receive purchases at the doorstep could easily keep people at home, far away from the hassles of massive parking lots and changing rooms.
What advice is there for major retailers? Do something different, says Hand.
"You really have to somehow have an offer that differentiates yourself," says Hand. "I think every retailer is going to continue to have to develop loyalty in new ways, because customers are inherently less loyal now than they were before."
In the future, says Hand, the stores that will survive—of any type, whether department or boutique—will have to be competitive not only on pricing but also agility.
"They will be differentiated by a combination of their ability to impress the customer in store with fresh assortments. 'Every week we're going to show you something new.'"
Hand describes the task for stores facing the E-commerce threat in a way that Darwin would appreciate: adapt or die.
"It's a dog-eat-dog world, and only the strong are going to survive," she says. "The band of retailers successful in any given product category will diminish."
Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at email@example.com.
Updated 7/25/12: A spokesperson for TJX Companies has provided sales and financial information about the company. The story has been updated to reflect the new information.