Saks Fifth Avenue CEO: Some department stores are struggling. Here’s how they can be saved

Let’s get this one out of the way—despite all of the headlines, retail isn’t dying. After all, Amazon, the world’s largest company, with a significant web services business, 47 Emmy nominations, and exponential growth, is at its core, a retailer. When people frown upon the industry, more often than not they are thinking of department stores, which have become a “dirty word” in retail. But rather than write them off, we should see this industry as primed for a reinvention. And, while it may sound self-serving, the luxury category is where the resurgence of the American department store can happen. Too broad of a brush has been used to paint this industry, which I have been a part of for 25 years, and it’s time to set the record straight, make the case for our future and, most importantly, determine how we get there.

How we got here

Contrary to popular belief, the internet did not kill department stores. In fact, many of us have well-developed e-commerce businesses, which for some, are larger than the online luxury pure plays. The truth is there wasn’t one tipping point where department stores went wrong; it happened incrementally over time. It was an amalgamation of numerous challenges, either ignored or wrongly addressed, that has led to the question of relevance plaguing the industry today. The problems start with how retailers view and serve the customer. The entire process, cradle to grave, has failed to evolve and innovate with the customer in mind.

We know customers want to buy things as they need them, but the industry has not kept that basic concept in mind. Instead, department stores have been hindered by a severe disconnect between product availability and demand, which hurts retailers, designers, and customers alike. Delivery cycles, all born iteratively through the 20th century, simply never evolved to meet the consumer’s on-demand lifestyle. We see it across the industry: winter boots available in August, fall sweaters on shelves in May, and summer shorts arriving in February. Items everyone needs, but not available when they want them. We all remember back-to-school shopping as kids. In 1982, my mother tackled it in August, so that’s when we needed everything—the coat, the sweaters, the boots—all of it. Today, there is no “back-to-school moment.” As a parent, we want to buy our children’s clothes when we need them. You want the coat and boots when it gets cold—not in August.

In the luxury business, the disconnect is just as pronounced. The “pre-fall” delivery comes in the beginning of May. What do we do? Department stores mark down the seasonal product currently sitting in stores to make room for the incoming inventory. This vicious cycle results in retailers not only paying for products four months before they sell them but offering products to customers four months before they need it.

With all of this, department stores are simply letting the customer down. First, by not delivering product when they want it but also by creating a financial burden that impedes the retailer’s ability to invest in a better experience. Essentially, we commit money months before goods are sold, then mark the same goods down to make room for new inventory. This vicious cycle of buying, markdowns, and inventory excess creates a cash and margin squeeze forcing department stores to slow innovation, simply because there aren’t the dollars available to do it.

Without the ability to invest, retailers are slow to create a modern, personalized, and truly special experience for customers. Those were the differentiators for department stores as they rose to prominence two generations ago. They were easy to shop. They were an exciting destination. Today, they have lost the reason why people shopped at luxury department stores.

Why it’s worth saving

At our core, luxury department stores offer customers fun, escapism, fashion, and service; they provide an experience that goes beyond the transaction. Whether online or in-store, it is about building deep and meaningful relationships with clients, understanding and anticipating their needs, and providing a depth of fashion that is exciting and fits their lifestyle. With this, we have the opportunity to reclaim our role as arbiter—the place to discover fashion—while continuing to provide best-in-class services and experiences. I may be biased, but when this model is done right, it’s a better shopping experience than anything else.

It is true that brands today have multiple mechanisms to reach customers, but I believe what sets us apart from other luxury retailers, pure plays, and even Amazon’s new luxury endeavor is that we also provide a valuable platform, bringing brands’ visions to life through digital and physical experiences. With strong vendor partnerships, we are able to collaborate on unique offerings for our customers, such as special capsule collections, exclusive products, and designer events. And, with multiple brand offerings, plus our understanding of fashion, we provide customers with a way to experience and wear the best while expressing their individual style.

Our relationship-based service has been and continues to be our bread and butter, and what sets us apart. Back in the day, sales associates knew everything about their clients—from their anniversary and birthday to their annual family vacation destinations—allowing them to make timely recommendations with an unparalleled level of personalization. This kind of service is still very much a part of the luxury experience today, but on steroids. With the help of data-driven technology, we are delivering on the promise of personalized shopping—no matter where or how our customer chooses to shop.

Don’t get me wrong. I am not calling for a rehash of the American department store of yore. Rather, I am saying there is value in evolving the industry. And, if done right, we can create an experience that better serves our customers, supports our suppliers’ brand aspirations, creates career paths for our employees, and bolsters our communities.

How we get there

We must focus on the idea that the customer is the boss, and everything we do should be centered around this mindset. It may sound obvious, but many have forgotten this basic principle.

It starts with supply chain innovation. We need to go all the way upstream—from working with our fabric suppliers and factories to tightening commitments and lead times. We simply need to deliver products that customers can buy now and wear now. It’s all about and has always been about instant gratification, which is now more important than ever in a 24/7, on-demand world. If we buy smarter and deliver closer to when people want their clothes, everyone will benefit.

Luxury department stores also need to provide a frictionless, channel-agnostic experience powered by expert service and super-charged analytics. Both in-store and online, building strong customer relationships is a key differentiator, especially in the luxury space. Regardless of where customers shop, they’ll still feel that highly personalized level of service for which luxury is known.

At the same time, stores remain an important part of the ecosystem as they give customers a sense of immediacy, experience, and theater. Even top e-commerce players such as Amazon recognize the need for a physical presence as they themselves start to open up brick-and-mortar locations. Unlike pure-play competitors, those with stores have the advantage of a physical footprint, providing the opportunity to marry the in-store and online experience.

Retail—including department stores—is worth saving. And, we will continue to live on by constantly evolving so we deliver on our promise of making it easy for customers to wear and experience the best. At the end of the day, this is what it is all about.

Marc J. Metrick is president & CEO of Saks Fifth Avenue.