Fashion Industry The decline of the department store has been ongoing for a number of years. I agree with the general statement that department stores in struggling in part because they have facing a more competitive environment. Not only do department stores compete against each other, but they also must compete against discount stores, specialty stores and category killers. In essence, the department store is a generalist in an environment full of specialists. The department store must find ways to innovate its business model in order to succeed in the future.

Competition has taken its toll on department stores. Department stores essentially thrive in an era when there was a certain degree of information asymmetry for consumers, as they were relatively unable to comparison shop beyond more than a few stores. Consumers may have been price sensitive, but their price awareness was not as acute as it is today. Moreover, consumers were willing to sacrifice price to some extent for convenience. The shift towards discount stores has impacted on the competitive balance. Aggressive promotion on the basis of price has allowed discount stores to increase the price sensitivity of consumers, and this hurts department stores. The effect is enhanced by the ability of discount stores, with volume buying and supply chains into low-cost-production nations like China, to offer goods of slightly lower quality than department stores at significantly lower prices. For their part, department stores seemed unready for this challenge, and sought to maintain high margins.

Those high margins were necessitated by the high overhead costs faced by traditional department stores. While they have the same amount of space in their stores as the major discounter chains, those discount chains are more adept at merchandising, and that allows them to enjoy higher sales per square foot than traditional department stores. In addition, efficiencies throughout the supply chain and in management allowed the discounters to undercut department stores significantly. Most department store chains were unable to adapt to a more cost-conscious environment quickly enough. As a result, they were left with price conscious consumers no longer interested...

Typically anchor tenants in malls or on downtown shopping streets, departments stores have high square footage and large sales staff. To pay for this, department stores need to do high volume and for the most part that volume was attracted by the selection the stores offered. However, selection has come under fire from competition just as prices have. Specialty stores have been able to offer the same differentiated selection as department stores, but with better service. In addition, while department stores tend to stock large, well-known brands, specialty stores can be more differentiated, offering smaller niche lines. This attracts consumers seeking this individuality. Department stores have difficulty competing -- they tend to offer expensive clothes for example that do not justify their expensive with their design.
Some department stores have also contributed to their own demise. For the most part, department stores lack innovation -- the shopping experience has changed little in the past several decades. As a result, they present a stagnant image to consumers that is incongruent with modern value. Yet most department stores do not have any answers to meet the needs of consumers.

A study by consulting firm Cavallino Capital in 2008 noted that department stores simply do are not executing their business model well. Modern consumers are not attracted to "overpriced branded merchandise, hi-lo pricing, coupons and loyalty programs." The survey showed that consumers respond most to the type of merchandise in stock. Department stores are focused too much on high-margin merchandise, despite the fact that consumers either do not want this or want it from boutique stores with high service levels. A good return policy ranks third after merchandise and service. Department stores that offer this, such as Nordstrom, have not faced declines are sharp as department stores that do not have strong return policies. After prices, pleasant atmosphere is the fifth most desirable trait for shoppers. The department store layout, aside from being dated,…