Department stores fight for survival

By Michael Yeomans
TRIBUNE-REVIEW
Friday, August 1, 2003

Think Kaufmann’s would never entertain the idea of abandoning its landmark store in Downtown Pittsburgh? Or Lazarus wouldn’t consider pulling up stakes after only five years in its shiny new Fifth Avenue location?

Think again.

Department stores are taking a beating from discounters and are fighting for their lives, says retail industry analyst Lois Huff.

In this environment, anything goes.

Department stores, she said Thursday, don’t have the luxury to make moves “for reasons other than survival.”

“It’s not a growth sector. You’ll see survivors who can do well, but the days of double-digit growth are gone.”

Pittsburgh officials were still reeling yesterday, a day after St. Louis-based May Department Stores Co. said it plans to sell or close its Lord & Taylor store Downtown, which has been open less than three years. May is restructuring its Lord & Taylor division and will close 32 underperforming stores in 15 states.

Mayor Tom Murphy insists the store must remain open for two more years to fulfill the terms of an $11.75 million loan made to the company in 1999 to buy and help renovate the former Mellon Bank headquarters building at Smithfield Street and Fifth Avenue.

But according to an agreement between May and the city’s Urban Redevelopment Authority, the company likely can settle up with the city by simply repaying the loan. In the worst case, said city Controller Tom Flaherty, the company could operate the store for two more years, then close it and not have to pay back the loan.

May is setting aside $380 million to pay for costs associated with the Lord & Taylor restructuring. Company spokeswoman Sharon Bateman said the company won’t reveal when the Pittsburgh store will close.

Huff, of Columbus, Ohio-based Retail Forward Inc., said the trend toward department store consolidation will continue. What that might mean for Downtown Pittsburgh is hard to figure.

On the one hand, she said, the addition of a Seattle-based Nordstrom or a Bloomingdales, an upscale sister of Lazarus in the Cincinnati-based Federated Department Stores Inc. family, could help make Downtown a regional shopping mecca.

On the other hand, she said, it’s highly unusual for a city of Pittsburgh’s size to support four department stores. Saks Fifth Avenue is the Downtown’s other department store.

Jake Haulk, president of the Allegheny Institute for Public Policy, a Mt. Lebanon-based think tank, said with 140,000 people coming into town each weekday to work, “maybe Downtown is already being put to its best use.”

“If you try to put more activity in Downtown — be it more retail or more residential — you may end up hurting its best use, because you’ll make it more congested.”

Flaherty said he hopes the failure of Lord & Taylor dispels the “if you build it, they will come” approach Murphy has taken to subsidizing private development.

Huff isn’t convinced the city can’t support a high-end retailer, which is the reason Lord & Taylor cited for leaving. Pittsburgh already has a Saks, she said, which fills that niche.

As for the struggles of the taxpayer-subsidized Downtown Lazarus, she said the fact that the chain has four other stores in the region would make it less likely it would close the store, although she wouldn’t rule out the possibility.

“Nothing in that sector is inconceivable,” she said. “Department store chains want to have enough density in a market to make it efficient to operate,” she said. “Lord & Taylor didn’t have that density.”

Today, Federated Department Stores will unveil its new Lazarus-Macy’s name for its five regional stores.

Under terms of a $48 million public subsidy for the Downtown Lazarus, Federated could elect to close the store after November, a similar five-year window as in the Lord & Taylor deal. It has yet to reach the $41 million in annual sales that would trigger repayment of an $18 million city loan.

It could walk away at year’s end leaving the building as collateral.

Lazarus officials did not return a call for comment yesterday.

Kaufmann’s officials continue to assert that its flagship Downtown store is safe, the opening of a new, smaller-format Kaufmann’s a few miles away at The Waterfront complex notwithstanding.

“I can tell you unequivocally that at this time we have no plans to make any other changes at any other store, other than opening another Kaufmann’s at The Waterfront,” said Robin Reibel, spokeswoman for May’s Filene’s/Kaufmann’s division in Boston.

Construction of The Waterfront store is proceeding ahead of schedule, pointing to an opening in mid-October.

The Waterfront store is one of a new breed of stores for May. It’s smaller — about 140,000 square feet — than a traditional suburban mall store, which would range from 180,000 to 200,000 square feet.

It is one of a small group of so-called new-concept, lifestyle stores that Kaufmann’s and two other May chains plan to open this year.

“The store will emphasize convenience and accessibility and a different layout than what people may be used to in a traditional outlet,” Reibel said. “There will be a central checkout opportunity, in addition to the traditional checkout, and there will be designer shopping carts that will allow people to carry through the store various items and merchandise, and even have a child in the cart as well.”

Although The Waterfront is just a few miles east of Downtown, Reibel said the company does not believe the new store will hurt the city location.

“There’s no worry about that (Downtown) store,” Reibel said. “This is an addition. But it’s a different niche, and I think people will use both.”

Michael Yeomans can be reached at myeomans@tribweb.com or (412) 320-7908.

This article appeared in the Pittsburgh Tribune Review © Pittsburgh Tribune Review