How do departments stores make money

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The last few years have been really tough on department stores. Once some of the icons of American retail, department stores have been devastated by a perfect storm of declining middle-class income, growing online commerce and aggressive competition from other retailers such as Walmart Stores Inc. In light of this situation, many people will be wondering if traditional department stores can still make money. After all, these retailers have high overheads and high location costs and are often saddled with old fashioned mall-based locations. They also have to contend with a new generation of customers that seem to value convenience, speed and low prices over traditional customer service. To answer this question, I went over to YCharts and took a close look at the financial numbers. What I saw was not very pretty. Such moves might reduce costs, but they could also reduce future revenue and drive away customers. Yet it also reported a revenue growth rate of. Okay, so what about stores that cater to the higher end of the market or at least the upper middle class? Those were a mixed bag. It reported that its revenue was falling at a rate of The percentage of middle class families in the population of every state of the Union shrank between and , research from the Pew Charitable Trust indicates. That is also bad news for department stores because both of those states are hotbeds of traditional retail. That shows why so many people are staying out of the department store; they can no longer afford the prices. If these trends continue, department stores face a shrinking customer base that has less money to spend. Now what about the one department store success story we occasionally hear about— Nordstrom NYSE: JWN , the growing chain that caters to the growing affluent classes? Nordstrom is certainly growing; it reported a revenue growth of 9. That too indicates Nordstrom is having a harder time covering its expenses. Ross reported a revenue growth rate of 8. Ross sells to the former middle class families that can no longer afford to shop at the department stores. Nordstrom caters to the nearly affluent that hate the idea of shopping at Sears. I also suspect that much of the growth in this sector is driven by the decline or collapse of historic retailers like Sears and JC Penney. The customer base is not growing; instead, it is simply moving from store to store.

Cost Controls
The argument is strong for both cases. For one brand, the perfect fit may be specialty stores while other brands may prefer selling in volume to big box stores or a combination of both. Increasingly, startup apparel brands are opting to distribute their products entirely online. But, after owning a boutique in Chicago for fourteen years, and selling my line to hundreds of boutiques across the country, I could also give you numerous reasons why selling to boutiques stores is equally as smart. So how do you decide?

how do departments stores make money

Breaking Bulk

Conventional wisdom suggests that running retail stores is more expensive than selling the same merchandise online. It may also seem that using existing retail stores as mini-distribution centers to fulfill online orders for shoppers is a less expensive option than full-fledged distribution centers. As more and more shopping shifts online, retailers are working hard to capture the sale, no matter the cost. But when it comes to profitability, an online sale is not an equivalent replacement for that same item purchased in store. Then, there is the cost of running stores, but because those costs are considered «legacy» costs — and have been in place for many years — there’s a maturity and scale to them, making them more efficient, and less «expensive» relatively, than the cost of running online operations. In a physical retail store, a shopper, effectively, picks out her own merchandise, and gets it home herself, so there’s no additional «picking, packing, shipping» cost paid by a retailer with this model. There are costs associated with processing an online order. In this case, it has to be picked, packed and shipped to the shopper from a distribution center. It’s much more expensive on a per item basis, for a retailer to ship individual orders, one at a time, from fulfillment centers to consumers’ homes, than it is to send a truckload of inventory from a distribution center to a store. The higher operating costs in this model result from distribution costs that can be four times higher, and overhead and infrastructure costs that can be three times more than an in-store model. Do I own my [distribution center]? Do I pay a third party to do it for me? The cost for certain corporate functions, associated with running distribution centers like IT and marketing, can be in the tens of millions of dollars in terms of investment. There’s also the investment to build and manage websites, apps, distribution centers, and establish shipping networks or partnerships to fulfill those orders. Online operations also have other incremental costs when it comes to acquiring and then taking care of customers, Madden said.

Incite User Interest Through Accurate App Packaging

Department stores are in the business of getting you inside and enticing you to spend money — and they have some very effective tricks up their sleeves to do just. Retailers know that once they get you inside a private fitting room to try on a new top or pair of jeans, they are halfway there so getting you to departnents. Andrea Woroch, a consumer savings expert, says department stores invest a lot in the dressing room experience. The goal? To generate more sales. So how can you make sure that you really like the way you look and feel when you try something on? Sometimes that involves leaving the dressing room. Buy more, how do departments stores make money more deals are designed to trick you into monsy more money than you had planned. Calculate the percent savings and only buy what you intended to in the first place. Then you can find the right deal for you. Though tempting, opening up a store credit card and attempting to get the most savings on your new plastic could cost you. Woroch says store gow come with extremely high APRs, retroactive interest charges and limited rewards, if offered at all, plus pricey late fees and other penalties. And your credit score gets dinged upon requesting a new line of credit which could make future loans more expensive and harder depaftments obtain.

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