The department store industry, coming off its worst year in three decades of market share decline, is mounting an all-out battle for the next generation of shoppers.
After years of looking the other way as Forever 21, H&M, Zara and an ever-expanding array of online retailers captured the under-25 market, department stores are pouring money and effort into winning them back.
The tactics range from convening online advisory panels of teenagers to establishing in-house, fast-fashion lines to setting up self-service cosmetic stands.
In the past, department stores mainly contended with other retailers muscling into their territory. Now they face an even bigger challenge: a generation shaped by the Internet and the recession that values everything that department stores lack — immediacy, individuality and a place where their opinion matters.
"The financial crisis and the recession ushered in the biggest change in consumer behavior in 70 years, and we're not going back," said Nancy Koehn, a professor and retail historian at Harvard Business School.
Generation Y shoppers relish their uniqueness and are willing to pay for it, said Kit Yarrow, a consumer research psychologist and professor at Golden Gate University in San Francisco and author of "Gen Buy: How Tweens, Teens and Twenty-Somethings are Revolutionizing Retail."
They create their own iPod playlists. They download individual ringtones for their cellphones. They control their social groups on Facebook. They design their own T-shirts on Threadless.
"The one thing that Gen Y appreciates is uniqueness," Yarrow said. "Just the notion that Macy's or any department store has similar offerings all over will work against them."
Sara Kim, like most of her friends, rarely shops at a department store.
The 25-year-old Loyola University student buys her clothes at discount and specialty stores where the prices are low and the fashions are always changing.
"Department stores have too wide of an assortment and I just don't like the selection that they give me," Kim said. "It just seems like a big hassle to go through all those departments to try to get an outfit. In terms of competing with the specialty stores, I don't think department stores have a chance. I see them try, but I don't think they can compete with the fast pace of H&M and Forever 21."
Department stores have been at risk of slipping into irrelevance for decades.
Since the 1980s, a parade of newcomers has chipped away at the grand dames of retail. First it was discounters such as Target, then category killers such as Best Buy and Bed, Bath & Beyond, and off-price chains such as T.J. Maxx and Marshalls. Lately, beauty superstores Ulta and Sephora have even moved into department store's most profitable arena, the cosmetics floor.
But 2009 proved to be one of the most difficult years in recent memory, according to Kantar Retail. Sales at department stores fell a combined 11% last year to $67.1 billion, according to a June report from the Columbus, Ohio-based market research firm, the biggest drop since the firm started tracking sales in 1987. Kantar forecasts the decline to continue this year, albeit at the slower pace of 1.7%, before leveling off in 2012 at $65.7 billion.
As for market share, department stores account for 1.9% of U.S. retail sales, excluding autos, down from 5% in 1994. By 2014, Kantar predicts market share will drop to 1.6%.
"Department stores are finally recognizing some serious changes need to be made, and the recession was the impetus they needed to make the changes," said Kelly Tackett, a Kantar analyst and author of the report.
J.C. Penney Inc. took a page from fast-fashion wonders Forever 21 and H&M and in August introduced an exclusive clothing line called MNG from Spanish retailer Mango.
In August, Macy's Inc. launched its own fast-fashion line in 200 Macy's stores called Material Girl from pop star Madonna and her daughter Lourdes. It also is rolling out self-serve cosmetics counters in 104 Macy's stores to compete with Ulta and Sephora.
Meanwhile, Bon-Ton Stores Inc. in spring established a permanent online advisory panel of 5,000 teenagers to "find out what it takes to get them to shop department stores," said Barbara Schrantz, executive vice president of marketing and sales at Bon-Ton in York, Pa.
Bon-Ton merchants were surprised to discover that exclusive brand names didn't matter to teens as much as having the right fashion trend at an affordable price.
Even Sears, which is often overlooked by teens, is in the midst of making over its apparel departments at 200 stores. It is bringing in fashion lines as frequently as every six weeks and is moving its junior department close to the mall entrance where teens can spot it from afar. On Wednesday, Sears unveiled a deal to operate in-store shops from contemporary clothing line French Connection, called UK Style, starting in March.
Meanwhile, department stores have joined the retail industry's rush to communicate with teens and young adults where they hang out the most, on smart phones, Facebook and the Internet. Just about every department store has a Facebook campaign, assorted iPhone apps and text messages that deliver special deals to smart phones — some arriving only after the shopper enters the store.
"Department stores once represented a tremendous bond with people," said Mark Cohen, marketing professor at Columbia Business School in New York, who has held the chairman and chief executive posts at Lazarus, Bradlees and most recently Sears Canada. "There's a lot of flailing going on and much of it feels way too little and way too late."