Craig sits down with Mark Cohen, Director of Retail Studies at Columbia Business School and CEO of Sears Canada between 2001 and 2004. They discuss how the department store got started, how they once flourished, what went wrong, and the future of department stores — if any.
A transcript of the conversation can be found below.
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Featured during this interview:
- Mark Cohen, Director of Retail Studies at Columbia Business School
Transcription
Craig Patterson 0:03
Welcome to the Retail Insider – Video Series. I’m your host, Craig Patterson, and we’re joined here with a special guest, Mark Cohen. He’s the director of Retail Studies at Columbia University in New York City and was the CEO of Sears Canada from 2001 to 2004. Welcome, Mark.
Mark Cohen 0:19
Thanks for having me back.
Craig Patterson 0:20
Let’s talk a little bit about department stores. So we’re going to take a global view, we can take a bit of a local view as well. Department stores were a bit of a local thing at one time in our history here in North America, but things have certainly changed. Let’s talk a little bit of a general discussion here around department stores. How they got started, what’s a good department store and we can talk about where we’re seeing some lacking particularly here in North America as well.
Mark Cohen 0:45
Well, as you know, the department store is a 20th century artifact. Department stores emerged throughout North America in the early part of the century. They were typically based downtown, they were viewed as downtown emporiums. They were grandiose and style. They were a new version of what had been, of where merchandise had been sold on pushcarts, traveling salesman, local dry goods, stores and small communities. And so they emerged and they were typically founded by a families, they were private. They were famous for carrying everything you might want or need. Prior to their emergence, you more or less had to shop via a catalogue. The original Sears Roebuck Montgomery Ward catalog, for example, which were hundreds and hundreds of pages of things that you could select from. And then, the department store made those things much of that merchandise available in a centrally located place. And they thrived. And they were run by the founding families and they grew extremely prosperous. It was a very profitable business. And then in the late 50s – actually the early 60s – the great American shopping mall (I say American because it was American and Canadian), the North American shopping mall emerged as a place. It principally was driven by the investment in the US interstate highway system. There was a Canadian version of that made land available for newly emergent World War Two veterans to begin to form families and move out of cities into newly formed suburbs. They also enabled young people to move out of rural communities into newly formed suburbs. And along those highways and byways, shopping malls were created. This was a new thing was fueled by customers, very inexpensive land and all sorts of subsidies provided by suburban communities to incentivize construction. They also provided employment for these newly minted families, and entertainment for young people from these families. The department stores became the anchors of these developments. They were often operating in spaces that were substantially subsidized by the developer, who would either build the store provides the store with enormous economic support, do free rent deals, things of that sort. In the case of the United States, Sears Roebuck was one of the original landowners through a subsidiary called Homark, which had staked a claim more or less as the prospectors in the 1800s had state claims for gold and silver in both the US and Canada. Alongside these highways, and and so the department’s stores formed the anchor tenants of these malls.
Mark Cohen 4:30
The concourse is between the central hub of the mall which became the food court, if you will. The concourses were filled with a new retail phenomenon – the specialty store. These stores emerged, often incentivized by developers with build out allowances and tractive rent deals. And so the department store now had some competition but they also had this enormous influx of customers. And so for a period of time, everybody did well, the developer did well. The anchors boomed. Although the anchors in most cases, moved the principal activity of their stores from their downtown and pouring them into these new malls. The downtown business suffered not only in department stores, but the mom and pops (who had occupied the downtown business districts). If they didn’t move out to the mall where the customer was now shopping, they basically dried up on the vine. And so this mall phenomenon hollowed out downtown retailing and hundreds and hundreds of US and Canadian cities. It didn’t happen overnight. It happened over a period of two three decades. But it became increasingly apparent that customers love shopping, working and basically hanging out at the mall.
Mark Cohen 6:01
Of course, success brings competition. So that first mall at the bottom of exit ramp number one, on the north side of the highway, brought a competitor about a mile downstream on the other side of the highway at the bottom of a different exit ramp. And they both did well. And then a third one, of course, arrived on the scene. This is while the suburban communities throughout the US and Canada were growing in leaps and bounds population. And so everybody was happy. Land remained relatively inexpensive, and tax revenues boomed. This was a happy thing for all involved in the 70s. And of course, the third, the fourth, the fifth mall, began to cannibalize the original malls. And each new mall became a brighter shinier and larger penny with more anchor spaces, more specialty tenants, and more available parking. There was a view that “if we build it, they will come” and that worked for a lot of years. And then it stopped working quite as well, but it was still viable. And then, here comes ecommerce.
Mark Cohen 7:17
Suddenly the customer who was tethered to a local mall, typically within a seven mile radius of their home (that was the benchmark that that was typically in place throughout North America) and now she was no longer tethered. She didn’t have to put up with her crappy Macy’s or crappy Bay or whoever – and she now had choices. And she loved the fact that she had choices. She could shop, browse transact from the comfort of her home in any way in which she saw fit, including shopping in the mall that she chose to wear. Well, the internet emerged as we know it with a an upstart called Jeff Bezos in Seattle selling books and DVDs from his garage. And a lot of the then geniuses running these department stores took the view and I was in the room with some of them. That this internet thing was just a fad, it would never amount to anything, after all, who would give someone their credit card number via an internet connection. And I was senior enough to get away with pointing out that that was a stupid view. Because every time you go to a restaurant, you give someone access to your credit card. What’s the difference? Is there a difference? The rest is history. Bezos started a migration path from brick and mortar into ecommerce. And the business has been booming ever since. It was growing in double digits, right up until the onset of COVID when it became turbocharged. While all this was going on, the decline in productivity of the shopping mall, became increasingly problematic. Because there’s only so much economic activity in any community. And when too much square footage is produced. You get transfer sales, you get a dilution in an impact invariably. And then of course, between these malls. There was the rise of the strip center power center. After all, you had to fill in the space, off ramp between the malls. And so retailing continued to grow virtually exponentially for many, many years. And the department store which had been in the catbird seat, having been the purveyor of almost all things that customers would want to buy now found itself in tremendous competition between specialty stores and big box players. They were not the only game in town. And they didn’t behave, in many cases, wisely in the face of that competition. They in fact ignored it for many years in many of these stores, as if to make believe that this was an illusory thing. It didn’t go away.
Mark Cohen 10:36
The department store which was this enormously profitable enterprise became increasingly problematic, in the manner in which it was doing business. In many cases, these companies began to merge, to consolidate, they began to go public. They now had shareholders who demanded performance. They started to cut corners. The wonderful customer service that they had proudly heralded as their legacy became problematic. The wonderfully appointed stores became, in many cases shop-worn and shabby. The ability for many of these department stores to provide a really orderly flow of inventory to their store shelves became problematic. So all the customer needed was an alternative. And they sought it with a vengeance. There were all sorts of financial shenanigans that went on over several decades as these public companies did short sighted things to prop up their share price and to keep their shareholder happy. And they also cut the assortments that they carry.
Mark Cohen 11:57
So, for example, when I was the CEO of Lazarus in the Midwest, this is circa mid 90s. We were a traditional full line department store, we even carry things like appliances. We had in the past carried hardware, but had ceded that to a Sears Roebuck, but we were a full line department store and then of course, the enlightened and foolish management (I say enlightened, in quotes) decided that apparel and accessories was really the only game in town because of the margins that that business provided, and looked askance at appliances, consumer electronics, businesses, which carried with them lower margins. And everyone feasted on the boom in apparel and accessories. But of course, like all things, most categories exhibit a cycle of boom-bust. And now, years later, the department stores that still remain in business who only have for the most part apparel and accessories to sell are trying hard to keep the lights on. And these boxes require constant investment, not episodic investment. And so when the carpet wears out, you replace it or you look like a place customers don’t really want to go. There’s been a tremendous amount of consolidation. This is a phenomenon not not particularly to retail with the airline industry has consolidated the consumer electronics businesses consolidated. Most retail most consumer facing businesses and now most industrial businesses have gone through cycles of consolidation. As new technology and new marketplaces emerge.
Mark Cohen 13:43
The internet is here to stay. The customers affection for e Commerce does vary by category but what we’ve seen as there’s virtually no category is immune from intrusion or disruption via the internet. Most department stores just don’t have any Mojo left. They don’t have what made them famous, which was wonderfully crafted assortments of really wonderful merchandise with a branded or private label, very well attuned to customer’s preferences and needs in a in a very, very inviting setting of customer service and presentation surrounded by all sorts of ancillary and appealing activities that played to the holidays. They also provided credit because post World War Two, very few customers only the most wealthy had possession of a credit card. There were very few credit cards (Diners Club, for example was one of the first) or the did business with customers of some consequence by “house accounts”. So you’d buy things from a store and your transaction be recorded and receive a bill at the end of the month, which you would be expected to pay. While the department stores in this case, this was Sears Roebuck in the US, which was one of the first and I guess when Simpson Sears joined forces in Canada, they they hopped on the bandwagon. They provided a store card and made it available to newly formed families who were trying to outfit their homes with furniture and appliances and put clothes on their kids and didn’t have any available cash to speak of. Because they were just starting out. And so the department stores had both the goods, the convenience, the service and the enabler which was credit. So it was ‘all good’. And then it became ‘less good’. Now it’s become unfortunately in most cases ‘no good’.
Mark Cohen 16:01
The department stores always were promotional but carefully so. As they desperately tried to keep the lights on they began became increasingly promotional to the point where they weren’t selling anything regular price. The regular price viability of their assortments had disappeared. Pretty much that’s the case today. And the devotion to product sort of went by the boards and and now with increasingly powerful brands choosing to go vertical (which sell which is to say sell their products themselves through their own stores and their own internet sites), the department stores which used to have exclusive possession of those brands (if you wanted to buy a particular brand you typically had to go to the department store to do it) has gone by the boards.
Mark Cohen 16:58
The opportunity to prop up assortments via private label was always there. And some stores took advantage of that. I’ll go back to Sears. It was certainly the Kenmore appliance business, Appliances at Sears Canada was 40% of Canadian appliance purchases. And the biggest share of that was 10 more. And Craftsmen and Hardware and outdoor power products had a similar tremendous share in the marketplace. Well, that mastery required enormous investment and product development, devotion to excellence and that disappeared – pretty much gone. So what are the department stores stands for? What raison d’etre do they have with which to move into the 21st century and be prosperous? And at the end of the day, sadly, most just don’t.
Mark Cohen 18:00
Now, I haven’t been to Canada in a while, so I’m going to be careful because someone would say, hey, what do you know you have been there a long time. I’ve heard stories about The Bay. The Bay was not in great shape when I was there. They was not a wonderful place to shop, but still did business. Sears Canada took a lot of share away from them while I was there happily. So Eaton’s, of course is an artifact that went by the boards when they finally threw the towel and Sears Canada bought seven of their properties. In the US, Macy’s struggles with a strategy they call ‘Polaris’, which to me makes no sense, which is largely investing in outlet centers installed in their stores, much like what I’m told, The Bay is going to do when they recreate Zellers if they actually go through with that. Hey, it’s always about the merchandise. So if you stand for the cheapest price, you become a downmarket emporium. The department stores used to have basement stores which satisfied that very value conscious customer then they gave that up because they didn’t think it needed it. Now they’re getting back into that seemingly with a vengeance. Can they recover? Well, it requires inspired leadership, talent and capital. There’s a lot of money around. There’s not a lot of talent. There’s a lot of nascent talent because in any organization filled with young people, you have talented people, but there’s very little if any inspired leadership. The leadership that I have had contact with is large, the leadership suites are largely populated by survivors who’ve managed to acquire their seats through efforts that don’t suggest they are interested or capable in mounting a future strategy.
Craig Patterson 20:13
Can we talk a bit about Lazarus when you were there? I’d be curious to know more because Lazarus was headquartered in Columbus, Ohio with stores over a million square feet. Now I don’t think it’s open. But Macy’s really took all the names of these local department stores that removed the localization from from the whole process that made department store special in the United States (and in Canada, I suppose, as well).
Mark Cohen 20:34
Well, Lazarus was originally headquartered in Columbus. Lazarus was founded by the Lazarus family, which were one of the original department store families. And that family was part of the foundation of Federated Department Stores. Federated, of course, having bought Macy’s and now all their remaining stores are titled Macy’s. Lazarus was consolidated just before I got to Lazarus as president then CEO. Lazarus had been consolidated from Columbus down into Cincinnati with a sister division of federated called Shillito’s. So Shillito’s became Lazarus now based in Cincinnati, Rike’s another federated sister store based in Dayton, was consolidated into the newly formed Lazarus. And then there were a handful of other stores, Herpolsheimer’s in Michigan, and Block’s in Indianapolis, and so the Lazarus division was a a hastily constructed attempt to provide more scale and to provide more performance. I joined when Lazarus was running 10th in a seventh horse race among the seven divisions of federated. It was a mess. Now how did I get to Lazarus? Well, I had rejoined federated having started my career there at Abraham & Strauss years and years earlier. By joining Goldsmith’s (a federated division based in Memphis, small division, very profitable) and I hadn’t even opened the latches on my suitcase when a Canadian named Robert Campeau surfaced. He had taken over Allied Stores, a department store group in the US in a semi hostile takeover, and then had turned around and done the same thing with Federated. So I arrived in Memphis, and Bob arrived in Cincinnati. And Bob immediately merged the Memphis operation called Goldsmith’s into the Rich’s operation Federated stores in Atlanta. And I was out of a job and he refused to pay my contract and demanded that I sort of hang out. And a month or two later, to make a very long story short, I wound up in Cincinnati as president then became CEO. Campeau was brilliant at getting the banks into supporting a series of hostile takeovers in which he put virtually none of his own money in. And Federated teeter-tottered on bankruptcy for a couple of years and then eventually had to go into bankruptcy because Campeau Corp was a bankrupt company. While Federated was trying to get out of Chapter 11, there was a whole host of efforts to improve its performance largely by exiting businesses that were less profitable than other businesses. And folks like me at the time, were sort of kicking and screaming over this because many of us envisioned in the midterm to longer-term that these businesses we were exiting would be businesses, we would rue the day we had walked away from.
Mark Cohen 24:07
And so the department store used to be a place to shop for almost everything you can think of and now it was only a house built on current fashion and current fashion appeal, which is wonderful when the cycle is in your favor and not so wonderful when it turns the other way. So, it’s a genre that has seen its day. Will it completely disappear? Well, it’s almost completely disappeared. These boxes don’t get repopulated very easily you know. You could argue that the department store declined, took down the wall in many locations in North America, or was it the mall that took down the department store? Chicken or egg – it doesn’t really matter. They both prospered during the good times. They’re both struggling today except for the super regional malls that still command the customers attention.
Mark Cohen 25:11
I think the struggle is to come up with brilliant assortments that are suitably differentiated, hand in glove with an omni channel, ecommerce strategy that the customer would find appealing. And that’s easy to say not easy to do, but it’s doable. It’s not a fast-fix strategy, it requires years of formulation and gestation. But for those with the wherewithal and the skill and the financial backing, it’s possible. But we’ll have to wait and see. In Europe, where the great American or Great North American shopping mall has never emerged (particularly because there isn’t the land available) and the population is still closely centered around urban centers (Europe doesn’t have the kind of suburban development that we’ve seen here in North America), downtown retail is still viable in many downtowns. And some of the old-style department stores have prospered. Although as they did try to venture off into malls (where malls were created), they’ve struggled. So, for example, Harrods is, you know, a beacon of light and they’ve never been successful outside of Knightsbridge, but they’ve pulled their horns back in and the Knightsbridge store is a magnet for both residents and tourists. It has survived Brexit and will survive this current period of stagflation-inflation and will continue to be an iconic emporium.
Craig Patterson 27:06
What makes these stores like Harrods, Selfridges, Galleries Lafayette amazing? People are still going to these places. They’re tourist attractions, and quite exciting. And let’s talk we talked about that a little bit? Because these are actually not bad stores compared to what we have in North America.
Mark Cohen 27:23
Well, they’re there. They’re physically attractive spaces. As opposed to same old – same old rectangular boxes that have seen better days. They have lots of architectural appeal. They are filled with merchandise that customers want to touch, feel, and in many cases purchase. They’ve done it through affiliation with brands that they have some element of exclusivity with. They’ve done it by leasing spaces to brands acting as brand’s landlord, which is a European and Asian model that’s never really taken hold here. They typically provide far better customer service. So the customer not only is entering a place that’s attractive and appealing that’s filled with goods they want to consider, but the customer service that they are exposed to is appealing, as opposed to diffident or non existent. They thrive or fail based on their execution ability. And some have thrived and some have faltered and researched. Galleries Lafayette was hot as a pistol years ago and then they moved to New York and they failed miserably and then they started to fall apart in France, and now they’ve resurged. Samaritaine, taken over by a billionaire completely redone. Sort of a ninth wonder of the world in some respects if you’re into interior architecture. Selfridges, which was a sleepy, dumpy store put itself on the map through the efforts of a CEO, who is now running a department store chain in Italy, did a brilliant job of creating wonderfully exciting differentiated assortments in a setting that was very attractive. Now interesting, Selfridges tried to recreate that magic by opening up a store in Birmingham, which failed or which was certainly less successful because they couldn’t quite translate all of that wonderment to a smaller market, a smaller box. Which is the enigma that department stores face. If you’re going to be doing business across a portfolio of locations, the magic has to spread across your entire portfolio. As opposed to your downtown store looks great your branches don’t. What can I say? It’s amazing that through thick and thin, pandemic, economic disruption – customers don’t disappear. And customers worldwide have an affinity for new and exciting products in a setting they find attractive, convenient. And where the department stores used to be the only game in town, they certainly aren’t any longer. And for them to continue to prevail or survive, they have to recreate that magic. And it’s just not happening. Not happening in the US. And I suspect it’s not happening in Canada either.
Craig Patterson 30:49
I wouldn’t say so, generally. We have La Maison Simons which is more of a fashion retailer with really cool architecture, interesting product, most of which is their own private label. It’s almost like a large, I don’t want to say H&M or Zara, but it’s very, very private. The good examples that you use for department stores, they’re obviously more upscale with the concessions that are in there. Selfridges has Gucci, Chanel, Prada. We’re seeing that across the European cities and also even in Asia, where they’ve got some really tremendous department stores. Now in North America here, you mentioned we don’t have the same inspired leadership in terms of creating a compelling environment that’s a place a person must go to, its entertainment base. Any idea why we don’t really in North America – I can’t think of a department store that would be like Selfridges here outside of perhaps Mexico City – if you can include that being North America – and I’m speaking to El Palacio de Hierro.
Mark Cohen 31:40
The original department store model was created by individuals at the top of families that own the business that had the vision to create an expand their enterprise. And they had the wherewithal and they didn’t need to seek shareholder approval to do it. They pounded a stake in the ground and said this is where we want to be and this is what we want to represent and they delivered against that. As these businesses have all become part of conglomerates, they’ve lost that individuality. They don’t have people at the top of the business who have that experience, that talent, that skill and that support. And, in the case of Selfridges, it was owned then by the Weston family who greenlighted this CEO’s strategy of reinvention, and he delivered. But the Weston’s were acting as if they were the founders of the business. They weren’t, but they were acting as if they were the original founder of the business. And so, it’s tough to make an economic case for a multi-year reinvention that’s going to cost a lot of money up front, not show results for two to five years downstream. You can do it if your name is on the door, you can do it if you’re working for the people whose names are on the door who owns the business and share that vision. You almost can’t do it under any circumstances without that kind of underlying support. And then of course, the talent component of merchandising, generally speaking, has disappeared. That’s not that there aren’t smart, capable people available. It’s that they don’t have the training they don’t have the backing and they don’t have the support. And so that devotion to product to creating special assortments that a customer will notice and seek out – that effort has largely (and I say this unhappily) disappeared. So today’s buyer is making a deal based on lowest price, most flexibility rather than on most apparent, greatest features and benefits on behalf of the customer. And it’s a shame, I don’t want to I don’t want to sound too sentimental but the art of creating assortments is the art of it all. And it has disappeared from the department store industry.
Craig Patterson 34:39
I wonder if an international chain whatever looked at coming into North America and shaking things up a bit with the strategy at least there that works with a few stores. Probably not that many major cities like Los Angeles, San Francisco, New York City, maybe Toronto and Vancouver.
Mark Cohen 34:57
Retailers who cross the national border typically fail. Because they are unable to fully understand all of the nuance that they have to overcome. When Galleries Lafayette came to New York, they failed. They certainly had a perfect location, 57th Street more or less where Trump Tower is now. And where Tiffany is based. Printemps, I think, is moving to a space in the Financial District in Manhattan down near Wall Street. Having been re invigorated in France, my guess is this isn’t going to be happiness. Saks Fifth Avenue had a series of stores in the financial district that failed. Saks moving to Canada has essentially failed. It’s very expensive to transplant a sizable business across the border. The answer to your question is, are there deep pocketed enough owners, investors willing to take that kind of risk? And the answer is, I don’t think so. Not likely. Even in the face of very, very inexpensive real estate, vacant real estate real estate that’s really gone begging.
Mark Cohen 36:24
The customer has never been thwarted. She continues to shop increasingly anywhere and everywhere she wants. Her needs are being serviced. And so by moving a department store emporium into a new location, what is it that really engenders loyalty and support other than the one image on a one time basis of a new shiny penny on the block, you know? So I don’t think it’s gonna happen. Now, there have been attempts by Asian enterprise to move into North America in a big way, the most notable that I can think of is UNIQLO. So Uniqlo is essentially owned by a Japanese based extraordinarily wealthy individual. Fast retailing is the name of the company, and they’ve been extraordinarily successful in Asia. And when they came to the US, they basically said, we’re gonna open hundreds of stores in North America. And I think at this point, 10-15 years later, they’ve gotten maybe 40, or 50 stores. And they’re certainly not doing anything like the business they expected they would be able to do. Why? Because fashion, fit, finished pricing, customer operations, logistics are all different here than they are in Asia. They’re different between the US and Canada. And it’s very difficult to get that right at the outset. Or make sense of that at the outset. Zara, when they first moved into the US years ago, opened 30 or so stores. Zara being a brilliant company with enormous success behind them failed. They failed because though they had scoped out what they felt were consumer preferences, they didn’t get the logistics nuance, right. They closed all their stores, they went back to the drawing board they then reopened and now they’re doing brilliantly well. But but it took probably seven or eight years of disruption for them to finally figure that out. On a larger scale. I don’t think I don’t think the department stores have the have the chops now. Primark was going to open an enormous network of stores. They are a low priced budget value operation. I think they’ve got six in the US. They were going to have an entire coast to coast network. Whether they throw the towel and and they finally figure out how to be competitive and successful remains to be seen. I don’t know if there are any Primarks in Canada, but I know their intention was to move into North America
Craig Patterson 39:24
We don’t have any Primarks in Canada yet but one just opened in Buffalo, New York, which isn’t too far from me, I’m not planning on going there right now. But that’s as close as we’re getting right now. And you’re right there aren’t that many of them in the United States. The stuff there is really cheap and it’s expensive to do business here.
Mark Cohen 39:40
Well, you’ve you’ve got to sell a lot of merchandise. Now in the case of Uniqlo, which is a moderate price house, their flagship on Fifth Avenue was literally one of the most expensive real estate deals ever done. And they had to do well over $100 million in volume just to break even. Which is something the founder was willing to take on because it was a flagship it was the beachhead. But that’s a hell of a challenge to have to do 100 plus million dollars just to be able to pay the rent without losing money. So I think the future is really in the hands of businesses that emerge through the internet and maybe migrate to brick and mortar on a selective basis. Businesses that are in possession of assortments that are customized or differentiated so well that a customer will seek out the business, both online and in a physical setting. And the one that comes to mind is Apple. So you can buy Apple products in a variety of retailers, but not the full tilt assortment. If you want the full tilt assortment, you have to go to an Apple Store or at apple.com. And it is a simple example and they don’t carry a lot of different things. But they carry an assortment that commands attention, and loyalty and support. There’s an opportunity for private label businesses to emerge and become powerhouses. But it requires talent, leadership, and investment. And sticking power. Because you can’t create a private label today and expect it to be successful tomorrow. Customers aren’t going to suddenly discover you and embrace you, unless you’re selling something that is truly unavailable, which is almost never the case.
Mark Cohen 41:43
So the last thing I’ll say is that my observation of my own career in life would suggest that failure is virtually always a component of leadership, effective versus ineffective. All of the successful enterprises that I’ve worked for with, observed up close, have been led by very effective leaders and those that have failed have been run by far less effective. I could get pejorative and call some of the people I’ve had associations with village idiots, if you will, who have made terrible mistakes or been unable or unwilling to make creative and productive decisions. Every organization I’ve ever been involved with, associated with or had any up close association with have been filled with talented people. But their leadership is the issue at hand. If someone were to say to me, I’ve got a bucket full of cash and I want to get into retail, should I open a department store, or a specialty store, or an online version of such … I would say, don’t even think about a department store. Come up with an idea. Launch it online. See how it plays in the eyes and hearts, wallets of customers. And then proceed cautiously. And be aware of the fact that almost anything and everything you might choose to put in your assortments as your foundation is subjected to enormous competition from the get-go. So you’ve got to create something that’s appealing and then be able to defend it. And then of course, fill in all of the blanks and dots necessary to make a business profitable.
Craig Patterson 43:53
That sounds like it would be challenging. And it sounds like something that someone probably involved with like a family ownership would make more sense. If it’s shareholder driven, they’re going to want those returns and they’re not going to get them right away at the very least.
Mark Cohen 44:07
It is what it is. It is what it is. Now, the good news is as I said before, there’s no shortage of customers anywhere in the world, you’d look. The good news is the price of entry has never been more economical. Not too many years ago, you had opened a store with a long term lease and make a substantial financial commitment betting on the come that you could fulfill your obligation and you had to fill your storage shelves with merchandise. Today, you can open a website, you can develop a website for almost nothing. You can have a third party provider act as your facilitator by sharing margin but not requiring you to lay out enormous upfront expense by way of facilities, equipment and employment, you can read the crowd based on customer reaction and act accordingly without putting yourself at risk by filling historic merchandise, which may or may not be saleable. So the price of entry has never been more appealing the ease of entry. And I encourage entrepreneurially oriented folks, lots of my students these days, to put their, you know, get into the water up to your knees, and see how it feels, don’t jump into the deep end. You don’t have to read and watch closely. And some of the businesses that I’ve had some exposure to have been become brilliantly successful, because of following just that kind of pathway.
Mark Cohen 46:00
I have no skin in this game, but I’ll pitch something. So I had a couple of students some years ago, not that many years ago at Columbia, who had come from private equity and investment banking, and had decided in business school having met that they didn’t want to go back to where they had come from, they wanted to start a business of their own. These are two guys. And shortly before they graduated, they parked themselves in my office and announced that they wanted to open a men’s boot business. And I said, really? They said no, no, don’t blow us off. We’ve done our homework and MBA speak. It was white space that they had investigated. They believe there was a marketplace for very high quality men’s boots, casual, rugged men’s boots at far more affordable prices than what were available in the market then. So I said, Okay, I’ll take at face value that you have done your homework, and there’s a market for this product. They’re a lot younger than me and they said we wear boots, our peers wear boots, we all want to wear very expensive boots, but don’t think we should have to pay that kind of penalty for those. So I said, Okay, what do you guys know about boots? And the answer was nothing. Well, is there anybody in your family or in your circle of friends and family that’s in the footwear business, the boot business? And the answer is Nope. So I said, So how exactly are you two genius is going to figure this out. They said, Well, we’re going to go to school on the product. And they did. And they worked hard at that. And they got lots of help from lots of people. And they started the company with a Kickstarter campaign looking for $30,000 to enable them to avoid starving to death for a couple of months. And the Kickstarter campaign yielded $300,000. And my advice to them was put $270,000 of it in a mattress, because if you spend it you’ll piss it away. And they they didn’t need to be convinced they did that. Anyway, they founded a company called “The Thursday Boot Company” and it has been phenomenally successful almost from day one, literally from day one. They sell men’s and women’s boots and other footwear. They are now into accessories, some apparel. Virtually everything they sell is direct to consumer. They did some business at the outset with Nordstrom and with Amazon. But virtually their entire business model is based on direct to consumer and what do they have to sell a wonderfully styled very high quality product at surprisingly moderate price, no promotion, never on sale. And so they’ve got a men’s boots for $199, which would be $500-$600 from a well known brand, their quality is at or better than the brand. They’re doing business globally. They’re making boots in Mexico, US and in Spain. They built an organization from scratch, two guys who were shipping goods out of one of their bedrooms. And now they’ve got an entire organization in support of the business. And they found a niche that they’ve been able to move into and defend because the footwear businesses that notice them after a while, have tried to basically brush them aside, copy them and knock them off but they’ve been unable to do it because they can’t deliver to the customer a very high quality product at a price point that’s competitive with Thursday Boot Company. So there’s this tremendous opportunity out there for very smart people who use their heads, who carefully craft their strategy and then follow it. Who don’t fall in love with themselves, like the Allbirds people seem to have and going public and taking on enormous investment support and then blowing all that money because they really didn’t know where they were going. So it’s a wonderful time, if you really have your, your head screwed on in the right way in the right place.
Craig Patterson 50:38
That is fascinating stuff. And congratulations to Thursday Boot Company, because I’ll go look them up now and see what the product is like. I had another historical question that it’s not quite off base from what we’ve been talking about. But one thing that I’ve noticed, so I’ve done some research, just given my age, I didn’t get to see some of the department stores in the same, you know, light or understanding, I would have not seen the 1980s, well, barely 70s because I was a little kid. But one thing that I noticed with the department stores in the United States and even in Canada was that, especially in the 80s, there was a good women’s designer business, and I’m talking about actual luxury brands, where you saw brands coming in, a Canadian example is Hudson’s Bay’s The Mirror Room which in 1972 brought in Givenchy, Lanvin, Pierre Cardin, and in the United States, well, I think even Lazarus had a designer business. If you were in downtown Cincinnati was what was it? What was the big department store there? Besides Pogue’s, and you mentioned, Shillito’s and a few others, but they all had designer businesses, but they all seemed to go away in the 1990s. Do you have any insight into that, because it’s just something that I’ve been looking at and curious about?
Mark Cohen 51:51
Well, the designers you’re talking about, were looking for a foothold, and the department stores were welcome to them with open arms. The department stores had customers, department stores had space, the department stores had the wherewithal to provide them with support to give them a showcase by way of a platform. But then the department stores acted in a manner which made it impossible for these brands to make any money doing what they were doing. And so they gravitated to specialty retail. And now we’ve seen a lot of those businesses go direct or, or go up market into a more rarefied version like Bergdorf Goodman, for example, or Holt Renfrew. So it made sense for them to use US and Canadian department stores as a launch pad. But it never made sense for them to build out their business there. Because even though the department stores in the day had the better customer, they really didn’t have a lot of better customers. And the economic model only was based upon the department store basically requiring that the brand subsidize the entire operation. Okay. So it was a PR opportunity for the most part, rather than a volume opportunity for the department store. It served the purpose of the designer brands at the time. But it was not a relationship that was likely to have much of a future and it has yeah, departed. Yeah. The store you’re thinking about based in Cincinnati was McAlpine’s, which had a substantial following for its designer businesses. But most of what they sold was sold at discount at the end of the season. So there was a lot of hoopty do about the launches and the introductions and then quietly, everything about sold off price, which the designer brands were willing to put up with, because that was the only game in town, but it didn’t work for them for very long either. When all is said and done, you know, things come and go. The electric typewriter is an artifact of the past the rotary telephone, the wireline phone. You know, we live in an ever evolving world. And there is no natural reason why something that had been very, very successful has any kind of a future unless there are talented, creative individuals who enable it to succeed on a future basis. And I don’t see it. I don’t see it. Sorry, you know, don’t see it. And that’s not to say that there is the possibility of success. I mean, another comment I would make. I don’t know if any of your viewers would argue the point, but there’s no reason why Sears Canada doesn’t exist today and isn’t eminently successful. Because Sears Canada had a wonderfully balanced mix of fashion and utility. It had all of the power of Sears Roebuck by way of appliances, hardware, hardlines, product with a increasingly fashionable assortment that was certainly far more appealing than its US shareholder that could go toe to toe, certainly with The Bay and never yielded the floor to the bay with private label products that that were there when I got there, I did everything I could to and courage their their support for the future, and their ongoing success. And customers certainly loved the store, the catalog, the website. Why did it fail? It failed because of the engagement of, frankly, a handful of avaricious and less than straightforward. leaders and owners who either weren’t incapable of running the business and then who saw fit to just strip it bare and and basically bulldoze it remains out for scrap. Didn’t have to happen, didn’t happen because the customer rejected the store. It’s because the store could not sustain its basis of success. I don’t know what the future will be for The Bay. But I suspect something similar is quite possible.
Craig Patterson 56:47
I want to say thank you so much. Mark Cohen. You’re the director of Retail Studies at Columbia University in New York City. And you were also the CEO of Sears Canada in 2001 to 2004. You’re a wealth of knowledge. And I want to say thank you so much for being with us here again today.
Mark Cohen 57:01
You bet. Good talking with you.
Craig Patterson 57:02
And I’m Craig Patterson. I’m the founder, CEO and publisher of Retail Insider Media Ltd. And I want to say thank you everyone for watching this today. If you’re watching this on our YouTube channel or if you’re listening to us as a podcast. Thank you so much everyone. Be sure to subscribe or whatever platform you’re seeing this here if you’re not already subscribed to us. Thank you again. Take care and bye for now.
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