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BusinessAugust 15, 2016

NEW YORK -- Department stores trying to recapture their appeal to consumers are making plans to provide more experiences such as spas and restaurants and offer exclusive selections to transforms the store into more of a destination. With shoppers increasingly buying online or from niche retailers and discount stores, the onetime pillars of retail are trying to rethink their business to keep up with consumers who want a different experience in stores than they find on their phones. ...

By ANNE DÂ’INNOCENZIO ~ Associated Press
A sales clerk arranges towels that are part of a "Buy One Get One for a Penny" sale in March at a J.C. Penney store in New York. J.C. Penney, Nordstrom, Macy's and Kohl's are reinventing themselves amid stiffer competition from online and discount stores.
A sales clerk arranges towels that are part of a "Buy One Get One for a Penny" sale in March at a J.C. Penney store in New York. J.C. Penney, Nordstrom, Macy's and Kohl's are reinventing themselves amid stiffer competition from online and discount stores.Mark Lennihan ~ Associated Press

NEW YORK -- Department stores trying to recapture their appeal to consumers are making plans to provide more experiences such as spas and restaurants and offer exclusive selections to transforms the store into more of a destination.

With shoppers increasingly buying online or from niche retailers and discount stores, the onetime pillars of retail are trying to rethink their business to keep up with consumers who want a different experience in stores than they find on their phones. That includes more attentive sales staff, pampering guests with beauty treatments and bringing in new kinds of merchandise.

"It's all about creating the experience in the store," Saks Fifth Avenue president Marc Metrick said. "They'll shop here. They'll eat here. They'll get their hair done here. They'll meet their friends here."

Macy's announced plans Thursday for "re-creating Macy's physical store presence" to adjust to customer tastes. It reported another quarter of falling profits and sales, though it said some moves, such as sprucing up its fine jewelry area and adding back some sales staff, are helping. It also said it'll close 100 stores early next year on top of the 40 it closed this spring.

The company, which is preparing for a new CEO to take over, also has launched its own off-price chain and is testing an artificial intelligence tool that would free up sales assistants to provide higher levels of customer service.

"We operate in a fast-changing world, and our company is moving forward decisively to build further on Macy's heritage as a preferred shopping destination for fashion, quality, value and convenience," said Terry J. Lundgren, chairman and outgoing CEO of Macy's Inc.

Macy's had been a stellar performer after the recession but has seen slower sales growth in the past year and a half.

Under Lundgren, the company looked for growth opportunities such as buying upscale beauty brand Bluemercury and is adding services such as same-day delivery.

The changes come against the backdrop of declining sales and customer traffic.

Kohl's Corp., which saw total second-quarter sales drop 2.1 percent even as cutting expenses helped its profit, similarly is testing off-price stores and smaller-format stores, investing more in e-commerce and sprucing up its beauty business.

Nordstrom, which reported revenue of $3.65 billion for the second quarter, meeting Wall Street forecasts, has scaled back on inventory to meet lower sales. But it also is focusing on brands that have limited distribution, such as Ivy Park and Madewell. It also is personalizing its online services -- this fall, it's testing a mobile feature that lets customers reserve products online and try them on at the store. And J.C. Penney, set to report Friday, has brought back major appliances, after abandoning that category 30 years ago, to lessen its dependence on clothing.

Saks Fifth Avenue is renovating its Manhattan flagship location with a new layout that encourages more browsing and makes room for expanded beauty offerings such as brow bars. Elements of that renovation will be incorporated across other stores, Metrick said. Saks also just rolled out new technology from a startup called Salesfloor that delivers personalized service for its online shoppers.

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Ken Perkins, president of research firm Retail Metrics, said the latest reports are somewhat encouraging, but department stores have far to go.

"All the problems they're facing are not going away anytime soon," he said.

Sales at department stores have been falling since the early 2000s. Government figures show they hit their peak in January 2001, when monthly sales came to $19.9 billion. In June, that figure had dropped 34 percent to $13.2 billion, government data show.

Adjusted for inflation, the statistics show sales falling 50 percent -- from $27 billion in January 2001 to $13.4 billion in June.

Long reliant on clothing sales, department stores have been squeezed as off-price retailers such as T.J. Maxx add stores and lure shoppers with discounted designer brands and fast-fashion retailers such as H&M offer trendier items. Shoppers are buying more and more clothing online, and Amazon.com is expected to unseat Macy's next year as the largest online clothing seller.

Overall, shoppers are spending less on apparel and shifting their discretionary dollars elsewhere. U.S. apparel sales have grown only 1 percent annually over the past 15 years, in part due to price deflation, according to Morgan Stanley estimates. Per unit, apparel prices have shrunk 13 percent since 2001 to $20.22, Morgan Stanley said. For the back-to-school season, children's clothing shipments dropped 13 percent from a year earlier, according to Panjiva, a research firm that analyzes imports.

"The department stores in the beginning were known for big-box stores that had the best selection in each of the categories they sold," said C. Britt Beemer, chairman of consumer research firm America's Research Group. "Now, they don't stand for anything."

Productivity also has deteriorated. From 2006 to 2015, sales per square foot at department stores dropped from $200 to $165, according to real-estate research firm Green Street Advisors.

More and more, department stores have depended on big discounts to lure shoppers -- a move that hurts profits. And now, major luxury brands such as Coach and Michael Kors that were a key attraction are starting to snub department stores as they worry constant sales and promotions are diluting the value of their brands. Ralph Lauren also plans to become less reliant on department stores.

Analysts believe more brands could follow, and more stores will close.

Perkins said it's likely because there is such a saturation of retail square footage. Green Street Advisors released a report last spring saying department stores need to close about 800 stores to recoup their productivity, about 20 percent of all anchor real estate at U.S. malls.

Metrick, standing Wednesday evening near Saks' new outdoor cafe that overlooks Manhattan's Rockefeller Center, said there is plenty of hope for department stores that make themselves essential.

"Bad department stores are dead," he said. "Great ones ... that's where it's going to be."

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