Department Store Profits Rival Some Online Retailers

Department stores may be falling out of favor with today’s younger consumers, but there’s a reason older shoppers keep coming back.

Whether it’s more generous return policies, promotional events or deep discounts, “if you can learn the benefits of what a store is offering you, it creates a much better experience,” said Marshal Cohen, chief retail advisor at market research firm Circana.

For example, if a sales associate doesn’t have an item you want in stock, they will often source it and ship it to you for free, Cohen said: “That’s a big benefit.”

And yet, for younger shoppers, the mindset is, “I don’t want to shop where my mom shops,” she said.

Without a doubt, in Macy’s and its subsidiary Bloomingdale’s, for example, the majority of customers are over 45, according to new data from Consumer Edge.

Baby boomers are also much more likely to say that shopping in stores is their most common way to make purchases, compared to Generation Z, or those born between 1997 and 2012, according to a Capital One report in March.

“The younger generation grew up online,” Cohen said. “The challenge for department stores is to break that paradigm.”

Social media plays a big role in how younger consumers make purchases, added Oliver Chen, retail analyst at TD Cowen. It’s a trend he refers to as “the TikTokification of retail.”

But while shopping primarily online may seem quick and convenient, it comes with additional complications.

It may mean relying on a practice known as “bracketing,” or ordering multiple products in different sizes or colors with the intention of keeping some and returning the rest, adding more time and cost to each transaction.

As online retailers try to keep those returns under control, most have implemented stricter policies, including charging a return or restocking fee, according to a 2023 report from returns management company Happy Returns.

But even now, some department stores have stuck to the more generous policies of yesteryear, with longer return times or free shipping, and that has gone a long way toward building brand loyalty.

“There are some savings opportunities you have when you shop in person that you probably wouldn’t have online,” said Edgar Dworsky, founder of ConsumerWorld.org.

Although Bloomingdale’s shortened its return period to 30 days from 90 days last year, shoppers appreciate the other perks, according to Nancy Quinn, a personal stylist at the flagship store in New York City.

“The most important thing Bloomingdale’s offers is customer service, that’s where we really shine,” Quinn said.

Quinn knows her clients, who are mostly women between the ages of 45 and 70, by appointment to help them find clothes for everyday life or for special occasions. He said he will often waive the shipping fee or courier purchases free of charge to locations in Manhattan. Sometimes he even personally delivers an item (also as a free service) if the customer is local and has time constraints.

“Those are things we try to do to make sure people know how much we appreciate the business,” Quinn said. In many luxury department stores, personal stylists work on commission and the assistance they provide is free to customers.

Quinn’s appointments book up especially quickly when Bloomingdale’s hosts promotional events, such as “friends and family,” which typically offer a 25% discount on many brands.

Still, Quinn says younger customers are less likely to shop with her.

“It’s a generational thing,” Quinn said. “Many young people buy online.” Alternatively, “the women I meet are really willing to make an investment in themselves and their wardrobe.”

To be sure, American department stores have been in crisis for years. Retailers like JCPenney and Macy’s have struggled to compete against online retailers and smaller brick-and-mortar stores that can better adapt to changing consumer preferences.

“The small new brands that are emerging have so much marketing power because the Internet levels the playing field,” Circana’s Cohen said.

However, department stores are not dead yet.

Last year, Macy’s said it would close some of its namesake stores and open more Bloomingdale’s locations. According to the company’s quarterly report, Bloomingdale’s performed better because of its focus on luxury brands that appeal to higher-income shoppers.

“Select high-end stores” are outperforming the competition, in part because “low- and middle-income consumers have been disproportionately negatively affected by the rising cost of necessities,” TD Cowen’s Chen said.

In an interview last month, Macy’s CEO Tony Spring told CNBC that the consumer remains resilient and continues to spend on new items and fashion, despite concerns about tariffs.

The challenge for department stores is attracting shoppers, even as managing inventory and pricing becomes increasingly difficult, Chen said. “It’s ironic because everyone loves stores and humans want connection.”

Subscribe to CNBC on YouTube.