THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, May 29, 1996 TAG: 9605290380
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: BY ROBERT BERNER, THE WALL STREET JOURNAL
LENGTH: 92 lines
With at least 10 big department-store chains, the last thing many shoppers say the Dallas-Fort Worth area needs is another store. But that is what it got this spring, when Nordstrom Inc. came to town.
To Nordstrom, the store at the upscale Galleria Mall is a huge success. On the morning the store opened, about 2,500 shoppers were waiting outside. The company has told analysts that sales are on track to surpass $100 million for the store's first 12 months - a first-year record.
But Nordstrom's gains are bad news for the other retailers in the area - at least one of which blames declining sales on Nordstrom. Dallas, which has 39 percent more retail space per person than the national average, illustrates a problem that lies at the heart of the retail industry's troubles. Despite years of sluggish sales - and the fact that retailing experts have been saying for years that the United States has a glut of stores - strong chains continue to expand aggressively, to the detriment of their weaker rivals.
One reason: Newness sells. ``If you are doing something exciting, fresh and interesting, you can motivate the consumer to buy,'' says Daniel Nordstrom, one of the Seattle-based retailer's six co-presidents. Retailers say new openings are an important strategic weapon, particularly amid today's abundance of outlets.
Nordstrom opened a Philadelphia department store earlier this year and plans to open others soon in Norfolk, Detroit and Denver. May Department Stores Co. said Friday that it will open 29 stores this year - part of a $2 billion, five-year plan to add 125 new department stores, a 37 percent increase. Among other expansion-minded retailers, Dillard Department Stores Inc. plans to add 16 stores this year. Gap Inc. has slated 60 to 75 new Old Navy Clothing Co. units. Wal-Mart Stores Inc. plans 75 to 100 new stores, and rival Target Stores, a division of Dayton Hudson Corp., plans to open 72.
This year, 86 million square feet of new multitenant retail space will be built nationally, up 32 percent from 1995, estimates the National Research Bureau, a Chicago real-estate research firm. Already, the United States has 4.97 billion square feet of such space.
The results of too many stores chasing too few customers are clear. From 1985 to 1989, when the total retail footage in America was 17 square feet per person or less, profit margins as a percentage of sales averaged 6.9 percent, according to Standard & Poor's Corp. In the 1990s, per capita footage rose to 19 square feet, where it has remained - and margins averaged 5.8 percent.
``The '90s are much closer to a zero-sum game than the '80s,'' Nordstrom says. ``All you are doing is going after market share'' from other stores.
At the Galleria in Dallas, shoppers can now choose between Nordstrom; the Macy's unit of Federated Department Stores Inc.; the Marshall Field's unit of Dayton Hudson; and the Saks Fifth Avenue unit of Saks Holdings Inc. At the Valley View Center mall across the street, there are stores operated by Dillard; Sears, Roebuck & Co.; J.C. Penney Co.; and the Foley's unit of May.
``It's insanity,'' says shopper David Miller, standing in the parking lot at Valley View Center. ``It does not seem economically feasible to build more stores.''
But more are coming. The region has 26 malls, and five more are planned. Some 1.5 million square feet of multitenant space is scheduled to open in the Dallas-Fort Worth area in the first half of 1996, adding to the 115.5 million-square-foot total at the end of 1995, estimates M/PF Research Inc., a Dallas research firm.
Retailers are lured to the area by a population of 4.5 million, and by a growing economy that helps support their spending. ``We've got some major-league shoppers in this city,'' says Stephen Taylor, president of the North Dallas Chamber of Commerce.
Nordstrom admits the Dallas-Fort Worth area has too many stores. But he contends there is a place for a retailer that offers merchandise matching local tastes and top-notch customer service. ``If we do a really good job, customers will respond regardless of the amount of retail square footage,'' he says.
At midday on a recent Saturday, Nordstrom's was crowded with shoppers. The number of customers was far lower at Saks and Macy's. Marshall Field's was practically empty. Ten customers were shopping in the men's suit department at Nordstrom's, while the Saks suit department was empty.
Dayton Hudson acknowledges that Nordstrom has cut into sales of Marshall Field's, but adds that it expects receipts to recover after the novelty of the new Nordstrom's wears off. Other major department stores in the area say the new competitor hasn't hurt sales.
Shoppers tell a different story. Sitting in Nordstrom's shoe department one recent Saturday, Joan Dunn lauds the store's selection and service. She confides that she has spent $500 already that day on casual pants and tops. And she expects to become a loyal Nordstrom's shopper, at the expense of the Neiman Marcus unit of Neiman Marcus Group Inc., Foley's and Dillard.
The sheer number of retailers makes the competition particularly intense in Dallas. But it is also a growing problem nationally, with no solution in sight, retail experts say. They say bankruptcy-law protection artificially extends the life of many ailing chains. And they see no end to the `grow-grow' mentality of retailers.
``It's like a prehistoric dinosaur wrestling match,'' says Robert Buchanan, an analyst at NatWest Securities Inc. ``They are all swinging their tails around and somebody is going to get knocked out.'' by CNB