Survival strategies for Macy's, Penney's, Target, Neiman's

An economic slowdown tends to spook the retail industry. When the economy sputters, people close their wallets and delay purchases, and stores suffer. Store chains, after all, can't survive very long without robust consumer spending.

But retailers don't just stand there and take a beating. They slim down, shut stores, trim inventory, slice payroll and take other strategic steps they hope will help them endure the pain. Some stores even thrive in recession even as others struggle.

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With fears that the coming months could be the toughest for them since the 1991 recession, retailers are fighting to gain any edge they can over their rivals and to cushion themselves from the slide in customer spending. Many of them are redeploying staff and revising promotions; some are putting a new stress on low prices. In the end, they know, some of them will be winners, others losers.

"I see clients being more aggressive about promotion and reviewing the strategy by which they promote and how often they do it," says Madison Riley, a retail strategist with consulting firm Kurt Salmon Associates, whose clients include most major retailers.

The stores' strategies vary. So do their prospects for success. Much depends on how vulnerable they are in the first place.

Retailers that specialize in furnishing or refurbishing homes have been among the hardest hit. Specialty stores with highly discretionary products, such as the high- and low-end tchotchkes sold by Sharper Image shrp and Lillian Vernon, respectively, may be worst off of all. Both retailers filed for Chapter 11 bankruptcy protection last week.

Specialty apparel stores are struggling, too. Even though some clothing, especially for growing kids or for career women, is regarded as essential, sales figures suggest that many of those purchases are being postponed.

Home Depot hd has slashed 500 jobs at its headquarters. Jewelry store chain Zales zlc has announced plans to close 60 stores, and Ann Taylor plans to slash 180 jobs and close 117 stores within two years.

"The retailers accept that we're in a recession — smack in the middle of it," Riley says.

Among the most visible ways that stores are trying to ease their pain from the spending slowdown:

•Merchandise. Retailers must take care not to stock too little of the latest hot fashion or product — or showcase it too late. Many stores, Riley says, are working more closely with overseas suppliers to settle quickly on designs and shorten the development process.

•Pricing. Even retailers that try to avoid across-the-board price slashing are embracing the deep discounting trend, which Wal-Mart capitalized on so successfully last fall and holiday season.

•More consumer input. Retailers can't afford to wait until the end of a season to determine which trends will prove most popular. Riley says stores are stepping up consumer research and using their websites to gather real-time opinions from shoppers.

Thanks to luck, foresight or a bit of both, some retailers are better positioned to manage a downturn. Those with low, low prices — think Wal-Mart wmt and off-price retailers including T.J. Maxx tjx— and those that cater to the wealthy are tending to outperform those in the middle.

But opportunities exist for midlevel retailers, too. If shoppers are trading down to Wal-Mart, as its sales suggest, then more affluent people may be ready to cut back on their Bloomingdale's trips in favor of Kohl's kss. Tough economic times tend to diminish loyalty to stores across the spectrum.

"In this type of economy, the super shoppers get coupons out and check things online; they're going to be loyal to themselves first," says Phil Rist of the consumer insights firm BIGresearch. "Everyone's trying to find ways to make their money go as far as they can so there's something left for things they really want."

Christopher Maddox of Washington, D.C., says he's not giving up on Macy's m, one of his favorite retailers, but is being far more cautious about his purchases this year.

"I'm only buying essentials due to the economy," Maddox says. "Luxury and big-ticket items are not in my budget due to increased costs of gas, food and utilities."

What follows is a look at the strategies of four retailers — Target tgt, J.C. Penney jcp, Macy's and Neiman Marcus — that draw from often-overlapping segments of shoppers.

As they brace for a possible recession, these stores are re-examining, in particular, four areas that will be most evident to shoppers: inventory, staffing, store openings and promotions.

J.C. Penney

Damn the economic naysayers, J.C. Penney is designing its most ambitious five-year plan for store openings in its history and last week oversaw its largest-ever merchandise launch. Still, facing a persistent drop in consumer spending, CEO Mike Ullman says the chain is scaling back those store openings from 50 to 36 this year and will adjust its inventories to reduce the need for hefty markdowns.

Ullman hopes that Ralph Lauren's new American Living fashion, home and footwear line for men, women and kids will further invigorate the Penney brand, which has drawn more and younger customers with the addition of the Sephora makeup line and two private-label lingerie lines designed, in part, to compete with Victoria's Secret. The American Living line will be found in 600 of the chain's 1,000 stores, often with its own in-store shops.

Deutsche Bank senior retail analyst Bill Dreher questions whether now is a good time for Penney to launch a line that's about 25% higher-priced than similar merchandise already in its stores.

Under the deal, Ralph Lauren's name won't appear anywhere on the new merchandise or displays, Dreher notes. Kohl's, by contrast, was able to connect the Lauren name with its Chaps line for many years, which helped keep customers aware of the connection. The new line is "no panacea," he says.

Still, Dreher notes, Penney has successfully reinvented itself over the past decade from a chain known for "dowdy, older-lady-type fashions to one that's very much hip, on-trend and cool." More recently, Penney has recognized that its catalog business is less important now than its website, he says.

About six months ago, Penney decided to merge its store, catalog and online marketing operations; the change will result in 100 to 200 job losses. Ullman insists it's "not a cost-driven exercise," but rather one that'll give shoppers "one view of our merchandise."

"People expected us to have cost-cutting, but that's not how you grow a business," Ullman says.

Ullman says Penney benefits by serving the "middle third" of the country, where people aren't "living paycheck to paycheck." Still, all bets are off if a weak economy grows really sick.

Nick Birchfield of Garden City, Mich., is still shopping at Penney, but that could change. If the economy gets much worse and gas prices rise higher, he says, "I will not be shopping at J.C. Penney unless they are giving their merchandise away."

Neiman Marcus

Neiman Marcus is preparing for a possible sales slowdown, recognizing that while affluent customers might not trade down to lower-quality stores, they might buy less even if they remain loyal.

The luxury retailer may adjust the amount of merchandise in stores, but otherwise is "just continuing business as usual," says spokeswoman Ginger Reeder.

Neiman "knows how to react," to economic troubles, Reeder says. That means preserving its customer service and high-quality merchandise but adjusting its inventories to concede the reality that its customers may be tightening their snakeskin belts.

"We've found our customers are very resilient," says Reeder, referring to Neiman's history during past economic slowdowns. "They're not trading down but might potentially buy less."

As at other luxury retailers with strong presences in California and Florida, Neiman's sales have suffered along with their customers' finances during the housing recession, says Craig Johnson of retail consulting and research company Customer Growth Partners. But for the "premier luxury retailer in the U.S," in Johnson's words, suffering means merely moderate sales growth — down from double-digit increases in recent years. "As the economy stabilizes and spring returns, we look for improving results," Johnson says.

Neiman's focuses its promotions on two major sales a year, which Reeder says won't change.

In this economy, sales figures show, the safest demographic spot for retailers to occupy is either the low end or the very high end. "Middle-market department stores continue to bleed market share to discounters such as Wal-Mart and TJX, to high-end players like Saks sks and Neiman Marcus and to hot specialty stores such as Anthropologie," Johnson says.

As Reeder suggests, those who remain loyal to Neiman's through economic turmoil are typically those who prize quality over price.

"I still shop at Neiman's and will continue to," says Amy Cavers, of Skillman, N.J. "If things worsen or my budget gets tighter, I may cut back on my volume if anything, but not where I shop. I still want the same quality in my purchases. … I would rather have fewer shoes and dresses but with the same uniqueness and flair or style that I expect."

Jennifer Stillman of Atlanta says that rather than cutting designer labels out of her apparel budget, she's buying groceries at Wal-Mart and Costco cost over pricier markets such as Whole Foods wfmi.


The nation's largest department store chain concedes that the economic slowdown has forced it to put off plans to scale back its sales and promotions.

"We still believe the strategy is a good one, but the timing not necessarily good," says CEO Terry Lundgren.

In 2006, Macy's said it was trying to wean customers off frequent sales in favor of its "Every Day Value" pricing. Though Lundgren says there were slightly fewer promotions in 2007 than in 2006, he says Macy's won't reduce the timing or the number of sales until consumer spending starts to bounce back.

All the great deals now in stores are one benefit of the depressing economic news, says Marietta Landon of Cambridge, Mass. She finds sales everywhere she goes. "Especially Macy's — they make every weekend a sale with saving passes and advertising galore," Landon says.

Macy's says its plan, announced earlier this month, to eliminate 2,300 management jobs in the company's central office and create 250 new ones in its local markets wasn't necessarily driven by the economy. But saving about $100 million a year sure doesn't hurt. The plan to localize decision-making "was conceived long before there was talk of a credit crunch or mortgage crisis, but executing it now in the face of a possible recession does have its benefits," says Macy's spokesman Jim Sluzewski.

The addition of Tommy-Hilfiger-branded men's and women's apparel this fall, which will make Macy's the only place to buy the brand in the USA outside of Hilfiger stores, should further boost sales, he says.

Macy's has also announced plans to close nine poor-performing stores this year. Though struggling with some of the same issues that its rival J.C. Penney faces in catering to the middle class, Macy's holds an advantageous position, says Phil Rist of BIGresearch. That's because Macy's enjoys the image of being something of a novelty in many areas since it renamed the former May department stores in the fall of 2006.

Its clientele is generally more affluent than Penney's, notes analyst Bill Dreher. Still, in times like this, even a Macy's will likely be hurt by the tendency of customers to cut back on non-essentials.

"All the department stores are vulnerable because they are about 80% apparel and 20% home goods," Dreher says. "After years of strong apparel sales, customers have full closets, and with a weak fashion cycle, there's nothing fashionistas have to run out and buy."


"Hello goodbuy."

Couldn't that be a Wal-Mart slogan?

As the economy struggles, Target, long known as the purveyor of the well-designed product, is increasingly spotlighting its low-priced goods. "Hello goodbuy" is the tag line for ads that now focus as much on the price of its products as they do on their style. After all, in a down economy, hand-painted toilet-bowl-brush covers that cost several bucks more than the next one are seldom a major consumer priority.

That leaves Target more vulnerable in this economy than, say, Wal-Mart, says Deutsche Bank senior retail analyst Bill Dreher. It may be a discounter, but it's hard for it to compete with Wal-Mart on price, Dreher says.

"Target has historically focused more on being fashion-forward and having value-added design," Dreher says. "The problem is, consumers don't want that now. They're not redecorating or refurbishing their homes. They're looking for everyday life staples."

At the same time, Dreher says, Target is better positioned than department stores these days.

Target has been trying for years to get its low-price message across, says spokeswoman Lena Michaud. And she says its business plan will carry it through hard times: "We are very confident in our strategy going forward."

That includes trying to rein in costs in a way that customers won't notice. That may be difficult given that a key target is hourly payroll expenses. Michaud says Target is investing in technology to make sure workers are scheduled at the right times. Unlike some of its competitors, Target is sticking to its plan to open stores, about 100 of them, which Michaud says is consistent with the number it has opened in recent years.

The chain is also preparing for the departure this year of designer Isaac Mizrahi, who has a line of popular private-label apparel at Target but is leaving to join Liz Claiborne. Spokeswoman Susan Giesen says Target will still offer apparel from trendy designers, which, along with the new Converse All-Star apparel and footwear line, should fill any gaps in its clothing lines.

That might not be enough to keep clothing customers loyal. Based on BIGresearch's survey data on people who shop at Target primarily for at least one category of merchandise, these consumers are shopping around. "The folks who shop at Target for health and beauty aids — a lot of them go to Kohl's, Macy's and Penney's first for clothing," says Phil Rist of BIGresearch. "There's a lot of cross-shopping."

Contributing: Erin Kutz