Department Stores Falter In New Urban Economy

THE downtown department store - a mainstay of United States urban communities for the past half-century or more - is floundering in deep financial trouble.

In the past few weeks Alexander's Inc., a New York-based chain, announced the closing of its 11 stores and filed for Chapter 11 bankruptcy proceedings, and R. H. Macy & Co. said it will close eight stores as part of a cost-cutting effort. Macy's is expected to close additional stores in the months ahead as it tries to emerge from bankruptcy.

In the Pacific Northwest, the once-prominent Frederick & Nelson chain shut its doors earlier this week. The downtown Seattle store had been a hub of the city's shopping district since the Roaring '20s.

The stock prices of a number of department-store chains with urban outlets have zigzagged up and down recently, reflecting sluggish growth in the economy.

"Downtown department stores around the United States are clearly facing long-term problems," says Janet Mangano, a retail analyst for Burnham Securities Inc., an investment house. "There are some vibrant areas for downtown retailers: Chicago, for example, where State Street and upper Michigan Avenue continue to do well."

But in many US cities, Ms. Mangano says, big downtown stores are vulnerable to slow economic growth and changing demographics, with fewer affluent consumers living in the cities. Another challenge is high costs for labor and building upkeep compared to department stores in suburban shopping malls.

In some cases, the recent closings have meant the loss of the last remaining department store in an entire community. That is the case for Plainfield, N.J., which once had several major downtown retailers. Newark, N.J., which once hosted a number of prominent large department stores, now has several lesser-known department stores. The Macy's on Main Street in Columbia, S.C., was the last big department store in that city.

Ironically, the collapse of Alexander's and the downsizing of Macy's come against the backdrop of a gradually improving economic setting for the overall retail industry.

Sales for the first three months of this year, while not vibrant, were at least acceptable, retail analysts say. They expect 1992 sales to at least equal, if not outpace, 1991 results. Last year's retail sales were the flattest in three decades, rising only 0.76 percent over 1990, according to the US Commerce Department.

J.C. Penney Company is expected to do well this year since its stores tend to be in shopping malls instead of downtown areas. But for companies like Macy's, with stores mostly in urban areas, the improving economic climate does not end the difficulties.

Some companies are cushioned by having a diverse mix of stores, some of which appeal more to affluent buyers. May Department Stores Company, for example, owns Lord & Taylor, Hecht's, and Filene's. Alexander's, by contrast, relied on its namesake stores. Frederick & Nelson also lacked retailing diversity.

Kurt Barnard, who publishes Barnard's Retail Marketing Report, says the retail stores to watch in the years ahead will be discounters with attractive facilities, rather than the big department-store chains.

The demise of urban-based department stores poses a number of problems. Jobs are lost. More importantly, the big downtown department stores have been magnets for smaller specialty stores, which locate nearby. Department stores are also important advertising sources for local newspapers and radio and TV stations.

Some experts say the loss of downtown stores will have a particularly negative impact on minority communities. Many of the sales clerks in urban stores come from minority groups. Minorities are often the stores' main shoppers, particularly in immigrant communities. Alexander's store in Flushing, Queens, for example, "did very well with Asian-Americans," says Madhulika Khandelwal, a professor of Asian-American studies at Queens College in New York.

But some retail experts say the growing reliance on minorities as customers is one of the main reasons urban department stores are in trouble. "Minorities, and the new immigrants, many of whom are more accustomed to shopping with smaller family stores than large chain stores, just don't have the spending power necessary to keep the giant urban stores going," says one retail analyst.