WALL STREET JOURNAL | CHRISTINA BINKLEY

Over the next three years, New York City’s vaunted department stores are reimagining themselves for the future of luxury shopping—and will soon face stiff competition from a couple of out-of-towners: Neiman Marcus and Nordstrom

RISING ON MANHATTAN’S far West Side, New York City’s first Neiman Marcus, set to open in September 2018, will occupy 215,000 square feet in the new Hudson Yards, a $25 billion office and housing complex that claims to be the largest private real estate development in the U.S. The store will frame views of the Hudson River and the High Line, and whisk shoppers by elevator from an entrance on Tenth Avenue to a concierge on the fifth floor, where they can pick up items they have purchased online. Farther up at Columbus Circle, also on the West Side, Nordstrom is erecting a 363,000-square-foot store in part in Central Park Tower, a structure that aims to be the tallest residential building in the Western Hemisphere. With wiring for a full digital experience, the store will enable customers to use a smartphone app to send apparel to a fitting room without having to rifle through racks. A shopping suite dubbed the JWN Room (the initials of Nordstrom founder John W. Nordstrom), complete with lounge and bath, allows for privacy—and space for an entourage.

“The bar gets raised in New York. We’ve got to go into it having a different point of view about what it takes to be successful,” says Pete Nordstrom, the company’s co-president, talking about its first flagship in the city. “To a lot of people, if you’re not in Manhattan, you don’t exist.”

For more than a century, New York City has been home to a constellation of department stores, whose openings, closings and transformations have charted the fortunes and foibles of the city itself. They have represented the forefront of luxury retail: Henri Bendel brought Coco Chanel’s designs to the U.S. in 1913, while Bergdorf Goodman helped introduce America to the concept of Parisian haute couture. Saks Fifth Avenue, Bloomingdale’s and Macy’s endured the Great Depression and the world wars, while Barneys New York went from being a discount suit–seller to the place that forged markets for international designers like Giorgio Armani and Azzedine Alaïa. Along the way, some beloved institutions have been eulogized, their buildings demolished or repurposed—Bonwit Teller and B. Altman & Co. among them. The survivors, housed in aging and often awkwardly configured buildings, are now being challenged by thinly staffed fast-fashion emporiums, discount outlets and the growth of online shopping.

Yet 150 years after the department store’s first heyday in New York, a tectonic shift in shopping is taking place in the city. Over the next three years, a slate of new or newly renovated stores is aiming to make Manhattan once again a futuristic laboratory of retail science—all despite the harshest retail environment since the Great Recession. With open floor plans, art installations and locavore eateries, they are intended to be entertainment zones as much as shopping centers. In February, Barneys New York reopened its Chelsea location, complete with a barbershop, a bar and an outpost of the restaurant Fred’s.Bergdorf Goodman, which is owned by the Dallas-based Neiman Marcus Group, unveils the next stage of a rejuvenation of its Beaux-Arts building this fall. The project is dubbed BG 20/20, both for the acuity implied as well as the year it will be complete. This fall, Saks will reveal the beginning of a major $250 million renovation of its landmark Fifth Avenue flagship, due to be largely complete by 2018. And this month, Saks opens a stand-alone women’s-focused store in the sleek Brookfield Place shopping center across from Ground Zero.

“A few companies, after the 90-plus years that we’ve been here, have decided to come” to New York, says Marc Metrick, president of Saks. “Well, we’ve been here. And we’re not backing down.”

By the time the dust has settled in a few years there will be more than 1.5 million new or renovated square feet of shoes, handbags, ready-to-wear and jewelry vying for the attention of department store shoppers. Thus far, New York outposts of the major luxury department stores are nearly universally the highest-value properties in their chains, producing roughly twice the revenue per square foot of other locations, between $1,200 and $1,500 per square foot, according to industry sources. Yet, as one luxury-brand executive points out, the city isn’t growing new residents and tourists at the same rate it’s growing stores, so competition is about to get more heated.

This confrontation is taking place in the world’s largest fishbowl. “New York is the flagship location for many retailers, and it’s scrutinized more than other locations,” saysRobert Burke, a fashion and retail consultant who formerly was fashion director of Bergdorf Goodman. “If anyone is unsuccessful here, it’s a very public and very critical step.”

Neiman Marcus’s chief executive and president, Karen Katz, says she was initially leery of opening in New York City at the risk of cannibalizing existing business. “I was cynical about whether Neiman Marcus needed to be in Manhattan. We have Bergdorf there,” she says. “I was very nervous when we made the decision two and a half years ago.” The population that will be drawn to the Hudson Yards neighborhood—a mix of residences and offices that will be served by an extension of the city’s No. 7 subway line—helped convince her. “I think it’s going to bring us a U.S. customer who may not venture into Bergdorf now,” says Katz. She describes her current frame of mind as “giddy with excitement” about the store, which will overlook the Hudson River and the High Line, and feature a restaurant and potentially a spa. Neiman Marcus is also exploring cutting-edge amenities, such as mirrors that offer shoppers 360-degree views of themselves, which Katz describes as “an out-of-body experience.” Given New York’s competitive environment, she says, “Neiman Marcus needs to be a shopping mecca.”

For Nordstrom (which expects to open in 2019), the decision to open a Manhattan flagship is a swashbuckling move for the low-key company, whose core strategy has been to let others compete with lavish stores while it focuses on a plain and simple approach to shopping. Nordstrom chose its site for its central location in Manhattan and expansive column-free floors. Solid waveform glass facades along 57th and 58th streets by designerJames Carpenter are intended to wow passersby and shed abundant light onto the goods on display. Nordstrom is planning to use design and digital concepts currently being tested in smaller markets in the U.S. and Canada—for example, a multilingual staff and international payment systems. At its new Vancouver store, Nordstrom has hired employees who speak, collectively, 25 languages, including Punjabi, Arabic and Cantonese. The company expects the Manhattan outpost to be its highest-producing store, on par with its competitors, whose New York locations yield at least 2.1 times the revenue of their next-best stores, says Pete Nordstrom. “We’re building this store for the next 100 years,” says Jamie Nordstrom, the company’s president of stores.

Meanwhile, with its two new downtown stores, which will be a combined 100,000 square feet, Saks is aiming to cater to tourists as well as the Goldman Sachs and Condé Nast crowds that work near Brookfield Place. With an eye to the harried lives of New York professionals, Saks will offer conveniences such as a one-hour service dubbed Power Lunch: A client could shop in private dressing rooms staffed by one of the store’s stylists, receive on-the-spot clothing alterations and then enjoy a 30-minute Beauty in a Flash facial. “We need to be dominant in this market,” says Saks’s Metrick of New York.

From his perch uptown, Bergdorf Goodman’s president, Josh Schulman, says, “We welcome the competition.” For the first time in 30 years, the luxury retailer has embarked upon a gut renovation of its main floor, to be revealed in September. “We’re 115 years old, and we want to be thought of as a top-of-mind destination,” says Bergdorf’s senior vice president and style gatekeeper, Linda Fargo, a 20-year veteran with the store. “The stakes feel higher than ever.”

The renovation has simplified a confusing assemblage of ceiling heights and interconnected rooms that has haunted the store since the ’30s, when its co-founderEdwin Goodman bought up the surrounding stores in order to expand Bergdorf, which grew even during the Great Depression. Now the meandering layout will be streamlined, with high-margin handbags assembled centrally on the ground floor. There will also be a greater emphasis on fine jewelry, with the store’s oft-forgotten 57th Street entrance expanded into a grand new entry for the jewelry salon, which will be stocked with brands that are new to Bergdorf. There is also a new private viewing room—formerly, sales associates took big spenders to an office borrowed from an executive, often Schulman. He says, “I have to admit, we would have to clean up our desks quickly sometimes.”

With the store’s new gray paint scheme and furnishings that mix vintage finds with custom designs such as a huge glass folding screen based on Eileen Grey’s famous lacquered screens, the concept is residential–cum–Met Museum. The haute-home design has been a team effort led by Fargo, who says she wants to “break down some of the selling ceremony” to create a more touchable, friendly experience.

A similar exercise is at play in the new downtown Barneys, which opened in February in the precise building it vacated in 1993 (and which subsequently served as a Loehmann’s discount fashion outlet). The store, an ancillary arm of Barneys’s uptown flagship and, at 55,000 square feet, a fraction of its size, will be its fourth most productive store by year’s end, says Daniella Vitale, Barneys’s chief operating officer. There have been hiccups, she says. There isn’t enough room for shoes. There are too few fitting rooms for busy weekends. In menswear, classic pieces have undersold trendy items, leading to necessary tweaks in inventory and purchasing. And it turns out that services such as the Blind Barber—a barbershop and speakeasy that serves drinks like the Sweeney Ted and the Hot Heather—cosmetic makeovers, lunches at Fred’s and after-work cocktails are outstripping management expectations. So the store is in search of more bartenders, extroverts preferred.

ONCE UPON A TIME, department stores were the original lifestyle brands. From a baby’s rattle to a boy’s first suit to the wedding registry to condolence stationery, they catered to the circle of life. Customers found the store that best matched their tastes and offered up their loyalty. “It never was only about the shopping aspect,” says Michael Lisicky, a department store historian and lecturer. “It was the social aspect. You spent the day—these places kind of owned you.”

The department store itself was a product of the Industrial Revolution, which created mass-produced goods and shopaholics. In 1825, Arnold Constable & Co. opened a small dry-goods shop on Front Street at the southernmost tip of Manhattan. A few decades later, A.T. Stewart flung open the doors to his white “marble palace” on Broadway and Chambers. Over the next hundred years or so, stores followed New York’s wealthy shoppers from the Lower East Side up to 34th Street (though Macy’s had to transport shoppers north to its Herald Square location in the early days), and eventually to the famous Fifth Avenue corridor and the Upper East Side.

Five years after Andrew Saks’s store was incorporated as Saks & Co. in New York in 1902 (the same year Macy’s moved to 34th Street), Neiman Marcus was founded in Dallas. American retail was vibrant, fueled by New York’s commercial wealth and the Texan oil boom. Saks merged with Gimbel Brothers in 1923 and, as Saks Fifth Avenue, has occupied its current building since 1924. In 1928, Bergdorf moved to Fifth Avenue and 58th Street, on the site of Cornelius Vanderbilt’s mansion, where it still sits today. Then came the Great Depression, with winners and losers. Some of the survivors saw national expansion in mid-century, with single stores adding location after location. Nordstrom—which began as a Seattle shoe store called Wallin & Nordstrom in 1901—grew to include eight stores in the region by the 1950s and made the leap to include apparel in 1963. It is still run by the extensive Nordstrom family, and it is publicly traded on the New York Stock Exchange. Saks also expanded around the country, surviving the 1970s era of corporate consolidation as it was sold, then sold twice again in the 1990s. Canadian conglomerateHudson’s Bay Co., which also owns the New York–based chain Lord & Taylor, bought Saks nearly three years ago, launching another round of expansion. Meanwhile, Barneys, which was founded in 1923, moved uptown in 1993, the year after it opened a location in Chicago. Today, it has 15 stores nationwide, and since 2012, a controlling interest has been owned by Richard Perry’s hedge fund, Perry Capital. This summer, Perry Capital was said to have begun talks to sell a minority interest in the stores. Barneys has been outperforming expectations in the first half of 2016, according to people familiar with the company. (A Perry Capital spokesman didn’t respond to requests for comment.)

TODAY, WHAT IS OLD is new again. By piling on cafes, bars and hair salons, department stores are hoping to attract customers by returning to the full service that made them beloved in the first place. And service and experience are taking on heightened importance in a market that’s being aggressively rushed by online sales. Net-a-Porter, for example, has been offering same-day delivery to New Yorkers for 10 years. Saks is launching a service, dubbed Saks Save Me, that will send a sprinter van and stylist to deliver solutions for fashion emergencies such as little black dresses for unexpected events and replacements for broken heels—all within 30 minutes when the store is open. Other department stores are doing the same—creating convenient mechanisms to pick up or return goods in store.

“We have to work harder all the time,” says Alison Loehnis, president of Net-a-Porter Group. “New York is an incredibly, incredibly valuable market. The size of business there is comparable to some countries.”

Therein lies the rub: The essence of a luxury brand’s charisma—and its most guarded asset—is its scarcity. Yet today there are already myriad places in New York to buy a Givenchy handbag or Gucci loafers, from the department stores and specialty shops to the brands’ own boutiques. Given the existing plethora of luxury products, today’s sudden rush of development can smack of corporate hubris.

“It does make you question how much is too much,” says Robert Burke, the fashion and retail consultant.

“There’s only going to be so many points of sale we can have in New York,” agrees Daniella Vitale at Barneys. “There is some point where it gets saturated.”

In fact, U.S. consumers are showing signs of shopping fatigue. Clothing and accessory sales grew an anemic 1.8 percent in 2015, according to the U.S. Department of Commerce. In the first five months of 2016, sales barely grew at all—just a paltry 0.2 percent. The aftermath has played out in boardrooms from London to San Francisco. At Burberry this year, Christopher Bailey was replaced as CEO and handed a 75 percent pay cut after the company’s disappointing financial results; Ralph Lauren announced a restructuring and layoffs in June; Scoop—a high-end specialty retailer that once helped launch new fashion labels—shut down its stores this summer after 20 years. Gap shares plunged after a promised turnaround failed to materialize this spring. Potential scapegoats for the retail downturn include an election year’s distractions and millennials’ purported lack of interest in saving money to buy “It” handbags. The question is, Is this a blip or a new reality?

“It’s not a pretty world for retail right now,” says Saks’s Metrick. But, he adds, “we’re in this for the long run.”

Either way, fashion brands require convincing of the need for more products in the city, according to several people close to their discussions. Meeting the demands of all the new stores will require careful “divvying up” of products among stores, says one luxury-brand executive. Another says many brands often prefer to sell via their own stores and online channels, where it is easier to control pricing and discounting.

“You have to make a choice. You can’t be everywhere,” says Laurent Claquin, head of Kering Americas, who oversees brands including Saint Laurent, Gucci and Balenciaga in the U.S. Decisions about which Kering products to distribute where—for instance, Alexander McQueen womenswear at Bergdorf but Balenciaga menswear at Barneys—are made after careful negotiations. Other companies have already aligned with certain stores: Bergdorf will sell Chanel fine jewelry in its renovated salon, while Chanel apparel will go to Neiman Marcus at Hudson Yards, according to people familiar with the stores’ plans.

Enlisting brands is a ticklish subject, particularly years before a store opening, and neither Neiman Marcus nor Nordstrom would discuss brand strategies. Related Cos., the development company behind Hudson Yards, sweetened Neiman’s deal as an anchor tenant with incentives including a break on the first three years of its lease, Related’s chief executive, Kenneth Himmel, told WWD, saying he expects that Neiman Marcus will see revenues of $200 million a year initially. (A Neiman spokeswoman said the company cannot comment on “rumors.”) The mall at Hudson Yards, meanwhile, hasn’t yet convinced many luxury brands to sign leases.

According to the model now emerging in New York, the future of department stores is actually an anti-department store. Most are doing away with the units that once segregated designers and price points in favor of open-floor plans that give customers a seamless experience and more closely match the way they live. “We have de-departmentalized the department store,” says Metrick of Saks, which will mingle womenswear across price points together on one floor, the better to encourage browsing. Men’s shoes—the hero of men’s fashion these days—will be front and center, not off in a corner or upstairs. At Nordstrom the aim is to make the store easy to navigate, with open views so no merchandise is hidden behind corners, and no separated silos for lingerie, shoes or other items that traditionally occupy separate departments. “We want to be the most convenient place to shop in Manhattan,” says Jamie Nordstrom. Even the term department store has itself become anathema. Both Vitale and Barneys’s chief executive,Mark Lee, say they prefer specialty store.

Ultimately, Saks’s Metrick says, success will require making the brick-and-mortar experience as compelling for 21st-century shoppers as it was a hundred years ago, while simultaneously serving customers online and off.

“We look at Saks Fifth Avenue in New York City as an ecosystem,” he says. “Why would they even leave home if they can shop on Saks.com?”