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Can the department store stage a fightback?

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As John Lewis merges operations with its supermarket division, Waitrose, Drapers assesses the future of the department store model. 

Like a heavyweight boxer past their prime and on the ropes, the once-mighty department store concept is now seen as a slumped, haggard has-been of the retail world.

Today, John Lewis Partnership announced it was cutting one-third of senior management head office roles to save £100m over time. On 12 September it posted losses of £25.9m in the half-year to 27 July, down from an £800,000 profit for the same period the year before. House of Fraser’s woes have been described as nothing short of “terminal” by parent group Sports Direct, and Debenhams is fighting off administration with a company voluntary arrangement. 

However, it is not just a problem in the UK.

In the US, Barneys New York is negotiating a financing deal to stave off bankruptcy with debts of up to $500m (£404m), Macy’s reported that net sales fell by 0.5% to $5.5bn (£4.49bn) for the three months to 3 August.

All the big brands have decided to become retailers. This has hit department stores

Menswear supplier

In Australia, department chain David Jones’s operating profit nosedived by 42% to A$37m (£20m) for the year to end of June, while rival Myer’s sales slipped 3.5% to below A$3bn (£1.6bn) for the year to 27 July. 

Critics say the lumbering department store model has failed to adapt to fierce competition from lightfooted online sellers and changing shopping patterns of the millennial and Generation Z shoppers, while being burdened with costly, often crumbling estates. So, is this the end of the department store?

Big problem

Many believe the model may be in terminal decline. The managing director of one wholesale brand tells Drapers department stores are simply “oversized and over-saturated”, and there are too many individual department stores – albeit operating under different banners – for the market to support.

Department stores should be theatre: in chasing profits, they neglected the offer

Department store supplier

One department store supplier observes that the troubles are part of a bigger issue of the relevance of the model to today’s shoppers across the globe: “It’s a worldwide problem. Department stores have become too big. Department stores should be theatre: in chasing profits, they neglected the offer.”

One footwear supplier says department stores need a better understanding of their audience. “A lot of department chains chase the younger market, especially in the Republic of Ireland. The question that should be asked is: is that the core consumer?

“Their target customer is middle England, middle-aged consumers of 45-plus who are interested in service, and want a curated offer and not to have to trawl through endless web pages. The future doesn’t lie in chasing the younger consumer.”

Same difference

Another key issue for many department stores is they have lost their point of differentiation as brands increased their direct-to-consumer activity by launching their own websites and opening their own stores.

“A decade ago Ralph Lauren didn’t have standalone stores,” says one menswear supplier. “There wouldn’t be an Armani store three doors down from Harrods. All the big brands have decided to become retailers. This has hit department stores.”

We used to talk about their reason for existing, which is as a one-stop shop. The internet has become the ultimate one-stop shop

Former Debenhams director

One former Debenhams director agrees, adding that online has exacerbated the issue: “When I was at Debenhams, we used to talk about their reason for existing, which is as a one-stop shop. The single biggest thing that has challenged that is the internet, which is the ultimate one-stop shop.”

High street challengers

The department store is not only facing competition from online and brands’ standalone stores. High street players such as Next and Primark have taken steps to replicate the department store style of offer with large 60,000 sq ft stores – equivalent to an average Debenhams store – that provide greater product choice and services such as in-house coffee shops.

Retail consultant and former director of concessions, womenswear and accessories at House of Fraser, Sue Dunn, argues that this proves the department store model still has a place in the market, as long as the proposition is right.

“What I find interesting is people have given up on department stores, they say they’re dinosaurs and have no future. But then we see Next building relationships with other brands, such as the store  in Bristol opening Mamas & Papas as a concession. In Oxford Street, Next has a cafe and a Paperchase.

Department stores are often older buildings, very large and have all sorts of refurbishment issues

Sue Dunn, retail consultant and former House of Fraser director

“Then you have Primark’s mammoth Birmingham store, [to which travel companies offer] day trips by bus from East Anglia. [Primark and Next] are creating destinations.”

The former Debenhams director says department stores need to work harder to entice shoppers into stores: “You need reasons to get people to cross the physical threshold. What Primark has, which department stores would love, is massive footfall.”

Real estate check

It is no secret that department stores are costly to run and keep from looking dated. This acts as a huge weight on any balance sheet.

“Department stores are often older buildings, very large and have all sorts of refurbishment issues,” notes Dunn. “You only need to have an escalator go wrong in a Debenhams and you are in trouble in terms of spending [on maintenance].”

The former Debenhams director agrees: “For department stores, making their huge space feel engaging and experiential costs money, and in terms of return on investment it’s a huge challenge. You either need very patient shareholders or very deep pockets.”

The department store should have the up-and-coming brands – a bit like JD Sports

Chairman of a lifestyle chain

The menswear supplier believes department stores can restore recover their former glory as destinations in their own right: “Harrods used to be an experience and people went there because it was a phenomenal day out.

“The Nordstrom stores in the US have a lot of positives [that could be emulated in the UK]. The new store design integrates brands very well, they have high service levels and are a beautiful experience.

“The tenants in the mall [where the department store was based] are picked carefully. They are lifestyle shopping malls and are making the day a family outing or a young woman’s experience.”

Shutterstock 1490378855

Shutterstock 1490378855

One high street retailer chair agrees department stores will survive, but not in their current form: “I think ultimately department stores will have a role, but it’s a longer-term play. As it becomes more difficult for niche players to justify investment in bricks-and-mortar stores, the department store will allow the niche brands to be shown somewhere other than online.

Selfridges has reinvented itself into a store that is used to launch new products

High street retailer chair

“Selfridges has reinvented itself into a store that is used to launch new products. Gone is the frosty old misplaced environment – now it’s new and fresh. Its digital offer is also coming on.”

These thoughts were echoed by other retailers.

The chairman of one lifestyle chain said: “The department store should have the up-and-coming brands – a bit like JD Sports – which picks the right product for their locations. Department stores should give brands their showcase and offer a choice that is nowhere else on the high street.

“They shouldn’t just replicate what the high street already has, which is what House of Fraser, Debenhams and John Lewis have done in the past.”

The former Debenhams director adds: “Partnerships will become more important [to department stores], working in collaboration rather than having a transactional relationship. Department stores will need to tell brands why they should do one-offs with them.

“There’s no point trying to be the cheapest, as there’ll be other places who will be cheaper for sure. You’ve got to be better.”

The Drapers Verdict

Will the traditional store survive?

The answer is yes, for now, but it is likely that there will be far fewer in the UK, or indeed globally, than there are at present. If department stores are to succeed, they need to return to their core proposition: providing an experience shoppers cannot get anywhere else.

Selfridges has thrived on this premise – albeit for the premium market.

As consumers look for experience as much as material offers, traditional department stores need to ensure their size and scale works for them, and is not a hindrance. Experience and exclusivity of offer is key. 

The next decade will bring the evolution of the department store offer into smaller, more nimble outlets juxtaposed with the grand stores of old.  

 

 

Readers' comments (1)

  • The format will die. Shopping centres will use smart tech that will replace this middle man. They will do it far better.

    Own label endeavour may increase short term margins, however these don’t have draw appeal to new shoppers.

    JLP is lucky it has Waitrose to subsidise the losses. As long as Waitrose keeps performing.

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