Department stores must move their offer upmarket to avoid supermarkets and discounters further encroaching on their sales, research firm Mintel has warned.
Sales at UK department stores and mixed goods retailers rose at just half the rate of the entire retail market between 2001 and 2006, Mintel said, as a result of growing competition from the lower end of the market.
Total UK retail sales rose 17.5% from £197 billion in 2001 to £232bn in 2006. But sales through mixed goods retailers, including department stores, increased by just 8.7% to £18.7bn in the same period.
Mintel senior retail analyst Ben Perkins said: "A move upmarket means that department stores will no longer be in direct competition with highly profitable cheaper players such as Tesco and Asda."
He added that UK department stores such as John Lewis had already made inroads into shifting their market position by stocking more lower-end designer brands. "House of Fraser has moved to the upper mid-market, not just in product but in terms of store environment.
"Ultimately, if department stores do not move out of the middle market and distance themselves from the competition, they will have no chance of improving their sales growth rates," he said.