Following Mike Ashley’s purchase of House of Fraser out of administration, Drapers asks industry experts what department stores need to do to survive and thrive.
The future of House of Fraser is uncertain under the ownership of Mike Ashley, who bought it out of administration this morning. Meanwhile, Debenhams ploughs on with its turnaround plan, despite three profit warnings already this year, in a bid to avoid the fate of BHS. So is the department store model broken? Retail and property experts tell Drapers that traditional department chains are living on borrowed time and are doomed if they continue to “be all things to all people”.
Retail veteran Andrew Jennings, who has headed Harrods, House of Fraser and Saks Fifth Avenue among other retailers, believes that unless there is radical change, department store chains could become irrelevant to consumers: “The future is for specialty and trophy department stores. Large chains have a limited future.
“They have traditionally not been authoritative for what merchandise they stock. If you don’t stand for something you stand for nothing, that’s very important. In the US, Bergdorf Goodman stands for something, Bloomingdale’s 59th Street stands for something.
Department stores have to be full of energy and newness – they need to act like magnets to their customers
“Department stores cannot be all things to all people, they have to have a point of view. Sometimes what you don’t have is as important as what you do have in your assortments.”
In the UK premium department stores such as Fortnum & Mason, Harrods and Selfridges have set themselves apart with their unique shopping experience. Selfridges is held up as a prime example of a positive department store experience by many in the industry, while Japanese brand Muji is also noted by one department store director as a trendsetter in the sector.
Stuck in the middle
Middle-market department stores, however, have struggled to keep pace, often as a result of a lack of investment and a distinct point of difference from their competitors.
Peter Mace, head of central London retail at property services company Cushman & Wakefield, says department stores need to create a unique experience to entice shoppers in store: “Retailers are consolidating from a number of stores into [standout] flagship stores [and it is working]. When Anthropologie opened on Regent Street, everyone was talking about that living wall they had, and one lunchtime, I had to go down and see it for myself.”
Apple took the retail approach and turned it on its head
Former House of Fraser director
The migration of bricks-and-mortar spend online has also been blamed for the lacklustre performance of many department store chains. However, Jennings argues that omnichannel sales are essential to reviving their fortunes: “[Department stores] have to be innovative and embrace technology, whether it’s the store experience, merchandise systems and processes within the business so they can be nimble and fast.”
Any transformation may mean dropping traditional measures of success and changing the mindset and culture of the wider team – a hard task for retailers often entrenched in metrics and methods that some feel are outdated.
A supplier to one department store chain says: “We are all obsessed with sales per square foot, and that needs to change. I have been with the industry for many years – and it is all about square foot density.”
Department stores need to use the vast open prairies of space to their advantage
Former department store director
One former department store director agrees: “Department stores need to use the vast open prairies of space to their advantage – it isn’t about how many garments you can ram on to an arm. The culture of the organisation has to change. If you get the culture right, smart people will set their goals in the right direction.”
A former House of Fraser director hails the way Apple has re-invented its retail space, and suggests its store concept should be emulated by department stores: “If a department store retailer was starting an Apple shop, they would say it needs 2,000 sq ft and it would be crammed with products stacked up. Apple took the retail approach and turned it on its head.
“The traditional revenue per foot model is broken. Apple’s revenue per foot is famous globally in retail as the tills are constantly ringing with people buying £500 or £1,000 devices but the density of the floor is low.”
New entrants into traditional department store territory could be successful as they have adopted a more dynamic and experiential use of space.
Wolf & Badger has invested in a “creative hub” store concept for the Coal Drops Yard development in London’s King’s Cross. The three-storey store will have a cold-pressed juice bar, a dedicated events space and a restaurant “run by a celebrity” on the top floor.
Meanwhile, retailers such as Nike and Primark have invested heavily in creating flagship stores that act as marketing tools as much as retail spaces. Primark’s Oxford Street store stands at more than 180,000 sq ft, which says Mace, “counts as a department store in its own right”.
However, as retailers continue to tighten their belts to combat cautious consumer sentiment the deciding factor over whether department stores can truly adapt may come down to a question of funding, the former department store director notes: “The teams at House of Fraser and Debenhams know what they needs to be done but they don’t have the cash to turn their massive estates around.”
The Drapers Verdict
The traditional bricks-and-mortar department store is in emergency care. However, this is not because consumers are wildly infatuated with online or ecommerce shopping – quite the opposite. Rather it is because the allure of the department store itself has been allowed to fade.
To thrive, department store need to pick apart what makes consumers keen to step foot inside again – whether that be novel in-house events, heading down a more experiential route, targeting a niche or stocking exclusive ranges of product. Then the focus needs to be on executing that plan.
Those who can offer consumers something different will succeed. Those who do not will not be saved by discounting. In essence department stores need to modernise or die.