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Is this the death of the department store?

House of Fraser on King William Street in the City of London

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.

Liberty 3

Liberty has undergone a revamp

“Department stores have to be full of energy and newness – they need to act like magnets to their customers, like Fortnum & Mason, Selfridges and Liberty.

“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

Andrew Jennings

“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.”

selfridges oxford street corner shot oxford street & duke street (1b) ph...

Selfridges is an example of a department store destination that has evolved to attract shoppers

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.”

Experience counts

New entrants into traditional department store territory could be successful as they have adopted a more dynamic and experiential use of space.

Wolf and Badger at Coal Drops Yard

Wolf & Badger at Coal Drops Yard

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.

Readers' comments (4)

  • The main reason HOF has failed is that it was very badly run for a very long period of time. That was well known. While the factors mentioned have some significance to a lesser and greater degree, it was a gravy train of ignorance and deception.

    There is still a place for a modified and downsized Dept store, but we do not appear to have the people who have the skills, discipline and professional capacity to run them in a viable and competent manner.

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  • Comparing Apple to other product is ludicrous. Look at the size of the product and the RSPs versus clothing. The number of SKUs is not comparable either. Former bosses are as much to blame. The writing has been on the wall for more than the last decade.

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  • It is worth noting the Independent Department Store sector, where freehold ownership, and greater agility enables them to keep in tune with their local customer base.
    For example, Elys in Wimbledon (the 90,000sqft flagship of Morleys Stores Group) is currently under-going a £3m redevelopment, transforming both Ground & First floors.
    They are investing in ENVIRONMENT, BRANDS & PEOPLE, with real success, and follows previous projects in Wimbledon, Newbury (Camp Hopson) and Enfield (Pearsons).

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  • If I consider department store shopping from a customer point of view, if the stock is the same as the familiar high street brands, I would prefer to go into the individual stores than a concession, that stocks less of a brand. I would be lured in by brands that are exclusive or brands that are online only but have a concession in the store. I don’t think experiential shopping would overly influence me excepting it is nice to be able to eat/drink if the department store is large and you will be their a while.

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