The department store sector is not just struggling in the U.K. — as House of Fraser’s and Debenhams’ results show — but globally with poor sales, oversupply of space and increasing costs. Their appeal as an anchor store in shopping centers is declining, raising the question of their relevance in the modern shopping environment, according to GlobalData.
Businesses such as Target in the U.S., Isetan Mitsukoshi in Japan and John Lewis in the U.K. are now developing smaller format, sector-specific stores. Some U.S. stores such as Macy’s have developed off-price value chains to appeal to the budget conscious market.
The data and analytics company reports that the majority of spending in department stores across the globe is through mass middle market retailers, such as Debenhams in the U.K. and Target in the U.S. This segment of the market accounted for 79% of spending in the channel in 2016 — but it is losing share; global sales in this segment fell by US$18bn between 2014 and 2016.
“If consumers want middle market products they have a much wider choice, more competitive prices, and more convenient shopping hours on the Internet,” says Maureen Hinton, global retail director at GlobalData. “The modern equivalent of a department store is Amazon.”
Meanwhile, clothing brands have been shifting to new large flagship stores to showcase their brands. Even department stores’ core premium beauty sales are being challenged by the beauty brands opening standalone stores.
Furthermore, many mature department store chains have taken their customers for granted and underinvested in their businesses. For instance, Sears in the U.S., with shoddy stores, poor displays, and unattractive products, cannot lay the blame on having to close 100+ stores on the shift to online shopping; poor retailing is at the heart of its problems, according to GlobalData.
“Oversupply of space is a problem for all retailers as consumers shift more spending online, but for department stores, with such large stores, it has become more pressing, Hinton says. “As anchor stores, they have benefitted from landlords providing subsidized rents, or even free rents, so whether they were ever really operationally profitable is questionable, but as they lose their ability to drive heavy footfall this benefit will disappear.”
Businesses such as Target in the U.S., Isetan Mitsukoshi in Japan and John Lewis in the U.K. are now developing smaller format, sector-specific stores. Some U.S. stores such as Macy’s have developed off-price value chains to appeal to the budget conscious market, though this tends to dilute brand perception overall.
“There are still stores that are destinations for shoppers — those at the premium/luxury end of the market, such as Selfridges and Nordstrom, and those such as John Lewis with fewer stores, which have invested in giving customers an exceptional experience and adapted early to changing consumer trends,” Hinton explains.
However, for the mature, traditional mass-market department stores in mature retail economies, which have underinvested and not kept up with consumer trends, it is becoming too late to adapt, she adds.