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January 8, 2018updated 27 Jan 2022 2:09pm

Are department stores at all relevant any more?

By GlobalData Retail

Department stores are struggling, with poor sales, over supply of space and increasing costs.

Their appeal as an anchor store in shopping centres is waning, raising the question of their relevance in the modern shopping environment.

The majority of spending in department stores across the globe is via mass middle market retailers, such as Debenhams in the UK and Target in the US.

This segment of the market accounted for 79 percent of spending in the channel in 2016 – but it is losing share; global sales in this segment fell by $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. The modern equivalent of a department store is Amazon.

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Meanwhile clothing brands have been shifting to new large flagship stores to showcase their brands, so why bother going to a department store that only has a small selection of what is on offer in the rest of the shopping centre?

Even department stores’ core premium beauty sales are being challenged by the beauty brands opening standalone stores.

Many mature department store chains have taken their customers for granted and under invested in their businesses.

Sears in the US, 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.

However over supply 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.

As anchor stores they have benefitted from landlords providing subsidised 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 US, Isetan Mitsukoshi in Japan and John Lewis are now developing smaller format, sector specific stores.  And some of the US 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.

But there are still stores that are destinations for shoppers – those at the premium/luxury end of the market, such as Selfridges, Nordstrom and John Lewis with fewer stores, who have invested in giving customers an exceptional experience and adapted early to changing consumer trends.

However for the mature, traditional mass market department stores in mature retail economies, who have under-invested and not kept up with consumer trends it is becoming too late to adapt.

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