June 19, 2015
CREATING“EXPERIENCES“KEYTODEPARTMENTSTORESURVIVAL,SAYSFBICREPORT E–commerce,competitionandsamenesshurtingthemid-level inmaturemarkets,saysExecutiveDirectorDeborahWeinswig
NEW YORK (June 19, 2015) – It’s all about the experience for department store shoppers, and these retailers must go from drab to fab in order to remain viable in mature markets, says Fung Business Intelligence Centre’s just-released report “Global Department Store,” an overview of the state of the sector in the United States, United Kingdom, France, Germany, Japan and China.
With multiple pressures from e-commerce and competition from specialty stores for younger consumers, midmarket department stores are struggling worldwide, even as their upscale brethren continue to open stores.
“Mass retail was built on the expansion of department stores in the 19th and 20th centuries, but that very maturity is now leading to stagnation and challenges for many venerable names. This is true not just in the United States but also in Europe and Japan. While China is still a growing market, it too will face some of these same issues in very short order,” says Executive Director-Head of Global Retail & Technology DeborahWeinswig. “That is why we
have researched and created what is perhaps our most comprehensive report to date, offering an analysis of what’s working, what isn’t and how this sector can once again achieve vibrancy.”
Middle-ground stores, which traditionally target a broad base of the midmarket, continue to struggle in nearly every mature market as they produce mediocre store experiences and indistinguishable product. Even investments in omnichannel strategies, such as click-and-collect, do not address the fundamental challenges facing the sector, Weinswig notes in the report.
“The global e-commerce boom does not herald the end of large, broad range department stores,” Weinswig writes. “In an era of near-unlimited choice, we think the prospects are bright for stores that offer a great shopping experience and make a real connection to customer desires. The problem is that a number of big, long-standing department stores across several western markets are failing to do this.”
In the United States, the sector has been radically transformed in the past 15 years, with a playing field cut from more than 20 names to eight through consolidation and bankruptcy, Weinswig notes. Store formats are outdated, a mature sector and aging demographic, and competition from newer, more exciting names are resulting in store closures in midmarket retailers. Upscale retailers such as Nordstrom, John Lewis, Printemps and Isetan Mitsukoshi, on the other hand, continue to open new units.
Similarly, in the United Kingdom, the midmarket Marks & Spencer and Debenhams have seen underwhelming sales, even as the high-end Harrods, Selfridges, John Lewis and House of Fraser posted significant sales increases.
“The higher end benefits from immunity to some of the pressures faced by retailers catering to middle-income shoppers, and from factors such as tourist spend in London and affluent immigration to the capital,” Weinswig writes. “But the most successful retailers are also those with sharply defined positioning that drives shoppers to their stores.”
To be successful in the French department store industry, a retailer must be upscale, and located in Paris. Bolstered by tourist shopping, especially visitors from China, stores in the capital contributed just over half the total aggregate sales of the top sector retailers in 2013, FBIC estimates in the report. To that end, Galeries Lafayette has opened flagships in Jakarta, Beijing and Milan, and is boosting its online presence. Printemps, celebrating its 150th anniversary in
2015, is burnishing its luxury credentials by launching exclusive product, and opening a luxury-focused satellite store next to the Louvre Museum.
Germany’s dominant players, Galeria Kaufhof (now being acquired by Canada’s Hudson’s Bay Co.) and Karstadt, are seeing stagnant revenue growth as they face competition from fast casual chains and e-commerce. Japan’s industry has been struggling badly, hit by the 2008 global financial crisis and earthquake in 2011, as well as competition from e-commerce and fast-fashion. Moreover, an ingrained culture of personal, face-to-face customer service (called Omotenashi) has resulted in under-investment in omnichannel capabilities.
China, on the other hand, has seen rapid expansion among department stores, not surprising as this market is still maturing. Yet these department stores face some similar challenges, including developing a winning omnichannel strategy and differentiating themselves to demanding shoppers as Western chains enter an already fragmented industry.
The increasing popularity of social media is compelling department stores throughout China to adjust operational strategies, including setting up heavily interactive Weibo and WeChat accounts. With some 50 different department stores companies in the country, none dominates the market. Meanwhile, House of Fraser, Marks & Spencer and Galeries Lafayette are opening or have already opened stores in Beijing and other major cities, and others are likely to follow.
“In the years ahead, we expect the Chinese department store sector to consolidate, a process that the other markets in the report have already gone through,” Weinswig writes. “We will likely see chains race for dominance.”
The result is an industry of stores that must focus on remaking themselves and their relationships with their customers, particularly the young.
“In the Internet Age, department stores’ traditional unique selling propositions of proximity and reasonably broad choice are no longer enough. Shoppers need convincing reasons to opt for these stores,” Weinswig says. “Big stores are not redundant. But it is urgent that the department store format reassert its destination status through aspirational, enjoyable, brand-filled experiences.”
The full report can be found at http://www.deborahweinswig.com/wp-content/uploads/2015/06/Global-Department-Store-Report-by-FBIC-Global-Retail-Tech-06_13_2015.pdf. The group’s reports and analyses can be found at www.fbicgroup.com and www.deborahweinswig.com.
The Fung Business Intelligence Centre (FBIC) collects and analyses market data on sourcing, supply chains, distribution and retail. It also provides thought leadership on technology and other key issues shaping their future.
Headquartered in Hong Kong, FBIC leverages unique relationships and information networks to track and report on trends and developments in China and other Asian countries. In addition, its New York-based Global Retail & Technology research team follows broader retail and technology trends, specializing in how they intersect and building collaborative knowledge communities around the revolution occurring worldwide at the retail interface.
Since its establishment in 2000, the FBIC (formerly known as the Li & Fung Research Centre) has served as the knowledge bank and think tank for the Fung Group. Through regular research reports and other publications, it makes its market data, impartial analysis and expertise available to businesses, scholars and governments around the world. It also provides advice and consultancy services to colleagues and business partners of the Fung Group on issues related to doing business in China, ranging from market entry and company structure, to tax, licensing and other regulatory matters.
CONTACT: Debra Hazel
Debra Hazel Communications 212-618-1349