This week, the Fung Global Retail & Technology team is attending World Retail Congress 2017 in Dubai. On the first day of the conference, we heard two respected names in department-store retailing hold forth on the shifts and challenges retailers are facing: Terry Lundgren, Executive Chairman of Macy’s, offered his thoughts on the US market and Sir Ian Cheshire, Chairman of Debenhams, focused on the UK market. There was significant overlap in the two executives’ thinking on a number of themes, including the impacts of product ubiquity and price transparency and the need for retailers to offer customers engaging experiences.
Terry Lundgren on the US
Lundgren noted that US department stores have been hit by a whirlwind of factors, including shifting consumer shopping habits, changing consumer spending priorities and depressed tourist spending as a result of the strong dollar. Lundgren remains bullish on prospects for the department-store format, however, and he outlined three major factors that can sustain demand at brick-and-mortar stores in a tough environment:
- Exclusive product. Retail is primarily about product and, in an age of mobile-enabled price transparency and near-endless choice online, product uniqueness is a real competitive advantage. This is not just about private label, Lundgren noted: for example, in the US, Tommy Hilfiger is sold only at Macy’s.
- Exciting store experiences. Stores are not different enough from five years ago, Lundgren said. Macy’s could still do a better job of bringing the events it already organizes into more of its stores. For instance, it could bring elements from its Thanksgiving Day Parade and Flower Shows into its wider store estate. Retailers must also invest in store associates, Lundgren said, in order to offer customized experiences at a personal level.
- Investment in e-commerce. Multichannel retailers must continue to integrate channels, with online technology driving traffic in-store and vice versa. Lundgren said that European stores have done a better job of offering click-and-collect services than US stores have, and that some European firms offer examples of best practices in providing positive cross-channel experiences.
Sir Ian Cheshire on the UK
UK department stores have tended to fare better than their US counterparts for a number of reasons, including their earlier adoption of multichannel propositions and their investment in high-quality stores. On retailing more broadly, Cheshire noted three key trends:
- E-commerce drives everything. Almost all growth in all major retail markets is being driven by e-commerce. Mobile Internet has been the game changer, gifting shoppers hypertransparency with regard to product and price.
- Experience, not stuff, is what will matter. At Debenhams, beauty sales are increasingly being made through a makeover rather than a direct product purchase, Cheshire said. And when shoppers are buying beauty products, they are more frequently doing so with friends, as part of a social experience. He concurred with Lundgren’s earlier comment that retailers must invest in customer service.
- The world is seeing a winner-takes-all phenomenon. The gap between retail winners and losers is getting bigger, and those retailers than cannot do something better than Amazon will remain under pressure. Echoing Lundgren’s thoughts earlier in the day, Cheshire argued that retailers must provide customers with something interesting and special, which means opportunities lie with those offering exclusive product and great experiences.
So, different countries, with different sector performances, but a number of overlapping ideas. Despite the difficulties US department stores are facing, Lundgren ended on an optimistic note. He referenced Macy’s strategy shifts after previous setbacks, and said that the greatest retail innovations often follow periods of difficulty—which means the current challenges retailers face also represent opportunities for exciting change.
Other pieces you may find interesting include: World Retail Congress 2017 Day 2: More Thoughts on Department Stores—Plus, Why the Discounters May Beat Grocery E-Commerce, Deep Dive: Opportunities from US Department Stores’ Closures, European Department Stores Update: Reviewing Trends and Performance
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