It has been reported that we are experiencing the twilight of the department store. Critics suggest that this once glorious edifice to consumerism is no longer a relevant fixture in American suburbia or urban culture. The story goes that department stores are merely relics of a bygone age when families religiously ate dinner together, when being part of the middle class didn’t require two-earners per household, when there were only a handful of television stations to choose from, and when an outing to the mall was on par with a trip to the local amusement park.
But maybe there’s some truth to this chronicle of a death foretold. One only has to look at retailers’ 2015 3Q financial reports as evidence of the difficulties U.S. department stores are encountering. Same store sales at mass merchant Target grew 1.9 percent, and at off-price retailer TJX Companies, 5 percent. Meanwhile, Macy’s suffered a 3.6 percent comp store sales decline, and Nordstrom, just a 0.3 percent comp gain at its full line (and Nordstrom.com) stores. Updated guidance at Macy’s and Nordstrom was reduced on both the top and bottom lines reflecting weak store traffic, including fewer tourists, as well as the expectation of a highly promotional environment.
It’s a Polarized Retail Environment
These cathedrals of capitalism are at a tipping point. The complexion of the U.S. population has progressively been bifurcated in the 21st century with the middle class squeezed into the growing pool of the lower middle class (defined by the Census Bureau as those households whose incomes fall below the median income of $53,657, 6.5 percent lower than the median income in 2007, prior to the Great Recession). At the same time, the Internet with the transparency and global accessibility it provides 24/7, has created voracious seekers of information and value. Shopping behavior reflects our digital life: efficient, cerebral and flat, seemingly lacking many of the aspects that we have traditionally defined that make us human. Namely, the sensory experience.
Internet shopping maybe be a visual and even auditory experience, but smell, touch and sensuality are missing. Sure gamification tries to make online shopping fun, but the magic and allure of the emporiums of the 20th century are missing.
Just binge watch Mr. Selfridge or The Paradise on your laptop, and you’ll see what we have lost. And the vision of these amazing merchants is exactly what needs to be re-found to support a renaissance of the department store.
Curate for Today
We recently saw Saks Fifth Avenue president Marc Metrick present at investment bank Cowen & Company, where he articulated plans to restore the luster to the Saks Fifth Avenue brand by elevating the shopping experience with expanded service offerings, limited and exclusive luxury product offerings, and an improved store environment, all supported by a $250 million renovation of the NYC flagship. He wants to make Saks the ultimate moniker, the heroine of today’s modern luxury shopper. Accessories, handbags, and jewelry are receiving increased focus along with spa services and eateries that provide luxurious pampering and an ambience of casual elegance. With this uber focus at full price, underpinned by seamless digital functionality, Saks can then expand its off-price retail concept and capture additional brand value. The branded outlet strategy only works when the halo brand is so highly regarded, creating aspirational desires that can be met in multiple settings. Hats off to Saks for bringing the magic and theatre back to retail, essential qualities to compete for today’s time-starved, digitally overloaded consumer.
The Hudson Bay team, led by Richard Baker and Jerry Storch, is further shaking up global retail, entering Germany and Belgium with the September 2015 purchase of 118 Galeria Kaufhof stores (16 Galeria Inno are located in Belgium) and establishing a beachhead for further European growth. A significant opportunity exists to expand Galeria’s modest e-commerce business. Further, the introduction of its Saks Fifth Avenue and Saks Off 5th brands in Germany and Belgium within Galeria and Inno locations is planned, as is sharing the brand matrix and bringing new labels to new geographies.
Hudson Bay isn’t the only retailer hard at work to remain viable in the 21st century. Macy’s and Nordstrom are acquiring new businesses, testing new formats, tweaking brand assortments and investing in omnichannel to adapt to today’s marketplace. Similarly in the UK and Europe, Great Britain’s John Lewis plans entry into Europe in 2016 and French Galeries Lafayette is accelerating its outlet rollout.
In the past 30 years, department stores have lost their way, competing with one another principally on price. Meanwhile, specialty retailers and off-price chains have captured consumers’ discretionary spending with a fashion viewpoint, value offerings and the thrill of the unexpected — at a deep discount. If Costco and TJ Maxx can excite shoppers, why can’t Dillard’s or Lord & Taylor?
Department stores need to be gardens of earthly delights. Use the entire playbook from Disney: We all are children at heart and want to entertained. So retailers should amaze us, confound us, and delight us. Make us rapt with the joy of discovery and possession. The retail industry needs more storytellers and dreamers and fewer bean counters. Fast fashion and e-commerce lack the emotional connection that department stores and luxury brands have traditionally provided, and this connection remains integral to superior branding, from autos to handbags.
Festive holiday decorations and artistic window displays give us a glimpse of the magic and romance retailers can evoke. But what happens is that retailers pull the promotional lever too quickly, undoing the magic. And shoppers aren’t stupid. Faced with no romance, sentimentality or nostalgia, consumers revert to being accountants, donning their counting hats as they seek a bargain instead of a dream.
I’ve watched too many retailers and brands become mesmerized by the siren song of rapid expansion with store fleets peppering the landscape from Portland, Maine to Seattle, Washington. Today, the U.S. has far too many irrelevant shopping centers that undermine the value of the brands within those centers. Retailers should close stores that don’t support their brand story. The best brands transport the consumer to the world of the imagination, where dreams are created. Retail stores should be a palpable experience of the brand, immersing the shopper in an exceptional reality.
Retailers need to romance the dreamer in the shopper, while balancing the product information that an analytical mind demands. I’m serious about this! It’s not just prosaic, it’s the truth: Romance will close the sale and create brand advocates. Think like a hotelier. Traditional department stores in the UK and U.S. are expanding their gourmet, concierge service, and spa treatments, in addition to valet parking and cloakrooms — amenities that make shopping easier and a more indulgent experience.
Consumer tastes change, evolve and move on. But the desire for luxury, being pampered and being taken care of spans back to ancient Egypt, according to Kapferer and Bastien in their text, “The Luxury Strategy.” The authors claim luxury is, and always has been, a major manifestation in any society having to do with social stratification, utility, waste, and wealth distribution. Department stores and brands, like their hospitality counterparts, can thrive by catering to consumers’ desires to partake in luxury – at all levels. One customer’s luxury is another’s necessity. The desire for luxury (not conspicuous consumption) is alive and well at all levels.
The immediate future is going to be either a renaissance or an elegy. There is still time to course correct and bring back the joy and meaning to department stores. Trunk shows, cooking classes, personalized and customized accessories; the list is endless and each implementation restores the value and delight retailers can provide. But get on it now before the dirge begins.