Retail Forecast: Will Department Stores Survive?

New formats are emerging which could spell the demise of the 150-year-old traditional large format. Will large stores acknowledge the dramatic change in customer behavior for the 21st century and reinvent themselves? That’s the question that fascinates me.

The broad assortments, selling floors packed with merchandise and monotonous architecture of the modern department store makes younger customers today want to grab a laptop or phone. Must-have merchandise for them often comes from vendors unheard of in a department store. Many hip new vendors don’t even sell to retail stores. And why would they? Their product sells through online with better margins than it would at retail. And they gain exposure through social media such as Instagram or texting which promotes them better than a sale pamphlet from a large chain.

And when today’s customers do shop in person, they are seeking a social experience. Specifically, an experience worth leaving home or the office for. Something life-enhancing which reinforces their social values as well as their taste in merchandise. They expect to shop in a curated environment with like-minded sales associates who can help edit merchandise to suit their personal style. They are less concerned with the badge of designer fashion than with developing their own unique style, often intended to address their interests of the moment. All this is subject to change without lead time or notice. This is a key dynamic for why large stores are so challenged in meeting their expectations.

New technology plays a role here too. Starbuck’s can check you out on a phone, Apple stores use remote checkouts and even more innovative technology such as biometric checkout, which uses one aspect of your physical appearance such as your eye or hand pattern used to access your payment methods, is on the horizon. How likely is Macy’s or Nordstrom to implement that technology while it is still fresh? The size of these companies and the unwieldy management of real estate involved in making such changes is a hurdle which may prove insurmountable. Chances are that a new format or upstart newcomer with more flexibility will beat them to market with such innovations.

Younger customers are price sensitive, behavior which is reinforced by the ready accessibility of virtual price-checking. This customer is keenly aware of the multiple channels where discounted merchandise is retailed and have the flexibility and lack of loyalty to one resource which allows them to cherry pick items from the broad smorgasboard of goods available online or on their phones.

There is also a breakdown of traditional merchandise and vendor matrices. Beauty is a remarkable example a department where there is a blossoming of new vendors unknown to the department store merchant. Brands such as Jeffree Star, Colourpop and Makeup Geek function well outside the domain of department store Beauty divisions. These brands are sold only online and Youtube videos are their version of the in-store makeover. Sure, their volume is nominal by comparison to the Estee Lauders of the world. But who’s to say that today’s 20-something customer will not develop brand loyalty to these products that might form a platform for incremental increases that ultimately creates a major new resource? And if this happens outside the realm of the department store, then the store becomes a dinosaur left to sell product from a bygone era to an aging customer.

Large stores are notorious for allowing the big vendors to take over store real estate. The rationale has always been that vendor shops in large stores develop a bigger market for a successful vendor in the store, thus adding incremental sales for the store and for the vendor. But consecrating real estate to outside vendors also burdens the store with the same advertising, visual merchandising and fixture design that the customer will see in every other store sold by the vendor. Visually, this dilutes the authority of the store itself in the customer’s mind. Plus it deprives the store of an opportunity to create exactly the type of unique experience which it should want to create in the new customer’s mind.

I know something about the strategies behind department store merchandising and design, having worked for over two decades designing department stores across the US and Southeast Asia.. Store planning is driven by inventory capacities, adjacencies designed to promote cross-selling and various philosophies about general circulation through the stores. Department boundaries describe territory devoted to a dedicated merchant and their category. Capacity is designed to flex up or down depending on the projected performance of various departments. More visible, highly trafficked locations within a large store are given to more productive businesses. But the plan of the store is a diagram of the retail company’s buying operation and business plan, not a road map for customer experience. Store designers are employed to make this plan as appealing as possible. But the underlying strategies are driven by numbers, not by customer experience.

Almost none of this means anything to a customer. In fact, aspects of this may even create obstacles in the way a customer experiences the store. Today’s customer has a laser focus on their own personal style. And they care not a whit about the store’s profit margins. Customers don’t have to enter the physical store just to buy things. Rather, the store needs to deliver a social experience with persuasive authority which will convince the customer that it’s worth the trip.

So what are the key components of the department store of the future? How does the department store reinvent itself? This is Part I in a multi-part essay on the department store.

Watch for the next installment in my Retail Forecast series for some answers.

Read the original article: “Bargain Hunting Frenzy Threatens Traditional Department Store”, New York Times, Business Day, May 13, 2016 �|PPy�z��