Department stores reinvent themselves for a new retail age

Natasha Stokes
08 December | Americas | EMEA | JLL Retail

Many well-known department stores are facing challenges from the continuing uptick of online shopping, as well as competition from the bricks-and-mortar boutiques and discount retailers that are drawing an evolving generation of shoppers.

“Department stores are in a real state of flux in the U.S.,” says James Cook, Americas Director of Retail Research at JLL. “There’s a less-than-hip perception of department stores today, while shopper preference is turning to smaller, specialty boutiques that can allow more opportunity for expressing individuality. Midline department stores – especially those that expanded broadly – are finding they’ve got too much square footage.”

While retail space per capita in the U.S. is about five times higher than the in the U.K., British department stores face a similar competition for consumer spend. “The pressure is coming from online and from discounters, especially for fashion,” says Colin Burnet, Director of EMEA Retail Research at JLL. “It is a particularly fierce environment for the midmarket operators.”

A modernized space

On both sides of the pond, department stores are rethinking their in-store experiences to draw in shoppers.

British operator Debenhams announced a revitalization plan that will include in-store gyms in three of its locations, a beauty bar in its central London store and at least 50 new food and beverage concessions across the network. “Debenhams is trying to become more of a destination, by making stores more varied to drive up shopper dwell time,” says Burnet.

John Lewis recently invested £18 million into its 120,000-square-foot Oxford location, outfitting the store with a concierge desk, men’s styling services, workshops in using the latest gadgets, as well as home repair and renovation services. “John Lewis has wisely branched out into areas where consumers are more willing to spend, namely services,” Burnet says. “This can encourage loyal customers to buy more than just products, ensuring there is opportunity to achieve growth when the retail market is confined.”

In the U.S., Macy’s, which is in the process of shuttering 100 stores, is also retooling what it offers in-store and online shoppers. Its New York City flagship store is targeting millennial and younger audiences with a rotating line-up of pop-up stores, a wall of video displays where shoppers could take a selfie, and a food hall designed to look like on-trend food trucks.

“A big part of the strategy is to create new appealing offers, giving people a reason to come,” Cook says. “Great places to eat and drink are a big part of that.”

Meanwhile JCPenny, which announced 138 store closures this year, is driving future sales by expanding its successful store-within-a-store concept. It plans to open 500-square-foot toy shops inside each of its 1000 stores. Brands such as Nike, Adidas and and Sephora already operate boutiques within half to three-quarters of the JCPenney network.

“With midmarket operators, there’s a need to focus on providing a unique experience when they’re not competing purely on price,” Cook says. “As a result, department stores are consolidating their square footage into fewer locations, but with better services for shoppers.”

That includes modernized online platforms that provide a more seamless, omni-channel shopping experience. “Stores need to offer added incentives to loyal customers such as free next day delivery, and ensure the online shopping experience is more enjoyable, particularly for categories such as clothing and footwear,” Burnet says.

John Lewis, for example, has long invested in services such as buy-online-collect-offline and an app to order out-of-stock items online. Its efforts have paid off and it is now the foremost omni-channel retailer in the UK, Burnet says, with about 40 percent of its sales made online.

The importance of department stores

In shopping centers and on high streets, department stores have traditionally been anchors that draw shoppers and encourage the flow of people to neighbouring shops.

According to JLL’s Bagged or Boxed report, over half of shoppers want to come in-store to inspect items in person and three-quarters of those buying clothing prefer to shop in-store over online. “When done right, department stores still offer a highly convenient shopping experience with the scale and product offering to keep customers for a long time,” Burnet says.

Nor do department stores need to lease large and costly spaces to stock a wide range. The higher-end U.S. department store Nordstrom is trialling Nordstrom Local, a 3000-square-foot showroom with fashion stylists, salons and alteration services – but no merchandise on site. Customers can try on outfits to decide what to purchase, with orders delivered afterwards. “There are a lot of great features that you can only experience in-store, which facilitates sales that can be made online,” Cook says.

With many global brands are increasingly using their bricks-and-mortar stores to showcase product and drive online sales, department stores could reap similar benefits by re-positioning themselves as lifestyle spaces that not only sell merchandise, but also project their unique brand experience.

In the UK, House of Fraser has just opened its first store in nine years at the new Rushden Lakes development. The 64,000 square foot, certified sustainable space includes a “living wall” and a raft of leisure features including yoga classes, beauty spas and the opportunity for space-specific activities such as canoeing in the lakes.

“This is a good example of the department store of the future,” Burnet says. “A mini shopping center in its own right.” Indeed, as the next generation of department stores start to appear, shopping will only be part of the overall experience on offer.