IS IT CURTAINS FOR THE DEPARTMENT STORE?
As John Lewis becomes the latest high-street titan to report disastrous results, some experts reckon online competitors could destroy the grand emporia of old
AVISIT to a department store was once an experience to savour. With their elegant facades, lavish arrays of carefully curated goods and cafes, they represented a pleasant day out for all the family. But since the advent of the internet and giant online retailers such as Amazon more and more moneyrich but time-poor consumers are opting for the point-andclick approach to shopping.
Never has this shift come more sharply into focus than this week with the news that profits at John Lewis, that king of the high street, have nose-dived 77 per cent year-on-year. And it’s not just the employee-owned partnership that is feeling the pinch.
Shares in Debenhams plunged 20 per cent in early January after it issued a profits warning. House of Fraser had its credit rating downgraded in December after poor sales and called in investment bank Rothschild to refinance its debt. Even good old M&S reported disappointing figures a couple of months ago.
In the past consumers would not have dreamed of buying items such as a new bed from anyone other than a trusted high-street retailer, the more upmarket the better. But all that has changed. Today’s bargainsavvy shoppers are increasingly hungry for the sort of discounts that can only be offered from soulless units in business parks rather than elegant Victorian buildings with sky-high rents and rates in prime locations.
“Because we are timecompressed the experience of going shopping is no longer so pleasurable,” says brand guru Mark Borkowski. “Today you might pop into the shop to look at the £4,000 telly but you will use an app on your phone to find out where you can buy it cheapest online.”
So has the internet precipitated the end of spontaneous, in-store browsing? And can department stores survive this perfect storm of online competition, rising rents, a weak pound and declining consumer demand? “It will be curtains for a lot of them,” predicts Lou Ellerton, a retail and consumerbehaviour expert at brand consultancy Mash Strategy Studio.
“The great advantage of the department store was that it was an editor. You knew there would be eight or nine different brands of kettle at a reasonable price point and of a certain basic quality. That worked really well a few decades ago when the fundamental pleasure was anchored in the products but as time went on people had less time to look.”
A study last year found that there were no department stores in the UK’s 20 top fastest growing retailers. Instead the list compiled by OC&C Strategy Consultants included a number of online-only firms – including home-delivery supermarket specialist Ocado and fast-fashion retailers Net-A-Porter and Asos, a darling of the e-commerce world following its record £1.9billion turnover last year. The highstreet giants have not been blind to the need to develop an online offering of their own. Their online sales are growing steadily. At Debenhams, for instance, they increased by nine per cent last year and now account for 15 per cent of total revenues.
BUSINESS analysts say internet sales are outpacing in-store growth across the entire retail sector, excluding food. But this is hitting the profits of companies founded in the bricks-andmortar era – after all, there are still rents to pay on those expensive store fronts.
“The old retail model is suffering, society has changed and there isn’t the demand there used to be,” says Ellerton. “We have reached a tipping point where people are no longer worried about online delivery and security. It’s easier to wait a few hours for an online order than plan a big shopping trip so it is going to require a radical rethink to justify these incredibly expensive shop fronts and vast square footages. The ones that survive will be focused more on consumer experience.”
The more savvy brands are evolving already. “John Lewis is suffering but Selfridges is playing clever in making their stores real hubs for youth entertainment – full of music, fashion and in-store events,” says Ellerton.
She adds that in the past five years there has been “a massive push” from younger people away from buying things towards making memories in pop-up shops “showcasing experiences”.
By promoting itself as a destination, Selfridges’ intention is to persuade young consumers to choose Selfridges when they buy online too – what Ellerton calls “investing in ‘share of mind’”.
Craig Phillipson, of retail consultancy Shopworks, agrees: “Good shops are those prepared to react and play to traditional retail strengths such as personal service and giving people the chance to touch the product.”
Selfridges has stayed ahead by making a £300million investment in transforming its emporia, as well as its online offering. “The brand has reinvented itself by creating a sense of wonder in the stores,” argues Borkowski.
Harrods is bucking the trend too due to its popularity with bling-hungry tourists seeking out tactile luxuries. Established in London’s Knightsbridge in 1849, the brand is thriving. Last year profits were up 23 per cent. As Ellerton insists: “There will always be people who want to look and feel before they buy.”