What: Selfridges’ sale for USD 5.4 billion suggests there is still life in the department store model. But how to grow in a shrinking category?

Why it is important: Department stores with a distinct point of view and unique offering are here to stay. Relevant new store formats, experience, great customer service and most importantly, the ability to lure and sell luxury brands on their e-commerce platforms will make a difference.

Reinventing store formats

Traditionally, department stores have sought out expansion by implementing versions of their flagship format. Prior to filing for bankruptcy in 2019, Barneys had 22 stores including its Madison Avenue flagship. The company had also tested various formats including Barneys Warehouse, Barneys CO-OP or the Chelsea outpost, over-stretching its balance sheet.

The issue most prestigious department stores have with new formats, is that their identity is so closely linked to their mothership. This is especially the case with Harrods and its Knightsbridge site. The company has made numerous attempts to open new locations however, nothing successful has materialized aside from cafés under franchise agreements in Japan and Thailand as well as a few duty-free shops.

But these are side shows. What is more interesting is the department store’s recent foray into specialty beauty retail with its H Beauty format. The UK is one of the few markets in the world in which Sephora hasn’t murdered the department store beauty floor and Harrods Knightsbridge is already the largest seller of beauty products in the UK. The three H Beauty stores however, are lacking in inspiration.

Concept stores are all the rage, with their roots initially in the fashion-forward Dover Street Market and Colette stores. Galeries Lafayette launched a concept store on Champs Elysées in 2019 with mixed results. The store was especially successful with Millennials.

Downtown duty-free made a brief comeback before international travel was shut down by the spread of Covid-19. DFS has opened two locations in Europe: Venice and Paris’ La Samaritaine, the latter of which aims to go beyond the traditional duty-free format and draw in a fashionable local crowd.

Fighting online 

Department store groups have heavily invested in their online sites, especially since the pandemic forced them to shut their doors. That being said, they are now playing a game of catch up. The challenges facing department store operators wishing to compete in the digital space, are the reluctance of some luxury brands to explore this route to market with them.

Ultimately, experiential retail and best-in-class customer service are the best ways to maintain an edge over e-commerce platforms. For instance, Selfridges’ customers can have lunch, catch a movie, skateboard and even get married, as well as shop, shop, shop. The department store also has two personal shopping lounges, though this is no longer much of a differentiator vis-à-vis online players and their own VIP services.

Nordstrom has adopted a different strategy to fend off online competitors. The US department store group offers online shoppers the option to browse through products that they can pick up the same day from their local store. The Nordstrom Local programme, launched in 2017, has been met with some success and is being rolled out with the group, betting that the inventory-less locations will draw customers thanks to services.

Digital streaming services are the new frontier in retail, a mixture of brand monetization and awareness building. Rihanna’s Savage x Fenty show on Amazon Prime broke the internet; lifestyle brand and retailer Goop has a docu-series on Netflix and Pat McGrath Labs has recently announced a collaboration with Netflix hit show Bridgerton.

Department stores such as Selfridges, Harrods and Berdgorf Goodman have not  yet jumped on this bandwagon. How long until they do?

Are Department Stores Still Relevant