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The beginning of the third century of department stores

Some big players in the European department store world, including Dr. Christopher Knee from IADS, were interviewed for The Future of Department Store by Erik Van Heuven, published just before the covid-19 pandemic. They make a number of interesting and insightful points about department stores. Do these points still hold after the first wave of lockdowns, and will they provide a guide to the future in the “new normal”? Dr. Christopher Knee reviews the conclusions drawn by then at the light of what we perceive today of the new realities.

How a crisis will concentrate the mind

In the months before the Covid-19 pandemic a number of famous department stores were suffering (JC Penney, Macy’s, Barneys New York, Debenhams, House of Fraser…) generating a familiar plethora of articles predicting the death of the 19th century format, often using Darwin as a meme. More recently as a result of the pressure all retailers have experienced, the end of department stores is once again described as imminent.

What do the actors themselves say about it? In The Future of Department Stores, a book published just before the pandemic, 12 important European department store retailers shared their thoughts on the opportunities and challenges for department stores.

There follows a selection and synthesis of some of their preoccupations and how they might be viewed in the “new normal” post-pandemic world.

Heritage and branding

Department stores are conscious of their heritage. It is viewed as an asset which distinguishes them from other retail formats. Their history is often deeply embedded in their brand, as it is in the cities in which they have traditionally played a significant role, defining whole areas and attracting tourists at least as much as major city monuments. In some cases, it is difficult to imagine the city without the store (try Paris without Galeries Lafayette, London without Harrods or Selfridges, Milan without Rinascente, Amsterdam without Bijenkorf, Brussels without Inno, Berlin without KaDeWe, Helsinki without Stockmann, or Madrid without El Corte Ingles). These landmarks are slowly beginning to come back to life.

What is important is that the measures and protocols taken to ensure staff and customer safety are in line with the store brand and image, whether they court exclusivity or family-orientation.

Space-time

This emphasis on the “wonder” inspired by the department store building has continued since the format’s founding, with major architects hired to remodel or build new stores around the world. The recent wave started with Rem Koolhaas and the Prada store in New York in 2001, an approach which was quickly adopted by department stores, notably the Selfridges in Birmingham by Amanda Levete and Future Systems, opened in 2003. Investments have continued with Koolhaas at KaDeWe as a recent example, and the hugely expensive refurbishment/restoration of the Printemps store in Paris. These places are designed for “shopping” rather than buying, and for customers to linger and dream. While this will no doubt be the case once again in the future, the health crisis underlines a defensive preoccupation with convenience, even in the luxury world. Furthermore, although the space variable remains an important component of the winning formula, time and speed have become a real part of the offer of intuitive shopping.

Global and local experience

The status of the department store in the city makes it an experience in itself. The KaDeWe building in Berlin, like the Rinascente in Milan have historic significance, just like the Marshall Field’s in Chicago (which inspired Selfridges in London) and which elicited large protests when it was renamed Macy’s. These buildings have both tourist and local appeal. But it is the local customers which department stores now have to woo back, until international travel regains its former volume which will not be for some time. It was precisely because of the experience of neglect felt by local customers that Galeries Lafayette opened a special tourist store across the street from the flagship with tax-free and group facilities. It is this tension and mutual dependence between the global and the local which is the challenge for flagship department stores. Stores in smaller cities require a different sensitivity. (see concept of “the 15-minute city”.)

There is no doubt that the food offer including restaurants has become an important component of the experience of visiting department stores. Food is fashion and embodies perfectly the need to offer a global food experience as well as to emphasise the low carbon footprint fresh provenance and local taste and production.

Management

Department stores have also been working for a long time on their business model and structure, and how to make it efficient (this was indeed the original role of the IADS, to bring “scientific management” to the format). However, a different model is now required: some elements of the original model act as a brake on the development of department stores, with silos slowing its response to change,  merchandising models unable to adapt to competition and to the new relations with brands, and employment practices which discourage the kind of engagement customers have come to expect.

This revolution remains to be fought: getting away from what one retail leader has called “mismanagement” is a fundamental requirement for many industries. Classic theories still dominate and are no longer capable of delivering the leadership, engagement, flexibility and agility needed in the current century. This characteristic has been accelerated by the health crisis.

E-commerce

The march of e-commerce has been accelerated also. It is no longer a “must-have” because your retail business is old-fashioned without it. E-commerce for many was the only source of revenue during the lockdowns. Online selling represents huge convenience for customers. For retailers, it has opened up a whole range of innovative solutions to getting essentials (and often less essentials) to customers.

However, these are rarely profitable solutions for the long term. What remains is diminishing returns as online grows. With the covid-19 spread, online became a way to remain present in the mind of the customer, but not a source of profit for the future. The original goal of the IADS, to make department stores efficient and profitable has not yet been reached for the online business. As the CEO of the online business whose department store division failed puts it, we are “not good enough yet…”. While before the pandemic, most department stores were struggling to offer the same assortment online as they did in store, the more recent point of view would appear to be that the “infinite shelf” or “endless aisle” is too expensive, and that choice, selection, curation and indeed personalisation are the ways forward to increased convenience and frictionless retail.

Conclusions

Department stores cannot remain a volume business:

Unless department stores can attract large numbers of tourists and a significant local clientele, they will not remain volume businesses. Locally, the middle class which the department store format was engineered to serve is shrinking. Hence the tendency to move upmarket. With the continuation of the covid-19 scare, we will have to learn to serve fewer customers.

Department stores need to know their customers:

As a corollary to the above, department stores need to know their customers. This does not necessarily mean knowing them individually, but knowing what kind of experience, assortment and service they are seeking – and also how to surprise them. Technology understanding and investments will become crucial. Such a close contact with customers moves us still further away from mass retailing.

Who are the local customers?

Department stores will need to learn to address their local customers more clearly and appropriately. This also applies online: most online department store customers come from the areas around the physical stores. Even the large luxury brands are conscious of this lacuna. Customers are (re)discovering their community and their environment. However, this means losing some of the benefits of economies of scale.

Choices:

The best way to address customers in the future will be to “cut across the noise” and curate the offer. And the offer needs to match the store brand as well as the targeted customers. This will involve some difficult choices. Department stores may choose to offer above all convenience, or entertainment, or a curated selection, or value, or innovation… In the past, department stores attempted all or most of these. In the new normal, customers need one unchallengeable reason to visit.

Simplifying the store:

One of the main objectives of department stores in the new normal should be to simplify: this means simplifying operations to focus on profitability; and simplifying the offer to appeal to a local customer mindset. Department stores are both complicated and complex. Complicated in their operations which can be simplified through appropriate strategy and management. Complex in their DNA which can be managed through a shift in business model and technology.

Want to go further or exchange your ideas? Share your thoughts with us at [questions@iads.org](mailto:questions@iads.org)

Credits: IADS (Christopher Knee,)