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IADS Press Release: Flagship stores play a pivotal role in department stores’ omnichannel strategies

press June 2023 Press release

Back with a vengeance: by proposing experience as an alternative to e-commerce convenience, flagship stores play a pivotal role in department stores’ omnichannel strategies.

Physical stores have transformed from transactional hubs to experience platforms and are now playing a pivotal role in the omnichannel offering of department stores. As retailers are rebuilding customer traffic in their most iconic locations, it is necessary to couple fresh refurbishments, a muscled product offer, unique experiences, and tailored services to omnichannel strategies to woo customers back, especially the highly valued VICs.

Even though traffic has not recovered to pre-Covid levels, flagship stores have become more important to the department store business and have posted impressive 2022 performances.

Thanks to their digital upgrade, which started before the pandemic but was significantly accelerated during the Covid-19 episode, flagship stores now play a critical role in omnichannel strategies as they combine attractive product offerings, activities and services with e-commerce, which remains a major growth lever for the future. In addition, to further reinforce their attractiveness, these stores, which are often iconic locations at the heart of city centres, are being transformed through significant refurbishments to improve their look and feel, host attractive experiences, and drive in-store traffic.

Rebuilding traffic and a strong business also goes through the increasing importance of a loyal customer base, especially VICs whose needs should be fulfilled anywhere and anytime. Attracting Asian tourists back, in particular Chinese ones, represents another key question for the next 2 years of business.

More than unique buildings, flagship stores are building traffic by being community spaces

Many department stores have recently engaged in full refurbishments such as El Corte Inglés’ Madrid Castellana and Marbella locations, or El Palacio de Hierro’s new Coyoacán unit in Mexico City. Such heavy refurbishments are crucial as they often require years of work to upgrade the location without business interruption, and with extremely high stakes given the weight of their turnover in the company’s total revenue. The challenge is worth it: at El Corte Inglès, the new stores’ sales have caught up with the pre-Covid turnover faster than the rest of the fleet.

The refurbishment does not have to affect the whole store to install a new brand image and store perception. Manor in Switzerland is implementing new food supermarkets with a fresher look and a renewed experience based on seasonality, local suppliers, and a strong product offer (especially in wines). They also opened Aeschbach shop-in-shops (a local shoe multi-brand retailer) representing a great opportunity to include more brands in their offerings. In fact, launching new product categories is an interesting option for a more dynamic offer: Magasin du Nord recently added new product categories such as wedding-related products, in addition to changing the look and feel of their store entrances, following the acquisition of 100% of their real estate footprint back in 2022.

The goal is not to simply propose an architectural upgrade but to attract more customers by being more relevant and building communities around the stores. This is why flagship stores increasingly rely on experiential spaces. With their ‘B-Place’ spaces, Breuninger presents curated multi-product offerings. It is a way to become the ‘talk of the town’ and a lifestyle expert by introducing different products besides fashion. When it comes to experience, Manor favours entertainment and emotion: they hosted 25 wine festival events, allowing them to increase traffic and turnover, and build a wine community. Also reflecting consumers’ growing interest in gourmet offerings, El Corte Inglés opened the first Michelin-star restaurant in a department store. Finally, El Palacio de Hierro launched experiences such as a tattoo parlour, a mezcaleria, and a candy lab to attract different consumer groups.

When it comes to services, Magasin du Nord has redesigned the store layout, by developing service lounges which regroup all cash desks in one single location (instead of being scattered through the shop floor), fitting rooms, an Instagram room, and service points such as personal shopping and gift wrapping.

Flagship stores are an essential part of department store companies’ omnichannel capabilities

For all department stores, omnichannel excellence is a strategic priority and includes growing the online product offer or connecting web-to-store and store-to-web services such as click & collect, click & reserve, pickup in-store, shipping from store, mobile checkout, test & order, in-store ordering, and personal shopping. To achieve these proposals, often based on extremely complex logistical systems kept invisible to customers, retailers work on building a relevant IT architecture, integrating warehouses and stores to transform them into pieces of the same chain.

For that reason, given their central role both in terms of strategy, image, and physical location, but also given the weight of the investments required, flagship stores are key in these strategies and the reason why all new services or options are often deployed in these locations.

To complete the central role of flagships, department stores are developing “super apps” to seamlessly combine online and offline channels, intertwine services (for example, personal shopping with click & reserve), digitally develop loyalty programmes, or add more convenience, such as car park booking, hand-free buying, and appointment management. To achieve that, flagship stores are transformed into open systems, fully interacting with the super app, an entanglement which allows customers to maximize the combination of the app’s convenience without losing the experience available instore. Magasin du Nord’s flagship store is a key part of customers’ omnichannel journey as they predominantly start their shopping experience there. Over the past few years, the number of loyal flagship store customers has steadily increased and the store also sees a higher average Customer Lifetime Value than the average of all other stores in Denmark.

Let’s go customer-centric, with a focus on VICs

VICs are especially courted with exclusive experiences and services: for instance, Breuninger focuses on their top 30 best customers and invites them to prestigious in-store events where they are offered Michelin-star food. An increasing number of companies are looking at upgrading their VIC loyalty program, often by focusing on exceptional experiences rather than transactional rewards.

With life going back to normal, tourists, especially Chinese ones, are also in focus (even though it’s difficult to tell when exactly Chinese tourism will resume in all parts of the world). At Sogo, this topic is critical as the store has only relied on local customers since the beginning of Covid. To secure locals, the company emphasized their 3-tier loyalty program with members benefiting from shopping privileges. Now they are re-engaging with mainland Chinese customers by offering them extra reward points and distributing attractive WeChat coupons. Chinese customers are not the only ones courted at the moment. With the UK now out of the EU, dedicated efforts were needed to continue attracting British tourists to El Corte Inglés. They launched a new campaign to attract a greater number of high-value customers. The results are visible through tax-free operations and international credit card transactions.

Flagship stores have a crucial role in the omnichannel business. They offer attractive and curated brands and products, experiences and digitally enabled services for omnichannel shoppers who are on average spending 3 times more than strictly offline and/or online customers. Consequently, department stores must dedicate significant investments to be able to serve and develop this key part of their customer base. They are currently working on intertwining channels and services for customers to benefit from a seamless journey as well as 365- 24-7 convenience, and for companies to grow their traffic, sales and data. Since retail is first and foremost a question of people, this obviously generates new challenges, as staff recruitment and retention remain major issues for retailers. Department stores are working on improving their incentive schemes and creating a mentoring program to retain talents or develop new perks to remain attractive.

Read the full press release below:

Read the full press release, in French, below:

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