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Is the Department Store Dying or is this Evolution as Usual?

Is the Department Store Dying or is this Evolution as Usual?
Retail Real Estate Trend: Luxury Retailers Revive the Customer Experience


There are some questions in retail that never seem to go away. Among the most-asked concerns is the health of the traditional department store. Is this retail concept on life support? Have department stores lost their relevance? Are we in a post-department store era? Industry watchers, the media and even retailers themselves raise these queries regularly. As regional leaders in retail real estate, it’s an issue we keep a close eye on. Here are some of our recent observations.

In Retail, Change is the Name of the Game
Nothing in the retail industry is static. Since the first department stores opened in the mid-19th century, the concept has been evolving, driven by changes in economics, demographics, population migration and technology. Yes, in some cases the surviving department stores have lost their role as commercial anchors in America’s cities and even in some major malls. From the stresses on their middle class customer base to endless competition from smaller stores with unique product assortments, discounters, outlets, monobrands, club stores and online, these retailers face mega-challenges. Consider also that the ongoing cycle of discounting as a competitive tactic is eroding margins. No wonder we hear of store closings and stock downgrades and pronouncements of a post-department store era.

Can the survivors keep on surviving? It looks like they may have a fighting chance. Retailers will rise and fall as they always have. But the concept of a single space where shoppers can browse, discover and select from a wide range of items – and enjoy the experience – will likely go on. One caveat, however: if the retail icons don’t want to go out like the dinosaurs, they’ll need to continue evolving to meet customer needs.

The 21st-Century Department Store is Rising Thanks to Luxury Retailers
Department stores are writing the next chapter in their history. Many middle-market merchandisers are in transformation mode with heavy emphasis on technology. Most major players in this category, for example, have embraced omnichannel to meet the demands of tech-empowered shoppers and to counter online competition. A smoother shopping experience with electronic beacons and self-checkout counters is in the making. Smart mirrors are being featured in fitting rooms. And sales associates with tablets in hand can provide instant information about the entire inventory.

It’ll take more than tech wizardry though to reinvent the department store. High-end retailers may have found a winning strategy by restoring the joy of shopping. Neiman Marcus, Bergdorf, Barneys New York, Nordstrom and Saks Fifth Avenue are leading the charge in the U.S. Their goal, echoing the original concept of the department store, is to create a unique customer experience that goes beyond transacting. Listen to their executives and you’ll hear phrases like retail theatre and creative merchandising. To deliver those, they’re reimagining interior space with maximum aesthetic appeal, curating inventory, introducing new lines and designers, incorporating restaurants and wine bars into the retail environment, using pop-ups, and staging exclusive events. They’re exploring the concept of customizing each branch store with touches of local style. They’re doing things their online competition can’t. And they’re not neglecting technology. They’ve mastered omnichannel and moved into data mining to gain precise insights into the habits and preferences of their key customers.

Retail Real Estate Trend? Joy of Shopping at Middle-Market Department Stores
Middle-market retailers can’t (and probably shouldn’t) try to mirror the tactics of the luxury department stores, but there are signs they are scaling the joy of shopping concept to fit their markets. Ideas on the table include right-sizing space and upgrading interiors, improving visual merchandising, curating inventory to include exclusive brands, incorporating food and beverage service and upgrading staff. Localization of branches and unique in-store events, sometimes inspired by a chain’s flagship venues, are emerging. (Read more about this trend here: http://www.businessoffashion.com/articles/intelligence/whats-next-for-the-american-department-store.)

Back to the Roots of Successful Retailing
Is there a silver bullet here? Department stores may finally be on track to reclaiming relevance and appeal. They seem to be taking the advice of Macy’s Margaret Gitchell, one of retail’s first female executives. Her mantra was “never forget to astonish the customer.” That worked in the19th century and it may just be the key to surviving in the 21st.

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