Department stores must innovate to survive

Department stores must innovate to survive

Shopping centres are still viable, but consumers want more choice than ever before

Department stores in the West have been experiencing what is best described as an identity crisis. As they are being forced to merge, close altogether, or completely reinvent themselves, it has become increasingly clear that consumer expectations are changing as online buyers keep clicking and shoppers are presented with more choice than ever before, especially in the fast fashion and cosmetics sectors.

Easy sell: The rise of internet shopping has dented department store revenues, but retailers can draw customers with ‘unique’ shopping experiences that bridge the gap between online and offline.

On the other hand, department stores have continued to perform solidly in Asia, even in developed markets such as Tokyo and Singapore.

The department store model continues to grow in Asia, predominantly due to new shopping centre properties that follow prescriptive tenant mix formulas, particularly in the region’s emerging markets.

The middle-class population of the Asia-Pacific region is expected to double to 1.32 billion by 2020, highlighting the region’s rapidly changing consumer base. Consumer spending in Vietnam alone is up by 12% annually. The growing disposable wealth in these emerging markets is a real opportunity for both international and domestic retailers.

The region is yet to see the expansion of street-front shopping, or specialty retailer-anchored shopping centres of the sort that have gained popularity in the West. While some well-known retailers such as Marks & Spencer feature their own private labels, traditional department stores are able to house a mix of globally recognised brands. More specifically, they deliver to the consumer a mix of private and independent labels, and can offer a great podium for new retailers to enter emerging markets through shop-in-shop programmes.

The Isetan department store chain of Japan is able to bring in some reasonably high-end designers from time to time, which seems to work well. A good example is the Vivienne Westwood boutique in Isetan’s Orchard Road store in Singapore, offering shoppers exclusive access to top avant-garde couture design.

Stairway to shopping: Department stores can exploit the fact the Asia-Pacific region is yet to see the expansion of specialty retailer-anchored shopping centres, which have gained popularity in the West.

Although the stock prices of most publicly traded department stores in the region have recently seen a slight decline, the department store remains an important element of the tenant mix in the growing number of new shopping centres under development in the region.

Middle- and upper-income shoppers in many Asian markets still favour the department store format, and tourism continues to drive sales. Isetan is expanding throughout Asia, as is Central, the Thai-based retailer, which supplements its core department store business with franchise brands such as Muji and Nike. There is still money to be made.

STAYING AHEAD

A key aspect of the department store evolution is negotiating an omni-channel pathway; with the explosion of online services and shopping, consumers want an “experience” — and a holistic one at that. Retailers must unite the platform, so that there’s a similar experience and brand voice, no matter what channel the consumer is shopping in.

The US department store Macy’s is a prime example of successful online, mobile, and bricks-and-mortar platform. It is regularly applauded for pioneering the integration of store operations and multiple channels. In 2013, JLL facilitated a 700 store-in-store partnership for Macy’s with the high-end athletic shoe and apparel retailer Finish Line.

Under the deal, Finish Line became the exclusive athletic footwear partner of the department store chain — a move that executives think could increase annual revenue by as much as 30%. Macy’s benefits with the buying, inventory and supply chain expertise of Finish Line staff, while the partnership allows Finish Line to expand sales and reach a new demographic of shoppers without opening new stores.

Similarly, the US department store Nordstrom made the bold move to reorganise both its in-store and e-commerce channels to report to a single individual in charge of all sales functions.

Asia Pacific is likely to take the lead of the United States and innovate its department stores by creating signature offerings.

However, while the bricks-and-mortar formula is still working at the moment for Asia, Asian department store operators lack the e-commerce and mobile platforms that exist in the West and will need to adapt to maintain growth in the longer term.

Developing these platforms and learning to partner with online retail giants such as Alibaba Group in China are the critical next steps for department stores to maintain and expand customer bases across the Asia-Pacific marketplace.

Department stores may have some challenges ahead, and will need to beg, borrow and steal survival strategies, but they aren’t dead yet. n


Adam Cook is the Asia-Pacific retail lead for project development services at JLL, a professional services firm specialising in real estate.

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