How department stores are fighting back to combat declining sales

Department stores are struggling to sustain profitable sales in the face of online competition and mounting property costs, which is impacting the brands they sell. So how can these high street stalwarts survive?

John Lewis Partners

It is fair to say 2018 has been a traumatic year for department stores.

Suffering the long-term effects of deep discounting, lagging consumer confidence and falling footfall, department stores are closing locations, issuing profit warnings and entering into insolvency processes at a rapid rate.

The John Lewis Partnership shocked the business world on 13 September by announcing its profits had plummeted 99% in the six months to 28 July, with chairman Sir Charlie Mayfield blaming Brexit uncertainty and squeezed profit margins in the “most promotional market” for decades.

The retailer is far from alone. Fenwick confirmed earlier this month it was shedding 408 jobs after a 93% dip in pre-tax profits, while Debenhams was forced to reassure investors over its financial future after appointing consultancy KPMG to boost performance, warning that it could miss its profit forecasts.

House of Fraser is perhaps the biggest casualty of all, though. It is in the process of closing three of its 59 stores after being bought out of administration by Mike Ashley’s Sports Direct. While 31 stores had been earmarked for closure, new rental terms have been agreed for at least 20 stores, safeguarding around 3,500 jobs.

The high street is in the very tough situation and I think it’s very hard for retailers to have a point of difference from each other.

Deb Bee, Harvey Nichols

The chain collapsed owing nearly £1bn to creditors, more than half of whom are fashion brands including Polo Ralph Lauren and Pretty Green. Luxury handbag brand Mulberry announced it would lose £3m, while All Saints is reportedly owed close to £1.8m and fashion house Giorgio Armani almost £1.6m.

The latest to be impacted is French Connection, which last week saw its losses nearly treble to £15.1m for the six months to 31 July, nearly £10m of which was provisions for bad debts from the collapse of House of Fraser. 

Getting the brand mix right has been a major problem for House of Fraser, according to Anusha Couttigane, principal analyst for fashion EMEA at Kantar Consulting. who says the retailer clustered around premium labels despite not being considered a luxury department store.

“House of Fraser also has some locations in previous market towns that have really struggled economically, so the level of affluence has changed. What House of Fraser offers now isn’t appropriate for some of those locations where retail isn’t thriving in the way it used to,” Couttigane notes.

House of Fraser
The House of Fraser website has been down for a month and redirecting to Mike Ashley-owned Flannels.

The risk of further missed payments has provoked other brands to pull stock from the beleaguered chain. Jigsaw has removed its 20 House of Fraser concessions and Edinburgh Woollen Mill has pulled out its brands Jacques Vert, Jane Norman and Jaeger, as well as suiting manufactured for House of Fraser’s Linea label, after being unable to agree “future trading terms” with the retailer.

The dispute also rages on over the £30m debt owed by the department store to logistics firm XPO, resulting in the House of Fraser website being down for over month.

Searching for differentiation

The inability for established department store chains to create a mix of brands that offer consumers something different has been a real problem, Couttigane argues.

“If you look at the likes of a Debenhams or a House of Fraser they tend to have agreements where they offer the brands they stock in most of the locations they have and it limits the way they tailor the offering to different locations in individual regions,” she points out.

Likewise, the convenience of offering a suite of brands under one roof is no longer a USP for department stores in the world of online. Retailers therefore need to define what makes them special.

Known for its iconic windows and passion for undiscovered fashion talent, Harvey Nichols sees real opportunity in turning shopping into an experience, says group marketing and creative director, Deb Bee.

The luxury department store chain has put a big focus on added value experiences such as its stylist service. The stylists curate a selection of outfits based on the brands, colours or styles the shopper indicates they would like to try, tailored to their budget and occasion.

“A lot of department stores now have gone down this root of concession and therefore each brand is speaking its own values in a separate way, whereas I think we have a really good mix of own bought and concession, which allows us to be much more creative,” she states.

Harvey Nichols
The beauty lounge nail bar at Harvey Nichols, one of a number of experiences alongside its retail offer.

Bee believes that often high street department stores struggle to find that point of differentiation and “being brave” has slipped down the list of priorities in a tough market where you need guaranteed sales. However, going down the “safe route” could risk customers’ losing interest.

“The high street is in a very tough situation and I think it’s very hard for retailers to have a point of difference from each other,” she says.

“Therefore we’re trying really hard to make sure we retain that sense of independence, spirit and personality, so people know that when they come to Harvey Nics it’s for something that’s unique.”

Despite the eye-watering profit slump, John Lewis & Partners is also keen to talk up its ability to differentiate, given 50% of its stock is own-label or exclusive lines. Sales of John Lewis’ own-brand products rose by 18% during the six months to 28 July and its own womenswear lines are experiencing double-digit growth.

The department store is also branching out with a personal styling service, now available in 15 shops across fashion and home. Some 20% of fashion sales growth at John Lewis’ Westfield White City store, for example, comes from the styling team.

The company also launched its first joint marketing campaign following the nationwide rebrand to John Lewis & Partners and Waitrose & Partners, a positioning focused on the fact staff are partners – not employees.

The rebrand has, however, raised questions that it is just a cosmetic fix given that days after the advert aired it was revealed the John Lewis Partnership made 1,838 people redundant over the past year, a 289% year-on-year increase.

Mayfield was, unsurprisingly, keen to focus on the success of the campaign rather than the redundancies. He insisted the relaunch shows John Lewis is actively focusing on the differentiation of its product and service, making changes to stand it in “good stead for the future”.

However, Mayfield does accept department stores cannot rest on their laurels: “Being a department store doesn’t give one an eternal right to exist. Department stores that innovate, change their proposition, move with times, offer people what they want, thrive. We are determined to be in that camp.”

Coming out fighting

Debenhams also went live with a rebrand in September, unveiling the first revamp of its logo for nearly 20 years. Designed to put a “modern and approachable twist” on the Debenhams branding, the new identity is supported by a social-focused campaign inviting shoppers to ‘Do a bit of Debenhams’.

The new brand identity is an outward expression of the Debenhams Redesigned project, which aligns to the company’s aspirations to become a destination retailer, dial up its digital business and find a point of difference.

One such point of differentiation is Debenhams’ collaboration with British furniture brand Swoon, offering a curated selection of the online brand’s best furniture, lighting and dinnerware at its Westfield White City and Reading stores.

Swoon commercial director, Adam Woodhouse, says the company has always experimented with physical spaces and was very clear about finding the right partners to collaborate with.

“We were pretty agnostic about who those partners would be, but department stores would be an obvious place for us to look at because that’s where there’s a huge amount of interesting space, footfall and consideration time in furniture,” he states.

Swoon in Debenhams
A dedicated Swoon space at Debenhams Westfield White City.

Woodhouse explains that Swoon did not go into these conversations with any preconceived ideas about department stores, but with an interest in brand appeal, complementary demographics, geographical location, scale and finding space to showcase its styling expertise.

The Debenhams Redesigned project also proved attractive as a “compelling transformation strategy” that Woodhouse and the team could believe in. Swoon now plans to roll out to other Debenhams stores over the next couple of months.

The Swoon collaboration is an acknowledgement from Debenhams that department stores need to offer consumers an experience which cannot be replicated online, explains managing director of beauty and marketing, Richard Cristofoli.

He is, however, keen to point out that the challenges facing the high street are more nuanced than simply the growth of online and feels critics of department stores often ignore the “outdated mode of taxation” that is business rates.

“We pay £80m a year in business rates that fund local infrastructure and services, because we’re a big space operator,” he explains.

“Department stores typically have very high business rate bills and when we’re up against an online pure-play competitor that has a business over twice the size of ours, but is paying £15m [in tax], less than a fifth of what we pay in business rates, that’s the real dilemma that’s facing the high street.”

Despite putting a programme in place to close 10 stores, Debenhams plans to open a new store in Watford by the end of September. Cristofoli believes this store will provide a vital function to the town in terms of attracting customers and employing local people in a way a pure-play competitor “simply cannot replicate”.

The retailer will be taking notes from its Stevenage store, opened in September 2016, which despite having 20% less product density than normal for a shop of its size, is the chain’s highest sales density and lowest markdown store.

READ MORE: Debenhams ‘comes out fighting’ with new brand identity

Experience counts

Instead of relying on convenience, department store retailers need to start focusing on discovery, suggests Mandeep Singh, co-founder and CEO of Trouva, the online marketplace for bricks-and-mortar boutiques.

He believes department stores should be uniquely placed to take advantage of the desire for experiential retail, but only those stores that have kept pace with consumers’ needs will survive.

Debenhams Stevenage
The Debenhams store in Stevenage.

“It leads to a future where you have far fewer offline shops. But the ones you keep are the ones that are brilliant, have amazing experiences and are in key towns and destinations,” says Singh.

“You can use online to serve customers that are in regional towns or who aren’t near a shop that is doing well enough to justify paying the rent. Offline will become just like a marketing channel, just like taking a billboard or spending money on Facebook.”

Having a clear point of view on its brand identity, point of differentiation and customer profile helps the 311-year-old retailer Fortnum & Mason stay relevant in 2018.

Customer experience director Zia Zareem-Slade explains that as a large proportion of the retailer’s customer base may only come into store once or twice a year, Fortnum & Mason wants to ensure they leave with an emotional connection to the brand.

To warrant time and attention from customers means you have to do more than just put stuff on the shelves.

Zia Zareem-Slade, Fortnum & Mason

The creativity and attention to detail of the visual merchandising plays a big part in this experience, spanning the in-store displays and advertising, all the way to what the team post on Instagram.

The idea is to create the allure, but then ensure the experience delivers on the promise, especially as retailers are competing for a share of people’s time in a way that is “unparalleled”, says Zareem-Slade.

“Whether you see an art exhibition or spend time at a museum or go to the theatre, coming and experiencing Fortnums is something equally up there,” she claims. “To warrant time and attention from customers means you have to do more than just put stuff on the shelves.”

Fortnum and Mason
Experience is at the heart of the food hall at Fortnum & Mason.

Zareem-Slade explains that rather than being fixated on segmentation and “over processing” the experience, the team is focused on the “relentless pursuit of being brilliant”. Much of the consumer insight it uses is based on daily real-time feedback from across all Fortnum & Mason’s touchpoints online and in-store.

“We’re not a million miles removed from our customer and I think that’s a really important element of what makes us different,” Zareem-Slade adds. “We don’t read those reports on a quarterly basis, I get them along with many of my colleagues live, in real time.”

Localising the offer

Creating an environment that works for the local community is an important strategy if department stores are to make better use of their space. Debenhams, for example, is set to open Sweat! gyms in three stores this month and is in talks with flexible office space provider WeWork to rent space in its London flagship.

Holly Klimek, international retail analyst for cross border retail and leisure at real estate company Cushman & Wakefield, believes department stores in regional areas should create a “community vibe” focused on the local market.

“Some department store chains need to realise that it’s not a one-size-fits-all policy for all their stores, and really build on the town centre itself to become that anchor [for the community],” she explains.

“There’s all this talk about ‘placemaking’ in terms of how retail is changing and I think department stores with the right store manager could lead that by really creating a community around their store.”

Hop of Hackney, an indie lifestyle boutique available on Trouva.

Where department stores do pull out of regional centres she expects to see the space being split up in favour of mixed-use offers blending leisure, retail, gyms and co-working spaces.

Singh believes that the difficulties facing department stores should be a wake-up call to landlords to realise they are no longer operating at sustainable levels.

“The rates model is clearly broken and it’s kind of a perverse tax on offline versus online, but also councils and governments need to think quite radically about regional town centres,” he states.

There are opportunities for independent retailers to take over the space left as department stores close their doors, although Singh stresses that they can only be part of the solution. A thriving, best-in-class department store experience is what’s needed to bring high streets back to life.