Wednesday, June 7, 2023

The Demise of the Department Store


Around the world department stores are struggling. Many reasons are used to explain this phenomenon; rising rent, internet shopping, growing sized shopping malls, too many shopping malls, bad store layouts, lack of consumer experience, too much discounting, spending slow down, product and stock not relevant to customer base.

In recent years Corona virus and the increase of online shopping are claimed to be behind the downturn, however if you look back through media, department store decline was being discussed back in 2000 and earlier.

The decline of department stores comes down to the simple fact that they are no longer seen as “destination” stores. They have lost this destination status because they no longer offer exclusive products to customers.

The brands that were sold exclusively in department stores realized that they could afford to open stores under their own name and sell direct instead of limiting themselves to sales from one head retailer. It became possible for them to reach their customer base through another avenue. Why shop in a department store when you can walk a matter of meters and find the same stock in the own brand shop?  Online shopping opened yet another sales opportunity to sell direct.

The chase for the mighty dollar has gone even further with some wholesale companies now selling direct to the public, at pre-set retail prices. Customers are also more savvy now a days and with simple googling will often find the wholesaler or agent for a brand and approach them directly to purchase- with the intention of saving some money.

Previously department stores were a launch pad from new brands wanting to capitalize on the guaranteed traffic into the stores. In turn department stores dictated terms such as high rent for a concessionary store and long payment periods for stock. Issues such as these became motivating factors for brands to look at other ways to sell their products.

Australia has the distinction of being the birth place to the worlds oldest continuously running department store- David Jones. The first DJ’s opened in Sydney in 1838. Myer on the other hand opened in the exploding gold fuelled city of Bendigo in 1900. Back then both stores were able to offer things that no-one else could. David Jones was the first store in Australia to sell Coka Cola. In 1928 their Elizabeth St Sydney store had a restaurant that served 5000 customers a day, including the queen during a royal tour. The department stores of yester year were fed by rapidly growing populations and wealth and in a sense they could be everything to everyone.

The decline of department stores is like watching a train wreck in slow motion. Think tanks and retail consultants have brain stormed many ways to revive the stores, but none have proved to be the magic bullet. Some ideas have been to target towards a younger market, which lost them the “older” market who still think young and want to look young and very often have more money to do so. This idea was not a hit. Another solution is to pivot and adapt the stores. This is a broad brush. In the past it has worked. During WW2 the David Jones store on George St Sydney adapted 3 floors to become free accommodation for service women.

Where to from here? There’s no going back and no changing what’s happened. The golden days are over and department store locations are decreasing. This could also be viewed as a much needed market re-adjustment. Now it’s time for the shopping centre rental agents and the centre designers to work out how to move forward. Department stores have huge floor areas and often deep tenancies. That means reworking the centre layout to divide into smaller tenancies or thinking about different types of large footprint tenants- mega churches, small residential apartments, indoor farming or car dealerships as some ideas. But it may also mean time for department stores to pivot their model. Well known multinationals have done it previously. Nintendo was originally Japan’s largest seller of greeting cards. Perhaps future generations will know the name Myer or David Jones as a large hotel chain or indoor amusement parks.