DEPARTMENT STORES: Big bets vs big data

2 March 2015

BY ZEENAT MOORAD, FEBRUARY 26 2015shopper

“EXCUSE me, I was looking at that,” a redhead snaps. “No, I saw it first, so it’s mine,” an elfin woman fires back, tightening her grip on a pair of suede pumps. This is not a line from a frothy Hollywood flick but a real-life performance at a swarming “50% off everything” sale at one of SA’s most prominent department stores in a Johannesburg mall. The brawl is mostly ignored by other frenzied shoppers trying to seize designer duds. The entire spectacle is perplexing more than it is amusing, for a number of reasons.

Chief of which is that it happens to be only a little after 8.30am on a weekday and consumer spending in SA is in the doldrums. Also, the department store format is supposed to be dying.

The model has over the years faced competition from a deluge of brand-specific stores and category specialists. The rise of online shopping, particularly in developed markets like the US, the UK and Australia, has relegated department stores to the past for some consumers.

After 59 years, Mervyns, once owned by US chain Target, has been consigned to retail heaven. Loss-making Karstadt in Germany, which sells everything from perfume to frying pans, changed hands for the second time in four years when Austrian investor Rene Benko rescued it for €1 last year. American retail icons Sears and JC Penney are both struggling to survive.

In SA, bastions like Garlicks, John Orr’s and Greatermans have drifted into the abyss.

The problem, retail pundits say, is the failure to adapt to changing retail landscapes in order to stay relevant.

In Western markets, a huge share of clothing brands is now being sold online and this decreases the relevance of multibrand department stores. More brands from more international designers are now available very easily, and department stores in Western Europe and the US have partly stopped being the open gates to the big wide world, says Boris Planer, chief economist at London-based Planet Retail.

“Today, the likes of Zara, H&M and so on are fully vertically integrated and they can react to fashion trends very fast — from the designer board to the shelf in less than six weeks. Whereas sluggish department store operators continue to buy everything for a summer season almost a year in advance, so they are clearly taking a risky bet on trends with room for error and hardly any space at all for corrections. One could say that the old-fashioned department store is in the betting business. And in times of big data that is no longer good enough,” he argues.

There are those that are getting right, though.

Last year, John Lewis Partnership’s half-year profits nearly doubled, as its department stores offset the poor performance in its grocery unit, Waitrose. Some credit its success to its employee-ownership model — all staff members, from shelf-packers to the chairman, get the same level of bonus.

But the department chain’s smartest move has proved to be its embracing of the Internet age. John Lewis is now the leading omnichannel retailer in Britain, having invested heavily in its website, click-and-collect services and mobile shopping.

“Partners” — aka staff — are already trying the use of transactional tablets in its shops, allowing purchases to be made on the shop floor rather than at till points. The company says tablets also allow “partners” to access its operational procedures and systems, so they can spend more time helping customers on the shop floor.

Even the grand dame of department chains, Harrods, has had to transform. The Qatari-owned store’s multimillion-pound refurbishment was followed by record sales and profits in 2014. Investment included a new distribution centre near Reading and the installation of a new escalator covering all eight floors of the store.

After nearly 100 years, the Knightsbridge-based store shut down its exotic pets department to house an extension of its women’s-wear department.

This is the same pets department that Ronald Reagan, the then governor of California and future US president, rang up to order an elephant for a Republican Party rally in 1967. The story goes that when Reagan called Harrods to ask if they sold elephants, he was asked: “Would that be an African or an Indian elephant, sir?”Harrods’ refresh included the creation, on its fifth floor, of Europe’s largest shoe department, aptly named “Shoe Heaven”, and also the launch of “Fashion Lab”, an innovative space that stocks contemporary brands targeted at younger customers.

Department store retailing is far from dead, according to Woolworths CE Ian Moir. “Poor retailing is the problem, not the department store format. The ones that do it well [such as Selfridges and John Lewis] are nice environments … innovative. Department stores — do them well, there’s a future. Do them badly and there isn’t. That’s true for any retail format,” he says.

Woolworths’ R23,2bn takeover of Australia’s David Jones has given it 1 151 stores across 16 countries — an expanse greater than that of northern hemisphere department store counterparts Macy’s, Nordstrom or even Bloomingdale’s.

Independent retail analyst Syd Vianello says the department store in its original format died 20 years ago. “The concept is and has been reinventing itself by creating store-within-store concepts for high-fashion, big-name brands. Edgars is the old department or family store which has gone more up-market with brands like Guess. Stuttafords is trying to model itself on Selfridges,” he says.

Beset by debt, Stuttafords landed up in 2009 in the hands of a consortium led by Vestacor, Retail Ventures and the Ellerine brothers. The chain has become renowned for stocking global labels like French Connection, Tommy Hilfiger and Ted Baker, but more so for its sales. Stuttafords, which has changed CEs three times in seven years, also restructured, shutting tired-looking stores in favour of fancier ones like its Sandton City store, which cost over R20m to spruce up.

Chris Gilmour, an analyst at Absa Investments, says Stuttafords was the last “proper” department store in SA. “Even they have changed — Stuttafords used to have a food hall in the basement and it was exquisite; now it’s just a little brand shop.”

With a mix of concessions, licence agreements and stand-alone stores (in the case of the Gap and Banana Republic brands), it’s unclear how profitable the chain’s 12 stores are. Questions posed to Vestacor management went unanswered.

Three years ago Edgars freshened the look of key stores and added international brands, including TM Lewin and Spain’s Mango. The retailer’s problems, however, and those of its parent, Edcon, are thought to be too deep-seated for a turnaround.

“We don’t know what’s going to happen to Edgars,” says Vianello. “It can’t continue operating the way it does now, unless all the bond holders convert to equity or something like that. They will have to take one helluva haircut. There are going to be fights like never before as to who owns what security. Edgars is losing money at an operating level. It is making a bit of a profit, but after the interest burden it’s a disaster.

“There’s a big fear among property owners that Edcon will be broken up,” says Vianello. “And if it is, you can bet a foreigner [retailer] would be here tomorrow and pay a premium for Edgars, just for the sites. And the Edgars brand will die overnight.”

Edcon Holdings told Business Day that it was considering a sale of noncore stores as it struggled under the weight of debt and weak retail growth. The group has not named the assets up for sale, but CE Jürgen Schreiber stated that Edcon “has initiated a process to eliminate operational inefficiencies”.

Purists might say that SA stores pale in comparison with great chains like Harvey Nichols, Macy’s and Barneys, which, with their plush carpets and chandeliers, created a “theatre of shopping”.

“A department store panders to a particular type of customer, someone who is usually relatively well-heeled and wants to be able to buy just about everything there — homeware, clothing and food. Woolies muddies the water a bit, as it’s more of a clothing store, but it’s far closer to being a department store than Edgars,” says Gilmour.

Vianello argues otherwise. “Woolies is not the quintessential department store — it only really sells one branded product — its own. Edgars has sunglasses, jewellery, homeware — it is much more a traditional department store because of its range. People go to Woolworths to buy Woolworths’ products, and they go to Edgars to buy Aldo, Levi’s and other brands,” he says.

Whichever way you see it, Woolworths, Edgars and Stuttafords all have to be able to react to ever-altering trends or they could end up as retail dinosaurs.

“When offering a great in-store experience and being strong online, there remains a place for department stores, as John Lewis in the UK is proving very impressively,” says Planer. “After all, shopping trips are just partly about convenience and price (they may be that for men’s socks), but also about the experience, getting out, feeling happy, self-reward and so on. There will always be space for inspiring high-street places, but the modern times will eliminate some sluggish players.


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