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Department stores aren’t meeting all consumer demands

  • In Association with Marketview
  • July 19, 2018
  • Madeleine Boles de Boer
Department stores aren’t meeting all consumer demands

Changing consumer habits mean department stores are no longer top of the retail food chain.

The department store has been a cornerstone of the retail landscape. A one stop shop, department stores let us stock up the home, refresh the family’s wardrobes, and fill the beauty bag, all under one roof. However, with consumers increasingly valuing ‘experiential’ purchases, the generalist nature of department stores may be limiting their ability to offer the personalised experience starting to be provided by their specialist competitors.

Since the beginning of 2017, we have seen overseas department stores facing a number of challenges. Early last year, well known U.S. department stores J.C. Penney, Sears and Macy’s all announced plans to close hundreds of locations. On top of closures, Macy’s has been expanding their discount format in place of full price offerings, with self-service checkouts and bigger clearance sections. Meanwhile, J.C. Penny has been busy liquidating assets. Closer to home, Australian department store Myer also closed multiple locations last year after lower than expected sales results.

After such a tough year for what used to be the overseas heavyweights of the department store format, should our local equivalents be worried?

In April 2018, spending at local department stores fell 5.6 percent on the same month last year. In the 12 months to April 2018, spending at local department stores has dropped 2.3 percent compared to a year prior, although transaction volumes have stayed relatively unchanged – up 0.1 percent over the last 12 months. These figures suggest New Zealand department stores have followed the same strategy as their overseas counterparts, with heavy price discounting in order to retain their customer base.

Key components of the traditional department store are typically cosmetics, homeware, appliances and apparel. Ironically, specialised competitors of these categories, independent from department stores, have been seeing strong growth from local consumers.

So why, if almost all department store categories are growing individually, are they failing when grouped under one roof? The changing demands of consumers and their expectations for retail may be partly to blame.

As consumers, our expectations of quality rise with the price of the product or service being purchased. Sales and low prices will always attract bargain loving consumers, but when the purchase calls for a higher price tag, we demand a uniquely personal in-store experience. We value one on one, informative sales processes to not only understand what we are purchasing, but also to justify the higher price, and enforce our sense of value for money. Department stores’ diverse offering and multiple focus points means they are constantly challenged to meet both of these demands at once. When many have a wide range of luxury, high priced goods, but an in-store experience that must cater to every department they offer, the challenge is made even harder.

What once used to be the draw of department stores – everything under one roof – is now being gradually eclipsed by online, essentially a giant department store. Online retailers offer an even wider variety of products than local department stores can ever dream of stocking, at increasingly lower prices, making many of our local retailer’s promotions and sales somewhat redundant.

The rise of online and specialised competition has not been missed by department stores however. Farmers has recently added high end cosmetic brands Kiehl’s and M.A.C to their offering. On the other end of the spectrum, Kmart has chosen to compete on consistently low prices, a tactic that has also been followed by The Warehouse.

The government’s planned introduction of the ‘Amazon Tax’, imposing GST on online purchases from offshore retailers will go some ways to level the playing field in terms of price for these retailers increasingly challenged by overseas competitors. However, department stores will need to focus on their customer experience, particularly those in the high end space, in order to keep customers coming to their stores, instead of the increasing number of boutique (and online) alternatives.

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