Can experiential retail save the UK’s department stores?

Department stores in the UK are up against it right now, battling fights on numerous fronts. Yet some are still managing to report consecutive quarters of strengthened results, while others are facing drastic store cuts or complete revamps under new ownership. The Retail Gazette looks at what techniques the successful department stores are implementing, and whether experimental retail is going to be the sector's saving grace.

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Catch the Debenhams results last week? Or followed the House of Fraser coverage through August and September? What about Harrods’ posting £2 billion in sales for the second year running at the start of the month, or Selfridges achieving its 12fth consecutive year of record sales following a £300 million investment drive.

You’d be forgiven for thinking these retailers operate in separate industries. While one side reports losses and struggling consumer sentiment, the other seems to go from strength to strength.

For all intents and purposes, there are two narratives playing out for department stores in the UK right now. Those at the upper end of the market who already specialise in experiential retail, and those who have been slower to adapt, stuck in the hard-fought middle or lower end of the market and without the capital to invest in luxury.

Speaking to Retail Gazette, Nottingham Trent University retail research associate Nelson Blackley described this dual narrative as an “interesting dichotomy” that’s developed over the past decade.

“According to analysis undertaken by InternetRetailing’s research arm RetailX, high-end department stores Liberty and Fortnum & Mason saw revenues grow at a compound annual growth rate from 2008 to 2017 of 11.2 per cent and 10.6 per cent respectively, with Harrods and Selfridges, delivering 9.3 per cent and 6.6 per cent respectively,” he explained.

“Conversely, many of those department stores occupy what might be described as ‘the middle ground’ – such as Debenhams, House of Fraser, Marks & Spencer and even John Lewis – and are closing stores and cutting staff numbers in the struggle to survive or falling into administration.”

Blackley added that there are several reasons why these mid-market department stores were struggling.

“These include lack of footfall, cost of trading and lack of flexibility in their store portfolio, as well as cost of property,” he said.

“Because department stores, like all retailers, are trying to respond to the rapid changes in consumer requirements and shopping behaviours, they also need to implement turnaround plans faster than originally envisaged – which requires not only strong leadership, vision, and commitment, but also investment.

“The dramatic recent collapse of House of Fraser is a clear example of what can quickly happen when these are missing.”

The current business rates are also exacerbating the daily challenge of running a department store in 2018.

Although they were not the only factor in Debenham’s difficulties, according to Colliers International head of business rates John Webber, business rates will certainly play a part in deciding which stores the retailer will consider closing.

Colliers’ research into which Debenhams stores they believe will face the axe shows that most are paying considerably more in business rates than they should be because of the onerous effects of downward phasing of their rates bills after the 2017 rating revaluation.

Colliers cites two stores as examples. In Stockport, the Debenhams store saw a 33 per cent reduction in its rateable value following the revaluation. But its rates bill only decreased three per cent in the first year, paying £330,000 instead of the £219,000 it should have been paying – an overpayment of 51 per cent.

Colliers calculated that this would continue over the next four years of the rating list with Debenhams Stockport paying £359,000 in rates bills more than it should be.

“Or take Debenhams Oldham which saw a 21 per cent decrease in its rateable value, but in its first year paid a rates bill of £277,600 instead of the £196,400 it would have paid without downward transitional phasing,” Webber argued.

“This means over the next four years it will be paying £250,000 more in business rates than it should be.

“In a period of declining sales and competition from internet retailers, these sorts of sums mean it is just not a fair playing field for such stores.

Webber added: “And these are only two examples… When you add up the bills across the country you can see what a massive impact downward phasing has and will have -and the impact on thousands of jobs too.”

It’s clear with those figures in mind that a retailer such as Debenhams with 165 stores will be forced to act in a completely different way to Harrods, Selfridges or Harvey Nichols, who have far fewer stores.

In-store experiences are becoming increasingly vital for department stores’ survival and for winning customers back, no matter where you are positioned in the market.

The proof? The department stores bolstering their in-store experience are already reporting back on the financial gains they’ve made.

For Debenhams, House of Fraser, Marks & Spencer and John Lewis, who have larger store estates and aren’t as able to chop and change with the times, the gains would take longer.

Thankfully the key to any retail experience is people, and that continued to be the main asset beneath the bells and whistles of experiential retail.

“A good customer experience is the foundation of retail success and the right department stores have this in bundles,” Quail Digital chief executive Tom Downes told Retail Gazette.

“But in order to thrive when others are dwindling, stores must realise that their secret weapon really is found in the store associates.

“The human element is still a big part of what the customer wants and expects when shopping in-store, particularly so in a department store where customers would be expecting a higher standard of service than one might experience in the high street.

“A well-trained associate creates the moment and through engaging with other team members ensures that the correct expertise, samples, products, sizes and alternatives are produced effortlessly for the customer, creating a quick, easy and positive shopping experience, inspiring them to spend.”

However, is it really possible to change the fates of Debenhams, House of Fraser, et al?

John Lewis appears to be determined. It recently introduced “experience desks”, where concierges can book appointments for shoppers such as blow drys and manicures. Its new “shopping list” will also enable customers to book time with a sales assistant to help them complete a list or shop for specific gifts.

And at the  top-end, in their new Cheltenham store, John Lewis is trialling a private shopping service that will give customers the stores all to themselves. Provided the bill tops at least £10,000, staff will be available after normal shopping hours specifically to serve individuals, groups of friends or a family.

Meanwhile, Debenhams has announced that from October they are to start rolling out in-store gyms, part of a new partnership between them and fitness chain Sweat, as it seeks ways to drive footfall.

The first is in Debenhams’ Sutton branch, with two further gyms within Debenhams’ centrally-located stores in Manchester and Bristol set to open in 2019. This is part of their strategy to deliver “social shopping”, which is a key element of the retailer’s wider Debenhams Redesigned turnaround strategy.

How much of this relates to tangible change for retailers?

“New logos are unlikely to really help department stores survive,” Blackley argued.

“The move by John Lewis Partnership to add ‘& Partners’ to its name from September and Debenhams’ unveiling of a new ‘modern, friendlier’ logo in the same month ‘to reflect its updated, dynamic personality’ are no more than expensive sticking plasters and temporary diversions from the real trading crisis they face.

“Some department stores are now looking to emulate the success of those currently in the ‘high-end’ with improved customer experiences and so bring the intimacy, luxury and magic of personal shopping to the high street.

“For example, John Lewis said in June that it planned to invest between £400 million and £500 million a year in customer experience across channels in coming years, as they see this as being crucial to their long-term success,.”

While Debenhams posted record-breaking losses last week, Ecrebo chief executive David Buckingham suggests it may not be game over for the retailer. This is a stance mirrored by the City after a 15 per cent increase in Debenhams’ shares following the announcement of the 50 store closures.

“Under the leadership of ex-Amazon Fashion boss Sergio Bucher, the company is trying to add to its bottom line by focusing on getting customers into store and onto its website more often,” Buckingham told Retail Gazette.

“The retailer is using a mix of tactics to do this – bringing in more brands, de-cluttering the shop floor and capitalising on the opportunity of click-and-collect, which sees customers spending up to 20 per cent more when they collect their orders themselves.”

Click-and-collect is on the rise, too. Figures released by GlobalData indicates that in the next four years, click-and-collect sales will account for almost 14 per cent of total online spend.

“The retailers that get this right – delivering the right combination of brand identity, customer-centricity and engaging design – ultimately drive more people into store, encourage them to linger for longer and convert that footfall into sales,” Buckingham said.

“For department stores, the opportunities are also endless – from including luxury brands in-store with dedicated sales staff and fashion consultants, to including cafes and beauty salons designed to add complementary services to shoppers so that they will spend more time in-store.

“The key for retailers going forward will be finding these partnerships, either with brands with complementary, non-competitive offerings, or even with competitive brands, that add value to the product line and the customer experience.”

With these sea changes in mind, what can customers expect to see from department stores in the next five years?

En masse, store closures are already in the works, but are there positive changes to come? Does the department store have a future on the high street? Wolff Ollins chief design officer Chris Moody believes so.

“It’s a popular myth that the digital players are going to destroy the high street,” he told Retail Gazette.

“The issue is that many department stores no longer represent variety of product or even a collective focal point for the local community and its needs – they represent a jumble of ‘things’.

“That said, it’s particularly difficult for department stores to reinvent themselves as a real destination for shoppers. When your brand is largely a collection of other brands, you need to have a clear purpose and, critically, a really strong personality and point of view on the world, or you risk disappearing from your own shop floor.

“Successful UK department store brands – and there are plenty, with Selfridges being the stellar example – have established this and are comfortable about who they are and what they stand for, and it’s why we keep seeing them post excellent financial results.”

Moody added that the answer for the other department store retailers that were now struggling would be to ensure the trip to their stores are worth it, both as a resource and an experience.

“One strategy for this would be for major department stores to pivot the experience they offer to become a community hub once more,” he explained.

“This could be achieved by offering a platform for regional skills, products and start-ups to get a lift-off in store, appearing next to recognisable consumer brands.

“Another option would be in visible joint ventures with experts like the Citizens Advice or Mumsnet to make the store a real resource that offers support and knowledge to consumers.”

With experiential retail at their centre, it’s entirely possible to think of department stores across the market thriving and finding their relevance again.

As Grey London planning partner Lee Barber succinctly puts it: “Since Selfridges defined the modern department store in 1909, the concept has changed little. But the world around it has.

“Choice, service and value are no longer the differentiators that once made the department store the beacon of the high street. Department stores need to rediscover their purpose. A reason for being beyond price, choice and convenience.

“They must establish themselves as brands in their own right (rather than a place to buy other brands) and become the innovators that redefine the shopping experiences of the future.

“To do this they need to have meaning in customers lives beyond being just a place to shop. Create experiences that cannot be replicated elsewhere. Deliver service beyond sales. Give advice, teach people, repair products, add value.

“They need to use data to build customer communities. Make people want to belong. Get them to fall in love with the department store experience all over again.”

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