Neiman Marcus — Fairfax, Virginia
Neiman Marcus — Fairfax, Virginia

Can department stores compete again?

Research Project Name

Resurgence of the Department Store

What We Did

We undertook an investigation into the future of the department store under the premise that although we keep hearing about the imminent “death of department stores,” it hasn’t happened. To learn more, we spoke with industry leaders, visited successful stores around the world, and conducted research by scanning business and trade publications. What we concluded is that there are distinct advantages for department stores in today’s business and retail climate, but bold strategies are needed to regain the competitive advantages these businesses once held.

The Context

Many department stores currently sit on a precipice: Sales are languishing, malls are struggling, and their future existence is in question. But it doesn’t have to be this way. Exciting new strategies are emerging that capitalize on changing shopping habits and advances in technology. Department stores are uniquely positioned to lead this paradigm shift in the retail experience, a shift that consumers are already demanding. By moving forward with a bold, no-holds-barred approach, and by leveraging what made them successful to begin with, department stores not only can survive, but can thrive— and rise to the top of the retail sector once again.

The Results

On closer examination, the deck is stacked in favor of department stores. At both the regional and the national levels, department stores have tremendous access to merchandise based on their buying power. They can utilize this power to demand exclusives from designers as limited-run collaborations, exclusive product offerings, or special events.

Department stores are also major stakeholders in malls, and they have the anchor clout to push the daily, weekly, and yearly programming that is vital to driving foot traffic. The specialty stores that are their mall neighbors offer opportunities to develop corporate relationships and forge strategic alliances that result in mutually beneficial synergies.

The fact that department stores often have a significant space advantage, plus they frequently own the buildings in which they sit, provides a real opportunity. Strategic planning of the available space—combined with technology-enhanced product displays, leveraging of websites, and stocking efficiencies enables by RFID (radio frequency identification)—can reduce the amount of physical area required to showcase pure product without reducing offerings. That surplus space can then be used to provide unique guest experiences. Enormous marketing budgets can also be better leveraged.

Budget and space allocations can be shifted from pure commercial advertising to training and community outreach, strengthening department stores’ connections to their local communities and investing in employees to enhance customer service.

And in the end, the one thing shoppers can’t buy is time, which they seem to have less and less of every day. The department store can look to its roots and provide a wide selection of relevant offerings to create one-stop shopping that has a curatorial edge.

What This Means

Curate products and pursue synergies to deliver the unexpected. Department stores have the power to select and curate their selection of products, to demand exclusives from designers, and to drive the creation of new products. Use this power to develop new and unexpected product synergies. Get feedback by asking customers what they want and delivering what they ask for. And consider platforms that put the customers even more in control, allowing them to “create” their own collections or online stores.

Elevate the guest experience. Department stores need to unify the virtual and physical shopping experience and truly deliver something better. STEP 1: Consistent pricing. STEP 2: Go beyond that by connecting with local communities to deliver something unique and to better understand customers. STEP 3: Remember that the shopping experience always comes first. Technology is a powerful tool, but not an end in itself.

Create a culture of customer service. To get the guest experience right, a culture in which the customer comes first is key. Again, department stores have the advantage: They can use their scale to train staff, share best practices, and deliver service and experiences smaller specialty stores couldn’t dream of. This may require a rethinking of staffing priorities. Consider dropping commissions in favor of training as a long-term investment.

Be socially responsible. Customers want to give their money to companies whose culture they respect, companies they believe share their values, and companies they feel are positive contributors to the community. This sentiment seems to be even stronger in the BRIC countries (Brazil, Russia, India, and China) and in developing nations, where often cash-strapped consumers are making decisions based on what they think a company stands for. Partner with local communities to deliver value and invest in contributions to the community.

What’s Next?

The opportunities for department stores to deliver differentiated products and experiences are plenty. The key is to think beyond the ordinary, to make the bold investment, and to gauge the results. But the true challenge will be to continually pursue daring innovations. A one-dimensional strategy isn’t going to cut it. A far-reaching, persistent, unexpected—even risky—strategy for success is what will push stores ahead of the pack. Making that push means daring to be great, and understanding that change must be constant.

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Kathleen Jordan

Year Completed