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Are Department Stores the Dinosaurs of the Digital Age?

printemps 535685 1920In March, I had the pleasure of speaking at an Intercontinental Group of Department Stores (IGDS) industry conference in Amsterdam. My topics included a retail industry update, the future destiny of the department store, and the sector's RFID adoption trends. 

A November 2015 article proclaimed "The long, painful death of the American department store."  

  • Are department stores stuck in the middle trying to serve all consumer segments?
  • Are the stores too big and missing the industry trend of stores getting smaller?
  • Is retail sales growth possible for department stores?
  • How can department stores evolve and thrive in the future of retail?

The Department Stores Segment Growth Prospects

The good news for department stores is that they are part of a global retail industry growth wave.  According to Euromonitor data, the retail industry will reach $16.4 trillion by 2019, a global CAGR of 5.9% from the 2014 base year. All regions will experience retail growth. The fastest growing regions are Middle East / Africa, Latin America, and Asia.

Up to 2010, the department store sector grew an average 3%.  Between 2010 and 2015, retail growth for the segment was only at 1.5%. Euromonitor projects for the next five years to 2020, the department store segment will grow by 3.6%.

Growth projections by region are uneven for department stores. According to Euromonitor, North America is the outlier where growth has stalled hovering around plus or minus 1% as the number of stores and area or sizes has decreased.  The strongest growth will be in Asia with sales growing 3.6% and the number of stores growing 4.7% by 2020.

Department stores are making progress in growing e-commerce, the hottest retail sector for the industry. A just published Credit Suisse study indicated that in North America 14% of overall department store revenue is now from online sales, double the rate from four years ago. Nordstrom led the online retail wave with 19% of their sales from e-commerce, followed by Macy's at 18%.

The Temple of the Retail Brands

As part of the IGDS meeting, I had the opportunity to immerse myself into the inner workings of a major European department store. Whether it is in Amsterdam, London, Milan, Zurich, or any other major city, the visual feast of a department store is appealing.  

Department stores are the perfect "Temple of the Retail Brands" for the growing global phenomenon known as shopping tourism. The number of global tourists is expected to increase 3.3% on average between 2010 and 2030. This represents 43 million more international tourists every year, reaching a total of 1.8 billion arrivals by 2030.  Stand back in any major flagship department store and today you will observe a substantial number of tourists gawking at the latest retail brands.

Think of the department store as a one stop tactile immersive shopping destination of the world's best retail brands. It is the ideal platform for the transient tourist who wants to experience multiple brands in a short amount of time. 

For countries that are over stored, for cities that are not tourist destinations, leveraging only new shoppers will be challenging. Key for retail and more specifically department stores are continuous innovations in making the shopping experience magical and connected to the consumer.  Retailers need to find ways to bottle that tourist see it for the first time "wow" experience.  

Department stores are only dinosaurs in the digital age if they deliver a poor performance as a shopping theater destination. As "The Temple of Global Retail Brands, the ingredients for a sellout performance are already in the store. Department stores, it is time for your command performance. 

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