Derby department store Bennetts Irongate opened its doors in 1734 – and it is still open. Bennetts is a survivor – but is one of a shrinking breed.
Just half a dozen major department store chains remain in the UK, and only three have a wide high-street presence. Some observers are wondering whether the department store will still be around to celebrate its 300th birthday in 2034.
The answer could lie in the hands of Debenhams, now the UK’s largest and best-represented high-street department store name, with 88 stores and one outlet. Together with John Lewis (45 stores) and House of Fraser (58 stores and three outlets), it remains one of the Big Three.
Debenhams is keeping its head above water. Profits for 2012-13 are expected to be around £153m, down from £158m in 2011-12. Like-for-like sales in its high-street stores were up 2% in the year to 1 September 2013, but it is unclear how much of this is from UK sales, and how much was from its overseas network. internet sales jumped 46%.
But Debenhams is a puzzle to retail analysts. It operates in the middle market, supposedly the most squeezed retail territory, and everything it offers can be found elsewhere in the high street or online. So why isn’t it following Woolworths into oblivion?
Nicholas Bell, engagement manager in the retail sector for consultants OC&C, says: “Debenhams is an oddity. It could be that its secret is customer apathy.”
Bell’s theory is that the typical Debenhams customer is middle-aged, middle-brow, likes to think they know value, likes to shop local and feels uncomfortable in more fashionable stores: in other words, the ideal formulaic shopper. They keep coming back to Debenhams because it’s easy, and they don’t shop online much because it’s just how they like to do things. You could call it the Classic FM demographic.
“It’s autopilot shopping in the mid-market,” says Bell. “Debenhams does well with customers who want something above the really cheap, and want something more fashionable than Marks & Spencer. Because Debenhams is quite effective with its pricing policy – it has lots of entry-level fashion ranges, which means there is something for everyone – it bridges the gap between House of Fraser above and Primark below.”
Increase basket size
To succeed, says Bell, a department store needs to increase basket size by encouraging customers to shop across departments, which means big, open floors to make the transition from one department to another. Bell says John Lewis is the master of this technique, helped by its high proportion of new, modern, well-designed stores.
Debenhams is following John Lewis’s lead. The refurbishment of its Oxford Street store is in progress, and new stores opened in Chesterfield and Lichfield in 2013. Both are performing ahead of their internal expectations.
However, Bell points to House of Fraser as the department store with customer flow problems, thanks to its estate of charming but often inefficient historic properties.
“Historic town-centre properties struggle more, although, on the whole, House of Fraser is in more resilient town centres,” he says. “But its portfolio poses a challenge to shopability because it’s difficult to get around the stores.”
John Strachan, global head of retail at Cushman & Wakefield, has also been wondering which of the Big Three ?high-street department stores will survive. His conclusion is that they all will, but there may have to be some trimming of portfolios.
“Debenhams is still the dream anchor for shopping centres,” he says. “It’s the classic mid-market demographic that goes to Debenhams, and it appeals brilliantly to that market. Debenhams, which did not want to comment to EG, may not always be in the best buildings, but it is always in the best locations.
“Across the board, Debenhams has better-quality stores than House of Fraser, although the top House of Fraser stores are excellent. Further down their list, less so. If you were starting from scratch, you’d probably pick the top 30-40 House of Fraser outlets and have a think about the rest.”
Strachan’s guess is that House of Fraser management thinks the same way, but that the cost of refurbishing stores, or exiting the lease and replacing them, is so great that it would rather soldier on making small profits or small losses from its 30 underperforming stores until someone takes them off its hands, or the landlords decide to help out.
House of Fraser couldn’t disagree more. A spokesman says: “All stores receive investment every year based on a programme planned around brand and customer developments. To claim that [we] are ignoring half [our] real estate would be madness for a national retailer with a brand such as House of Fraser.”
Service, brand and design
Gary Thursby, director of cross-border retail at Colliers International, says: “Department stores that still flourish do so because they have understood the value and importance of service, design and brand and have evolved and repositioned as customers’ demands and shopping habits have changed.”
Thursby says Debenhams and John Lewis are the best examples, with both offering customers exclusive brands. Debenhams has Designers at Debenhams and John Lewis recently signed up Somerset by Alice Temperley. Both also offer exceptional customer service, both in store and in after sales, he says, and both have been careful not to isolate or lose their traditional customer base.
Department stores that have failed have alienated their traditional base and failed to attract cross-department sales, says Thursby. “The successful stores no longer offer individual departments,” he explains. “Instead, they aim to offer a co-ordinated and targeted lifestyle choice, be it Debenhams, John Lewis, Selfridges or Harrods, and, most importantly, they know their customer and have made themselves a destination rather than a casual or occasional retail offer.”
So could the department store’s ?days really be numbered? OC&C’s Bell thinks not. “Department stores have some real structural advantages,” he says. “They have low rents, are treated well as shopping centre anchors, and have huge built-in flexibility to adapt their product range.
“After all, 100 years ago, a quarter of department store space was occupied by haberdashery. Today that kind of thing is tucked away in a corner. The big stores also have the scale to source products in effective, attractive ways.”
But will the number of department stores grow? Probably not. “There won’t be many new entrants,” says Bell.
So the department store may yet live to celebrate its 300th birthday – but don’t expect any new names. Debenhams, John Lewis and House of Fraser will dominate for years to come.
