Department Store

Weak in Mature Markets, Strong in Developing Economies

“Department stores would benefit more from experimenting with brand experience in individual stores."

Retail analysts in North America have long had department stores on the endangered species list. Given the very public decline of JCPenney and Sears, it’s tough to imagine how these legendary retailers will be able to recover. While the remarkable performance of Macy’s can be attributed to its unrelenting focus on brand, clarity, and relevance, it’s also likely picking up the slack from its fallen competitors. Macy’s now dominates the department store category in the U.S.

Even though its brand value slipped a bit this year, Nordstrom remains in a class by itself, catering to the moneyed crowd with exceptional service. Not afraid to adapt to changing times, Nordstrom has altered its merchandise mix to attract a younger demographic and is preparing its New York flagship debut. By getting bricks and clicks to work hand-in-glove, the U.K.’s upmarket department store, John Lewis, gets plaudits for its performance—the brand managed to beat analysts’ expectations for the fifth Christmas in a row in 2013.

Venerable British retailers Marks & Spencer and Debenhams, meanwhile, saw little growth in their European stores. In fact, for the first time, Marks & Spencer’s 2013 profits were eclipsed by rival Next, which already boasts a higher stock market value than the 130 year-old retailer. Department store growth is also flat in markets such as Japan, Australia, and Korea, indicating the need for fresh brand appeal to new consumer segments. Yet there are bright spots.

By strategically expanding in Asia, department store brands such as Indonesia’s Matahari—Southeast Asia’s largest department store operator—are seeing strong growth. The SM Store brand is a top department store operator in the Philippines and China, with enormous potential to expand its footprint. High smartphone penetration throughout Asia continues to energize the category, along with the population’s strong affinity for social networking. The ensuing rapid spread of information influences preference, which, in turn, is feeding aspirations and driving demand.

South America’s biggest retailer in terms of market value is also a department store brand: Falabella. It may be a century old, but it’s not showing its age. It competes on the loyalty created through its installment-payment store card that enables cash advances to cardholders. Falabella also has its own bank, tapping into a niche market of lower-income consumers with scant access to traditional lines of credit.

In general, department stores react more slowly to trends than specialty retailers. The format is still distinguished by a high level of departmentalization, which makes it difficult to create a unified brand experience. However, rather than attempting wieldy chain-wide implementations to address this issue, department stores would benefit more from experimenting with brand experience in individual stores. While the category is bouncing back somewhat, getting the “fleet” to deliver the energy and initiatives of the flagship remains a challenge.


Although the biggest still have name recognition, the traditional department store format is largely fading away.

As a group, the category is perceived as lacking in innovation, relevance, and youthful appeal.

Department Store Innovations and Opportunities

Flagships make a comeback

The department store model can only work if it plays to its strengths. That means a finely curated mix of options that keep shoppers in the store and an experience that makes them feel valued and included. A new era of high-profile flagship storefronts in city centers have made brick and mortar exciting once again, and the internet has helped boost the reach and appeal that such places lost to the suburbs decades ago. Nordstrom’s planned Manhattan flagship store, for example, fits this new integrated retail model.

Adding new brand dimensions

Retail innovations often include service features that fit the brand, suit the audience, and even benefit the community. Debenhams decided to answer its shoppers’ question “What should we do this weekend?” by offering a ticketing service for anything from music and theater events to beauty treatments. It adds another dimension to the brand’s “life made fabulous” promise.

Small risks, displays that pop

Some department stores are using “pop-in” stores, the in-store version of the short-term “pop-up” format, to generate excitement and traffic. One successful 2013 collaboration saw the über cool I.T Group, the unique Hong Kong-based fashion house, “pop in” to Selfridges London with an exclusive collection of seven streetwear brands. Additionally, with more in-store emphasis on design than ever before, window display artists are reaching new creative heights in their efforts to impress customers. Clever interactive digital window displays, striking art installations, and live tableaux such as designers dressing models, swanky evening parties, and other provocations behind the glass are pulling eyes away from mobile devices.

Tearing down remaining silos

Aiming for a complete convergence of online and in-store, Macy’s no longer breaks out web sales from store sales when it reports financial results. Macy’s believes the old method of financial reporting does not accurately capture the movements of today’s shopper. Hundreds of its stores already ship web orders to consumers, eliminating the need for separate online fulfillment centers, while it’s also testing in-store pickup of online orders. In its drive to leverage its stores and online channel, the brand’s robust mobile initiatives are also helping Macy’s achieve omnichannel dominance.