Published Monday 16th September 2019
The last few years have been full of stories about struggling bricks and mortar retail firms. Dropping revenues and major store closures have been much of the story concerning the UK high street, as online shopping continues to take a bigger slice of revenues. All major retailers have had to re-evaluate their in-store interactions with consumers or face the same fate that has befallen countless others.
One of the most popular and widely accepted transformations is the need to provide experiences in modern-day retail. This strategy lends itself to larger complexes, such as the department store. However, many of these once-lauded shopping centres, such as John Lewis, Marks and Spencer and Debenhams, have gone the same way as other retail outlets. Why have these big names, that should lend themselves ideally to the modern way of shopping, struggled?
The Current Outlook for UK Retail
Earlier in August, various sales analytics reported a continuation in declining retail sales in the UK. The size of depreciation, however, varied depending on the source. According to the Office of National Statistics, there was an unexpected rise in retail sales during July, albeit of only 0.2%. Meanwhile, total sales from department stores increased for the first time this year, by 1.6%.
Other sources paint a bleaker picture of the current outlook for UK retail. According to the British Retail Consortium, total sales value increased by 0.3% year-on-year in July, the lowest such figure since records began. Meanwhile, Barclaycard reported that department store sales declined by 3.9% compared to July 2018.
Regardless of what analysis is considered more accurate, the general outlook for department stores is widely acknowledged as being challenging at best. This belief is mostly backed up by the recent struggles seen in some of the market’s biggest names. In April, Debenhams entered administration, pledging to close 50 stores in a move that saw over 95% of its value slashed in less than one month. That followed an annual loss in 2018 of nearly £500 million.
John Lewis & Partners, another notable UK retailer, recently reported a half-year loss of £25.9 million, with their department store sales down 1.8%. House of Fraser, meanwhile, announced an operating loss of over £50 million for the year ended April 28th.
Slow Transformations Costing UK High Streets
A decade ago, the three companies mentioned above were significant players in the UK retail landscape. There are many potential reasons for their subsequent downturn, but many relate to an inability to adapt to changing markets.
Of course, e-commerce has had a substantial effect on bricks and mortar retailers. Online shopping now allows customers to shop entirely at their convenience, purchasing anything, at any time, for a good price. This basic outline of online commerce overlaps with the historical intention of department stores. Initially designed as single places to buy a range of goods, this need has mostly become obsolete to the modern consumer.
The uptake of online in total has surprised many retailers. In November 2018, online sales reached a peak of 20.5% of the value of all retail sales. These figures meant that many traditional stores reported disappointing results during the vital Christmas period. According to reports, House of Fraser saw a 60% decline in year-on-year sales in the 12 weeks leading to mid-December 2018.
Another potential reason for the decline in these particular department stores is a lack of a clear target demographic. Similar to above, consumers no longer turn to department stores for essential shopping. Many of the successful bricks and mortar stores are designed to attract a particular demographic, and in an increasingly competitive world, there is a store to suit every individual. Locations such as Debenhams and House of Fraser, where the target audience is broad and vague, may continually struggle to attract shoppers.
Finding Success in the Modern Retail Landscape
However, the outlook for UK retail should not be considered as entirely negative. Whilst many have failed, there are also plenty of examples where stores have succeeded. A great example of this is Primark’s high-street success – a company with no online presence that is still reporting revenue rises and opening new premises.
Even in the department store landscape, there are businesses finding success. In their most recent full-year report, luxury establishment Harrods reported a 6.8% increase in sales year-on-year. Whilst House of Fraser struggled through December, Selfridges posted their most successful Christmas results on record.
What these two locations have that many others do not is the retail experience. Selfridges opened an indoor skating experience ahead of the Christmas period, whilst Harrods recently opened a Fendi café in their flagship store. These experiences are added to what was already offered by two of the biggest names in this growing market.
Department stores, by nature, should have the space to create similar experiences. However, that will only be the first step of the major overhaul required for these flagging mid-market brands. Many traditional retailers are going through similar upheavals as we speak, as companies position themselves for the future of bricks and mortar retail.
Here at Expense Reduction Analysts, we’ve been working with major retailers for many years to help reduce retail operating costs. Our industry specialists can assist your business transformation through effective procurement strategies that release capital for further investment. If you’re interested in what our supply chain specialists could do for you, why not get in contact or discover our retail industry case studies?