Shopping centres blunt department stores’ appeal

myer david jonesDepartment stores’ struggles to find relevance with today’s omnichannel consumer are well documented and customers are voting with their wallets.

Access exclusive news, features, interviews and reports.

Subscribe now or login to access premium content.

Subscribe Log in

Access exclusive news, features, interviews and reports.

Subscribe now or login to access premium content.

Subscribe Log in

Department stores’ value proposition has traditionally centred on their ability to offer products and services all in the place that were otherwise unattainable. With the advent of shopping centres, the department store supplemented a shopping centre’s tenancy assortment with things that were differentiated, a complementary mix with specialty shops offering brands that were different to those in department stores.

As shopping centres expanded their physical footprint and added more retail space, the relationship between specialty space and the department store has become increasingly competitive.

“The buzzword for retailing in today’s environment is ‘relevance’ – if you’re not relevant, you’re obsolete,” Leighton Hunziker, director retail services, Savills Australia told Inside Retail Weekly. “The department store environment, globally, is struggling to find relevance.”

With brands wanting more exposure, higher sales and larger footprints, in conjunction with the ability to offer a better brand experience, the growth of specialty space has eased the requirements for department stores to provide products. That is, unless the department store can source products and offer services or experiences that are sufficiently differentiated to warrant customers entering the store.

“At the same time, lease clauses in specialty leases have increasingly adapted to include a percentage rent into the element, much like a department store may charge as a concession to a vendor in their store,” said Hunziker.

“Thus, the traditional concept of rent for real estate has morphed increasingly to a ‘rent’ that’s more like a sales tax.”

The problem for department stores is that the continued arrival of international entrants demanding multi-level stores in large shopping centres means landlords have options – and department store are no longer as desirable as they once were as anchor tenants.

“Australian department stores are shrinking in size and not getting the 18,000sqm stores anymore,” said Hunziker. “You’re getting 7000-10,000sqm stores and landlords are very keen to get space back off department stores because they can lease it out to a H&M or Uniqlo, get more rent for it and more productivity per sqm for the space.”

Added to department stores’ challenge for relevance, is the rise in online shopping, which has left department stores between a rock and a hard place.

Online shopping has taken away department stores’ ability to be exclusive suppliers of goods, leaving consummate customer service as one of their few remaining drawcards for customers. But high Australian wages have resulted in a compromising of service quality – because people don’t generally want to pay the extra margin for it.

“Customer needs are very diverse across the country – in trying to be all things to all people they have become nothing to not many,” said Hunziker.

Concession strategies

MyerAs part of its efforts to deliver a sharper offering and improve productivity, Myer recently closed two stores in regional NSW. Myer CEO, Richard Umbers, said closing the stores were, “difficult but important decisions and a necessary step in the delivery of the new Myer strategy, which is designed to return Myer to profitable growth”. Myer also recently launched a virtual reality store and earlier this week announced it will soon incorporate homewares products from the UK’s John Lewis within its stores.

This is potentially indicative of the future for department stores within Australia, according to Hunziker, whereby the department store provides a larger space to house more of it own brands, supplemented by some other “trophy” brands, via concessions, to give the store cachet.”

The struggle to find relevance within shopping centres is not a uniquely Australian problem. South Korean department store, Lotte, has devised a system that sees department stores operating in a highly concessional business style. Lotte will develop a site, furnish it and then allow concessions into the department store.

These are identified as a department store, and might only be 5-10sqm, then leased out by the square metre to brands, who occupy it with their own staff members. The POS is owned by the building owner/landlord and so effectively the brand, who owns the product, is selling to the customer, where the cash goes directly to the landlord and then the landlord rebates that back to the tenant.

“It’s on a percentage of sales basis, but essentially the department store acts like a landlord – effectively owns the building, doesn’t retail much himself and lets out by 5-10sqm.”

This model is under stress primarily because of one factor – the bird wants to spread its wings.

“You can’t do much with 10sqm,” said Hunziker. “Some of the brands in those department stores said they want more space, so they have essentially created shops that are 100sqm shops.”

In South Korea, retailers now look more like mini-shopping malls – when it’s actually a department store owned and leased out space.

“If you don’t own a brand and someone wants that brand, they’ll just go online and if they can find the same brand and products somewhere else that you don’t control for cheaper price – they’ll do that,” said Hunziker. “So it’s all about controlling the brand and that’s where I think David Jones is quite clever in that it has a good ability to increase the brands it controls within its doors.”

DJs’ success at incorporating more private label products isn’t a sure fire strategy for department store dividends though.

“The problem with private labels is you lose some of your specialists because you’re not a David Jones that sells Gucci, you’re a David Jones that sells a brand that nobody knows,” warned Hunziker.


Comment Manually


Last October, T2 moved into a stylish new HQ designed to boost teamwork and reflect its sustainability ethos. Then…

10 hours ago

Sportswear brand Lululemon has bought the in-home fitness company Mirror for US$500 million. Here's why. #retail

23 hours ago

Bardot has announced a new line of Australian-made denim. It's part of the fashion brand's aim to become more envir…

23 hours ago