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The demise of the department store: is e-commerce to blame?

It’s not easy being a big retailer these days. After filing for administration with debts of more than £1.3bn, British department store chain BHS is edging precariously close to liquidation. Unless an audacious rescue plan can be agreed, the former retail heavyweight will cease trading after 88 years– the biggest high street bust since Woolworths went under in 2008.

BHS is not the only big name to hit stormy waters. In the US, retail giant Macy’s announced the closure of 40 of its stores following a prolonged period of poor trading. Kohl’s and Nordstrom have also reported significant falls in quarterly comparable sales, highlighting the current malaise in the department store sector.

The rise of e-commerce has long been identified as a cause of high street decline, with consumers moving away from the bricks and mortar experience to their computers and mobile devices. But, considering most major retailers generate sizable income from their own online outlets, is e-commerce being used as a scapegoat for the woes of the department store sector?

Retailers that haven’t adapted to digital are failing

The digitisation of commerce has spawned a generation of connected customers that want to save time and money when shopping. Online outlets have become the most convenient way to do so, with e-retail specialists such as ASOS and Boohoo offering free shipping, next day delivery and a seamless multichannel experience.

E-commerce accounted for more than half of total retail sales growth in 2015. The advent of smartphone technology means mobile is another factor to consider – it alreadydrives more sales than computer or tablet devices. Inevitably, those that embrace and integrate digital as part of their business are more likely to succeed.

BHS has failed to adapt to the digital landscape, struggling to increase its online presence, missing out on customer engagement opportunities and ultimately losing ground to the likes of ASOS and Boohoo.

However, the same cannot be said for American fashion retailer Nordstrom. Internet sales are estimated to account for a third of the upscale department store’s revenue. Furthermore, Nordstrom is committed to its social media and mobile efforts, persistently digitising areas of the business and integrating popular social apps into both its instore and online strategy. But despite these efforts, Nordstrom have unexpectedly reported a decrease in sales during the last quarter, suggesting e-commerce is only a small piece of the puzzle.

Discount and fast-fashion chains are dominating the retail industry

Rather than pinpointing e-commerce as the sole culprit of the department store crisis, a closer inspection of modern consumer behaviour is needed. It’s important to note that department stores are not just competing with a digital shift, they’re competing against the new normal for pricing and the popularity of fast fashion.

A recent Morgan Stanley study into the state of specialty retail over the past ten years found a clear trend: off-price and discount stores are thriving. Retailers like TJ Maxx, which operates as TK Maxx in Europe, sell luxury brands usually found in high-end department stores at a fraction of the price. Other stores continue to resort to constant promotions when they can’t clear their inventory.

Fast-fashion chains also have a hold on the apparel market. The appeal of fast-fashion is clear – why spend money on a designer item when you could buy one similar at a fraction of the cost. Zara, for instance, have become experts at handling inventory and a supply chain, dispensing on-trend runway styles at affordable prices.

As a result, consumers have become conditioned to pay less. Coupons, discounts and loyalty points have become the expectation, making it difficult for retailers to convince customers to part with their money without taking a hit themselves.

Consumers are spending less on clothing

A recent shift in consumer spending behaviour is adding to department store woes. Millennials are spending less on clothing, instead spending more on expenses such as phone bills, rent and subscription services like Netflix and Spotify.

Furthermore, consumers are becoming more likely to spend on experiences rather than products – a phenomenon being called the “experience economy”. This is arguably why experience-driven lifestyle stores, such as high-end athletic retailer Lululemon, continue to perform well.

Experiential retail makes the experience of browsing, trying on and purchasing clothes fun and exciting. A number of big name brands are experimenting with retail experiences to attract and retain customers. Ted Baker’s Shoreditch store has a built-in barbershop, while Urban Outfitters are building a state-of- the-art retail village in Philadelphia complete with garden centre, restaurants and boutique hotel.

Struggling department stores must adapt to the changing retail landscape if they are to survive. Retailers need to be digitally engaged, communicating with their customer base online and via social media. They must also recognise the demand for affordable runway-style fashion and consider bringing experiential elements to the shopping experience. For BHS, time is running out and if other department stores do not update their strategies, they could face a similar fate.

This was posted in Bdaily's Members' News section by Caitlyn Stevens .