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The future of department stores has become a topic that experts and media have expressed their views on many times, predicting the end of the model. While the so-called “retail apocalypse” didn’t happen, the retail landscape is indeed changing with a long list of mid-range store chains collapsing everywhere in the world and department stores evolving their model. With COVID-19, they showed agility to reinvent themselves by developing online capabilities overnight, updating their product offer and including more experiences and services to differentiate from the competition.

However, the transformation is not over yet. We are seeing an increase in the number of department stores resembling malls, favouring luxury over the idea of a ‘department store for all’. Conversely, branded retailers are increasingly resembling department stores. In that regard and following a premiumization strategy, Zara's most recent stores are taking cues from the department store playbook. Also, Marks & Spencer has emerged as a winner in the UK retail landscape.

Is that a natural evolution from both sides? Now that branded retailers are taking on the department stores’ codes, what’s in for department stores themselves? Are there any fundamental risks if they lose their factor of differentiation, or is it just a not-so-important question of display and presentation? Some department store companies have dropped the traditional way of presenting products by section and opted for a very immersive approach, becoming very large concept stores in the process. Is the future approach of department stores to merge customer journeys into innovative store concepts, to remain destinations for customers and differentiate from copycats who contribute to commodifying their once-typical approach?

A progressive evolution towards a luxury mall experience on some department stores’ floors…

Traditionally, department stores have been regarded as stores selling luxury in one form or another (either via their ‘look & feel’ or simply with the products and services offered). Take Galeries Lafayette in Paris: they are expanding the luxury footprint on the ground floor, with leading leather goods brands such as Loewe, Gucci and Balenciaga having bigger shop-in-shops. Considering their remarkable size, they can increasingly be compared to these brands’ free-standing stores. Also, Chanel and Louis Vuitton are growing their presence on the first floor, only further emphasizing the luxury mall feeling. Finally, with brands like Rabanne, Jacquemus, Carven, Marni, Jil Sander and Acne Studios, more affordable luxury fashion is also expanding with larger shop-in-shops on the second floor (compared to their previous locations on the first floor). Expanding luxury on the second floor is unprecedented as it was previously only dedicated to premium brands such as Sandro and Maje. In Copenhagen, Illum has Celine, Prada and Balenciaga shop-in-shops that are both accessible from the street and the department store's ground floor, transforming them into real free-standing stores. This set-up with double access to boutiques is now visible in every part of the world, from KaDeWe in Berlin to Beymen’s Zorlu location in Istanbul, or The Mall Group EmQuartier in Thailand.

Another example is Harrods, in London, which relentlessly ups the ante with luxurious shop-in-shops. The first floor is dedicated to luxury RTW and has truly become a mall. The plan also includes transforming the affordable luxury and contemporary fashion floor in the same way. Luxury fashion is undeniably ingrained in the DNA of department stores, so it's only natural for them to prioritize it. But one can wonder if the flare of those stores is still there; from a customer’s perspective, why shop at Harrods when you could have the flagship store experience a few blocks away? In the past, department stores allowed customers intimidated by luxury flagships to have access to luxury products. Now, in the new-generation Harrods, such clients may not feel as comfortable shopping there following the upgrade.

But to what extent is that a deliberate strategy? Luxury brands are increasingly pressurizing department stores to provide an experience in their locations on par with what brands are now able to display in their own, highly sophisticated, experiential, free-standing stores. In case department stores are not able, or willing, to accept such requests (which also often come with new demands in terms of financial arrangements), such brands do not hesitate to leave, putting the department store’s ability to regroup a compelling and aspirational offer in one place at risk.

…while, at the same time, branded retailers take on their codes

In the UK, Marks & Spencer is an interesting breed achieving growth while others are struggling. With the opening of 9 new stores in November 2023, they are in the middle of a massive store rotation and optimization programme aiming to transition from 247 stores to 180 higher quality, higher productivity, full-line stores, while maintaining their competitive advantage with the right locations. Also, M&S focuses on and streamlines its product range and achieves digital transformation, resulting in strong financial performance and increased sales. M&S's CEO, Stuart Machin, emphasized going back to the company's foundations of providing quality products at the best price and putting the customer at the heart of everything they do. Marks & Spencer gives a series of reasons to pay a visit:

• The onboarding of third-party brands: they bought out Jaeger (after its collapse) to revive its fashion department and include more beauty brands (they now sell 47 labels accounting for 40% of the beauty sales).
• In Leeds, which is their “best store yet” according to the CEO, the 9,000 square metre surface (formerly a Debenhams store) houses a supermarket, a fresh market-style food hall, a flower shop, a spacious clothing, home and beauty department, and a 164-seat café.
• A product offer tailored to local needs.
• Fun sensorial attractions to emphasize the experiential feeling, with cow sounds in milk aisles and rooster sounds in the egg areas.
• Events with daily M&S product testing such as alcohol-free wines or specialty coffee.

It is telling that M&S’s CEO has vowed to open “better, bigger” stores in former Debenhams locations than in the past, as it increasingly blurs the once very clear boundary between them and middle-class department stores selling fashion, home and beauty.

The case of fast-fashion operator Zara also raises a series of questions, as it has consistently challenged the boundaries between their offer, and, for a long time, luxury brand codes. After all, they were among the first ones to present coherent and structured stories in their windows at a moment when then old-school luxury houses were still simply showing products to passers-by. In the same perspective, they muscled up the notion of visual merchandising, as the concept of having an enticing store at each visit is part of their business model. Luxury brands and department stores noticed and learned along the way.

Fast fashion’s second transformative wave is now about associating the qualities once solely linked with department stores and making them the norm. Fast fashion seems to have appropriated them in a very convincing way: branded retail stores now look like department stores, and should their logo be removed, the illusion would be perfect.

For example, Zara in Battersea Power Station in London or in Champs-Elysées in Paris: both in terms of categories and set-up, they look like mini department stores. The new Zara concept is described as a stroll through different sophisticated atmospheres. The use of different upgraded materials and contrasting shades helps to delimit the spaces and product lines. Accessories and shoes now have their own section with a comfortable seating area and single shoes displayed on shelves, as in any department store. Lingerie is displayed in a specific cocoon-like area. While the Champs-Elysées store (2,700 square meters) only offers men's and women's RTW and accessories, the Battersea Power Station store is even more impressive. Spanning 4,500 square meters, it is the home of all product categories developed by Zara: men’s and women’s RTW and accessories, but also kids, beauty and an impressive Zara Home shop-in-shop. The result is quite stunning and extremely elevated for a fast fashion brand. Also, the customer journey is easier and more efficient thanks to the embedded RFID technology: Zara offers self-checkout options, but also faster access to fitting rooms as the counting of items is automated in real-time. Besides, customers can book their fitting room in advance to avoid waiting in line. Finally, as the stores have different departments and are getting bigger, there is a need for more directions: QR codes help customers locate the different sections on a map.

As a consequence, Zara’s stores are part of the process helping the brand to elevate itself in terms of customer perception, without raising its prices, which is a strong competitive advantage in a moment when new business models (Shein, Temu) are rising fast1. In the process, one could feel confused: remove the Zara sign in Battersea, and it would be easy to feel in a U.S. department store for instance, thanks to the quality of execution and store zoning. In a similar manner, the new Massimo Dutti store in Paris Champs-Elysées would not look too foreign to the usual men’s department store section anywhere in the world, as IADS’ partner Newstores reported last December.

But if branded retail smells, looks and tastes like good old department stores, what should actual department stores do to remain ahead of the race?

In 2024, what is a department store anyway?

To stay relevant, make a difference from copycats and aside from their price point, it is generally agreed that department stores should make sure to propose the following:

• Show tradition, authenticity and roots, but not too much to avoid looking old and stuffy
• Develop experiences, which means the store should be interesting enough to be worth the trip
• Emphasize novelty, spectacle and events, which will depend on where the store is located and whom it addresses
• Include more hospitality, an increasing part of the shopping experience
• Increase services, be it human or otherwise linked with understanding
• Guaranty variety in the product, brand and category offer
• And make sure the overall environment will make lingering worthwhile.

While most of these key points are ticked by iconic department stores such as Selfridges, Galeries Lafayette and KaDeWe, good examples of department stores not looking like department stores, but actually interesting destinations, could be Liberty in London, Le Bon Marché in Paris, Bergdorf Goodman in New York, or Jelmoli in Zurich. The catch? All these department stores are destinations because they only have one store. But what are the options for department store companies with more than one flagship store? 2 options seem to rise from the analysis of the market:

• Become Harrods, Liberty or Selfridges. Retailers now know they don’t need a store everywhere. Fewer but better stores with a deeper rather than broader assortment and a high level of service could be a solution. The extreme is of course for a chain to shrink to one door only, lose scale effect and negotiation power, and end up being dependent on external factors which become critical from merely influential in the past (the reasons of the demise of Barney’s in New York in 2020 are, in the end, purely linked to their inability to generate scale effect and, therefore, remain dependent on lease conditions. Jelmoli in Switzerland is the same).
• Become John Lewis (especially the Oxford Street store) or Frasers. This means going wide and increasing the entry-level appeal.  The issue is that the days of “everything under one roof” and “a bit of everything for everybody” are not anymore a working recipe for physical retail now that companies like Amazon do that very well online.

So, what should we learn from the fact that department stores have such a footprint that they are now imitated by large single-brand retailers, leaving them in a position of not being able to pivot unless they lose their most critical factor, their bargaining power thanks to their scale? Does this mean that the only future of department stores is to become great again by becoming a single destination, to the point of disappearing because this is the nature of any business based on trends?

Some markets have generated the conditions for the appearance of new concepts and business models. In China, department stores such as SKP-S and K11, or EmQuartier in Bangkok, Thailand, are interesting because they keep the purpose of a department store (curate an interesting offer for a curious customer and make sure the location is attractive and enticing, in one coherent and unified concept) but also unbundle its components at the same time. In SKP-S, K11 or EmQuartier, product offer is not organized by department, but by customer journey. In addition, the whole store displays such a strong concept (otherworldly at SKP-S, arty in K11 and entertaining in EmQuartier) that it becomes a destination per se, just like Galeries Lafayette Haussmann with the cupola, Harrods with the Egyptian staircase, or the atrium at Saks Fifth Avenue in New York), but with a je-ne-sais-quoi based on something else than purely architectural details. In addition, these concepts are created with the ambition to bring their specificities to various locations, not to base their uniqueness on one single, iconic location.

For anyone familiar with the evolution of fashion retail in the last 50 years, this means that large department store companies are putting the notion of concept store on steroids, by expanding this approach on a much larger scale (both in terms of single store surface and number of stores), mixed with the capability of department store companies to identify, curate and enhance interesting new trends and brands, but this time organized by customer journey and profile, and not anymore by section. In other words, any customer can have a different high-octane experience in these stores, at each visit.

Conclusion: Department stores have embedded their own reinvention in themselves since the beginning

It is no secret that department store companies have managed to adapt to many retail disruptions in the past, from the appearance of malls and commercial centres in cities’ peripherical zones, to discounters, hypermarkets, speciality chains, e-commerce and DTC brands. As they have managed to do so until now, they will probably manage to find a solution to this seemingly strange issue: how to remain special when companies from other industries do everything possible to look like them?

As SKP-S, K11 and EmQuartier show, it is possible to remain special while also being attractive to both customers and brands (who are not tempted to think that these department stores are increasingly becoming commoditized by new players). However, heritage companies such as Galeries Lafayette, El Palacio de Hierro or Breuninger do not have the luxury to close their stores and rebuild them in a new manner (even though this is what Breuninger is doing now that it has acquired the former Konen department store in Munich).

And yet, this is with this reinvention in mind that new initiatives should be seen, from the increase of high-end restaurants in Harrods (to revamp the experience just like what K11 is doing) to the Wellness Galerie in Galeries Lafayette (mixing retail and paid experiences like in SKP-S) or the way new El Palacio de Hierro stores are designed (in terms of seamless customer journey, independently of brands or business models, just like in EmQuartier).

Everyone in the industry knows that status-quo is not a viable strategy for survival. While chain stores and branded retail are progressively adopting old-world department store codes to gain credibility and luxury perception, department stores are, on their side, reviewing what they bring to a customer who has also changed in recent years. Old recipes will not work for new generations. This is one of the reasons why many IADS department store members have already started working on reviewing their approach to the customer journey, to imagine how they can present what they have to offer to new customers, accustomed to purchasing differently compared to their parents.

Credits: IADS (Christine Montard)