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The Department Store: Innovator, Survivor, or Both?

Posted By Administration, Thursday, September 18, 2014
Updated: Tuesday, September 16, 2014

by Dwight D. Hill, McMillan Doolittle LLP


The debate about the survivability of the department store has largely abated over the past few years with many retailers emerging from the great recession a lot leaner, more nimble, and, in some cases, creating innovative service models. On a global basis the department store model has managed to maintain relevance as a destination for brands, one stop shopping, and social activity. In fact, the category as a whole is providing several interesting examples of customer experience innovation from luxury to the middle market.

The U.S. luxury segment is providing an interesting example of the return to a simple and fundamentally premium customer experience within Saks Fifth Avenue. Once stagnant in the luxury space, Saks is undergoing a transformation to take the luxury retailer back to basics. Under the leadership of new president and former Harrod's chief merchant Marigay McKee, Saks is renewing a focus on the fundamental elements of customer service in their stores, including bringing doormen back to their flagship Fifth Avenue store. Over twenty new designer labels are being added to the assortment as well, including Victoria Beckham, Roland Mouret, and Antonio Berardi.1 An omni-channel team has been formed at the parent, Hudson's Bay Company, to lead cross channel shopping innovations within the three brands (Hudson's Bay, Saks, and Lord & Taylor); however, any digital retail innovations within Saks remain to be seen. Will Saks eventually emerge as the leader in luxury retail, long dominated by Neiman Marcus? Time will tell and focusing on the fundamentals is good place to start.

The department store category has also provided some of the most publicized examples of development and innovation in digital retail. Nordstrom's Innovation Lab is legendary, but John Lewis, based in the U.K., is another interesting case. The department store retailer has 30 locations throughout the U.K. and offers its customers over 350,000 brands within its stores (including insurance!) and nearly 250,000 items on its website. While the retailer has experienced relatively healthy overall revenue growth of +4.2% for FY 2014, its digital growth of over 19% during the same period reveals an intense focus on a digital strategy. The retailer already offers its customers "click and pick-up" through a mobile app, yet John Lewis has also started "JLab," a Silicon Valley-style incubator focused on developing the next series of digital innovations for their stores.2 The winning idea will be backed by an investment from John Lewis and launched across all stores. What a great example of a retailer funding and leading innovation in the realm of the digital customer experience!

As a "house of brands," the department store plays an integral role for retailers and customers alike, providing a venue for brands that otherwise may not be willing to take on the risk of brick-and- mortar international expansion. While this trend continues to expand in Asia, an interesting case exists south of the U.S. border with Liverpool, the largest department store in Mexico. Liverpool's large stores provide Mexican consumers access to shops that include Aeropostale, The Gap, Chico's and Ralph Lauren – brands that may not otherwise be available to the Mexican customer unless shopping online or through travels to the U.S. With over 100 stores, Liverpool caters to middle class families that represent the country's social and economic foundation.3 Its complete shopping experience, offering personalized service and categories ranging from fashion to gifts to gourmet food sets it apart from other Latin American competitors. What an excellent display of differentiation by offering a convenient experience that can address multiple customer needs!

These are just a few examples of department store retailers that have not only survived, but are leading in defining new customer experiences that can be used as models across all retail classes of trade. In a category awash in red ink during the Great Recession, these retailers are standing out by focusing on innovation and more importantly, their customers. Happy shopping!

[1] "How Marigay McKee is Forging Change at Saks Fifth Avenue," Laura Gurfein, Racked NY, Monday May 5, 2014.
[2] "John Lewis Looks to Digital Innovation as the Next Big Thing in Retail," Zoe Wood, The Guardian.com, Sunday, March 2, 2014.
[3] "Best Retail Brands 2014," Interbrand 2014.


Dwight D. Hill, whose background includes leadership roles with Neiman Marcus and Deloitte LLP, is Partner, McMillan Doolittle LLP. Dwight can be reached at dhill@mdretail.com.

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Tags:  Brick-and-Mortar  Cross Channel  e-commerce  Omni-Channel  Retail Innovation 

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