Harrods, Harvey Nichols, Liberty’s and Selfridges, London wouldn’t be complete without its iconic department stores. The same can be said for New York City with Saks, Bloomingdales, Bergdorf Goodman and Barneys. These department stores, with their rich and colourful heritage, are destinations in their own right – equally recognisable as London Bridge or Empire State. But with recent headlines reporting tumbling profits, what will a Harrods or Harvey Nichols look like in the future? Will they even exist?
Human’s love of touching stuff bodes well for Harrods and Harvey Nichols. This intrinsic attraction to tactility means there will always be a place for physical stores if merchandise continues to be displayed beautifully were one can touch, smell and try it. But as online luxury sales are projected to grow 20-25% over the next five years, compared to only 3-4% for the luxury industry as a whole according to the Boston Consulting Group, how will the iconic department stores survive? How much longer will it be sustainable for department stores to maintain huge premises in some of the world’s most expensive real estate? Will they be able tocontinue to purchase huge amounts of inventory to fill their spaces with the resulting working capital requirements and significant inventory risk?
Survival inevitably means changes. Department stores may reduce their monolithic square meterage, embrace alternative distribution methods which reducing the need for large inventory stockpiles, or continue as they are refurbishing periodically to create a better customer experience. Time will tell, but regardless of how the physical department store evolves, one answer is clear – department stores must revolutionise and become omni-channel enterprises. By embracing their e-commerce business, mobile apps, television channelsand social media with as much zest as they have their physical stores, department stores can utilise each channels influence over the others to create valuable synergies for the department store as an overarching brand. A recent study by IDC found a shopper who buys in store and online has a 30% higher lifetime value than shoppers who shop only using one channel. Imagine what this percentage may become if a department store is able to tap into three or four of a shopper’s channels.
All of the iconic department stores, while late starters to e-commerce, now all have established websites which facilitate online shoppers. But this is not enough, department stores need to go further to get to know their customers and drive sales by engaging further with cutting edge technology and social media. Leslie Hand, vice president of IDC Retail Insights says in a recent report, “the most successful retailers will find opportunities by putting mobility, analytics, cloud, and social to work in their customer and operations strategies, adopting omni-channel integration technologies and IT governance, unifying customer engagement for hyper-personalized loyalty, adopting product intelligence for marketing and competitive insight, employing location-based services via analytics-driven agile engagement and operations, utilize socially networked on-demand delivery services, and gain share with private-label merchandise.” Perhaps embracing such a strategy will reverse the fortunes of Harvey Nichols who recently reported a drop in profits of 30%, which also has less than 500,000 followers on Facebook and Instagram combined. Coincidence or not?