DEPARTMENT STORES DRAFT ONLY - V
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DEPARTMENT STORES
URBAN DESTINATIONS OR RETAIL DINOSAURS?
DRAFT ONLY
April 2018
1
After half a century of decline, are department stores merely
dinosaurs of a past retail era or are they the harbingers of future
urban destinations? Despite large scale closures over the past
decade, there have been a surprising number of new store
openings. And many of the grand old flagship stores – celebrating
well over a 100 years of trading – are performing rather well.
Increasingly the destinations of choice for affluent and
sophisticated shoppers, many department stores are now offering
authoritative omni-channel engagement, distinct brand
characteristics and authentic urban experience. Operating from
real landmark buildings, adorned with architectural conviction and
redolent of historic layers, the survivors prosper at the heart of our
metropolitan cities, testament to the fused digital and real worlds.
Yet hundreds of ersatz retail boxes still remain in forlorn off centre
locations where their future is likely to abruptly end with residential
led redevelopment. Do department stores have any future beyond
the Harrods, Nordstrom's, Selfridges or Galerie Lafayette luxury
formats?
Kohl’s, America’s 2nd largest store operator, is making impressive
progress in ‘operational excellence’; improving margins from stores
with declining revenues by rightsizing, local editing, faster
proprietary brands and new retail partnerships.
And for the mid sized stores in the middle market, is there only
space for the premium positioning with unique – and continually re-
edited and refreshed – offers?
2
PALACES OF CONSUMPTION
“the whole art of merchandising
As the dinosaurs of a past retail age, the remaining department Opening for business in 1909, the Selfridge’s store became consists of appealing to the
store groups are frequently seen as failing shopping formats, a social phenomenon. The steel framed and stone clad store imagination”
buffeted by the winds of societal change; the ballooning digital was a marvel of its day—five stories high with three
challengers, the expanding discounters and rising specialists. basement levels, a roof-top garden for dances and more
Lumped into a single category and universally disfavoured, do than 100 departments, including a beauty hall, tea room, “A store, which is used every day,
‘les grands magasins’ have a future – in North America or in quiet lounge, a barber shop, information bureau with should be as fine a thing and, in its own
Europe? translators, art gallery, a hair salon, a library, a post office, a way, as ennobling a thing as a church
rifle range, a nursing station and a concierge. The store’s
or a museum.”
In many ways, their past might be a guide to their future. Most of 580,000 ft² of floor space had decorative grandeur, high
them arose in the 1830-1870s before multiple retailers existed. ceilings, startlingly wide and open-plan floorplates, brilliant
These included David Jones (1835 Sydney), Frasers (1849 electric lighting, modern lifts and event spaces.
Glasgow), Macys (1852 New York), Marshall Fields (1858 “In trade, as in most other things, the
Chicago), John Lewis (1864 London), Printemps (1865 Paris), The new department stores at the heart of the great cities mind is master”.
Galerie Kauhof (1879 Stralsund) and Galeries Lafayette (1893 provided social experience, accessible retail, unique
Paris). Founded slightly earlier, were Harrods (1824 London), commodities, popular entertainment, consumer convenience Gordon Selfridge (1858-1947)
Jollys (1823 Bath) and Harvey Nichols (1820 London) - the only and a clear brand promise to dense city populations. Most
store founded by a woman, Elizabeth Harvey. offered mail order catalogues, telephone purchasing and
free home delivery as well as “phone & collect”.
With a huge city centre presence, large buying power, private
label manufacturing, unfettered browsing and a vast ‘fixed price’ With some exceptions like Debenhams who opened in
offer, the stores rapidly became the arbiters of taste, urban Cheltenham (1823) and Harrogate (1843), it wasn’t until the
landmarks and cultural institutions for the burgeoning new 1920s that the UK’s grand stores embarked upon provincial
middle classes. expansion. Starting in 1926, Selfridge’s opened 16 provincial
stores which were ultimately sold to John Lewis in 1940.
In the UK, many stores had first started as small drapery stores: Expansion was typically by merger or takeovers. John Lewis
Debenhams (1778), Dickins & Jones (1790 – closed 2006) and acquired 4 existing stores in 1933/34. Between 1936-1985,
Kendal Milne (1796 – Manchester, now House of Fraser and the House of Fraser acquired 70 department store
probably with the world’s first proper department store in 1836). companies, only expanding out of Scotland in the 1950s.
Arguably the oldest two – and both still trading – are Fortnum &
Mason (1707) which started as a 2nd hand candle shop and In Germany, then considered better as a collection of states
Bennett’s (1734) of Derby which started as an ironware store. rather than a country, Kauhof opened 13 stores between
1889-1905.
Most grew by steady accretion of adjoining sites with assembly
of the old medieval strip titles being a laborious process – unlike In France, provincial expansion was slow for today’s
Baron Haussmann’s grand rebuilding of Paris (1854-1870) which surviving brands. Printemps opened its first provincial store
provided readymade blocks for Lafayette and Printemps or the in 1912 and Galerie Lafayette opened its second store in
Crown’s wholesale redevelopment of Regent Street (1904-1928) 1969
providing stores for the defunct Dickins & Jones and Swan &
Edgar.
By the turn of the 19th century, many of these grand institutions
were beginning to falter and were unprepared for the onslaught
of Gordon Selfridge from Chicago who, aged 48 and then
retired, saw the opportunity in London to promote shopping for
pleasure rather than necessity at the unfashionable and cheaper
3
end of Oxford Street.
RACE FOR THE SUBURBS
In 1939, London was the largest city on earth and at its population peak. By 1991, it had lost 25%
of that population, twice as many as Detroit lost in the same period. London’s inner boroughs
commonly lost half their communities as they decamped to the sprawling suburbs and beyond to
the New Towns. The department stores followed the customers; John Lewis closed Peckham,
Brixton, Finchley, Streatham and Holloway and opened in Brent Cross, Milton Keynes and
Kingston.
America’s post war decentralisation even more markedly changed its retail landscape. Aided by
subsidies and federal tax relief, the post war suburban population increased by 43% between
1947 and 1953 alone. Before the war, just 13% of Americans lived in the suburbs and by 2010
more than half did. And as shopping spend in the old metropolitan city centres fell off, the big
department stores changed tack; they followed the post-war shift in population by opening branch
stores.
It was JL Hudsons & Co of Detroit that Victor Gruen persuaded in 1948 to develop branch stores
within their own shopping centres; with a ring of suburban centres surrounding Detroit. Northland
(1954) was their first development and was followed by Eastland Center (1957), Westland Center
(1965) and Southland Center (1970). Northland cost US$30 million to build but its anchor store
took US$88 million sales in its first year making the development a highly profitable venture.
The new department stores, instead of being towering sky lit edifices of city centre grandeur, Northland Center (1954) – 1.04 million ft² on 159 acres, anchored by
became squat windowless boxes of great mechanical efficiency serving suburban catchments. a 475,000 ft² Hudsons store and served by 7,500 surface car spaces;
Frequently they diluted their identity, offered a reduced depth and, as Vicki Howard (‘From Main now demolished
Street to Mall’ 2015) observed, became prime exemplars of the vapidness of suburbia.
By 1957, 940 shopping centres had opened across the USA. By 1960, the number had doubled
and continued to do so each year until 1963. The old developers ‘rule of thumb’ was that 40-50%
of the shopping centres retail space should be occupied by the department store anchors.
When the second rate shopping centres began to fail in the 1970s and 1980s, it was frequently as
a consequence of their anchor store failure when the department store industry consolidated and
merged.
Even with Grade A rated shopping centres, department stores no longer play the role they once
did for major centre owners. Some 28% of Westfield’s revenues now comes from department
stores, down from 42% a decade ago.
However, many of Westfield’s current major retail developments will rely on department store
anchors - Bloomingdales (San Francisco Valley Fair), John Lewis (Westfield London), Nordstrom
(LA Century City & San Diego UTC) and Galerie Lafayette (Westfield Milan) as the key traders.
4
CONSOLIDATION & MERGER Surbanisation also drove organisational change. Between 1951 and 1965, the 20 largest USA department store companies had acquired 73 companies operating 168 stores. By the 1970s, many of those department store companies were in serious trouble. Burdened by high overheads, supplied by low density catchments, trapped into bargain pricing and facing growing competition, they had substantially lost out to discount big box stores and retail specialist offers. Mergers, bankruptcies and takeovers further consolidated the industry but more pressure arrived with on-line retail. By the time of the 2008 recession peak, the nine surviving USA major store chains announced intent to close a further 384 stores. At that time, North American had over half the total global department store floorspace and Europe, with 157.7 million ft², about 16%. Pressure continued with growing online sales but earlier American consolidation had led to heavy debt gearing coupled with higher hedge fund returns. In addition, the recession recovery was metropolitan led and rising income inequalities meant that middle class customers in middle America were harder to find. By 2017 the nine survivors, still operating 3,967 stores, announced a further 254 store closures. Morgan Stanley reported last year that Amazon has become America’s 2nd largest clothing retailer. Department stores, they noted, continued to lose market share from 26% in 2005 to an estimated 8% by 2022 as the large mid-market store offers fail to compete on either price, speed, authority or fashion. Exceptionally Kohl’s are now beginning to make progress on securing greater returns out of lower mid market sales by greater efficiency and smaller stores. Middle market department stores in suburban catchments that targeted a very broad demographic and offer little in-store differentiation lost a greater share – companies like JC Penney and Sears. This environment was common to most mature retail markets; in Australia, the department stores face the same pressures. “David Jones and Myer face similar circumstance where their product is easily purchased online and they have a proliferation of stores in a diminishing footfall environment …. it becomes a stalemate - the shareholders demanding returns, the landlords having leases and demanding continuation of leases, and the retailers requiring less space and the customers … going online. It's quite a storm to really play out in Australia.” [Bernie Brooks, ex Myers CEO. February 2018] 5
OVER MALLED & OVER STORED
In some ways, Australia’s department store problem is unique. Some
suggest they have more department stores per capita than anywhere else
in the world; at 1 per 30,000 people as opposed to 1: 62,000 in the USA,
1: 283,000 in the UK (incl. Marks & Spencer), 1: 417,000 in Germany and
1: 780,000 in France. Actually, Sweden has been noted at 1: 22,000 (in
1975) after their KF Co-operative Society built 114 ‘cookie cutter’ Domus
stores in 1950-60.
The key point in the U.S. and Europe comparison is the quantum of retail
floorspace. Whilst the data is unreliable, the indications are that there is
around 38 ft² of retail per head in the USA compared to 7.6 ft² per head in
the U.K. and 6.69 ft² per head average in Western Europe. “When you think about it, department stores
are kind of like museums”.
The picture for purpose built centres is similar with around 23 ft² per head
in the USA compared to 3.1 ft² per head in the U.K. and 2.39 ft² per head Andy Warhol
average in Germany, France, Spain and Italy with Sweden at 5.4 ft² per
head.
Over the last 20 years, the number of USA shopping centres has grown “A great department store, easily reached,
by more than 23% and floor area by almost 30%, while the population has
open at all hours, is more like a good
grown by less than 14%. More notably, whilst 46% of floorspace in larger
American schemes (over 300,000 ft²) is occupied by department stores, museum of art than any of the museums we
the European equivalent figure is said to be 27%. have yet established”
John Cotton Dana
6
EUROPEAN MARKETS
In Europe, the traditional department store sector retains a more Spain’s sole survivor is El Corte Ingles (1934) which, with 92
premium positioning than it does in the US and remains focused on stores in every major Spanish city, is Europe’s largest
metropolitan cities. Operators have not pushed on ‘off price formats’ department store operator and Spain’s largest private sector
with regular discounting and a coupon culture. employer. Its fortune reflects the national economy and ill
considered store expansion before the recession left it badly “We are not just a department store, we
Nevertheless, a host of former landmark stores have disappeared exposed. It is suggested that only 15 of its stores are profitable are a place that tells stories.“
from smaller cities and town centres as shopping expenditure and those support all the others.
increasing polarised towards the larger centres, as retail floorspace Albert Baldan, CEO, La Rinascente
decentalised out of town and as specialist discounters grew. The UK is a mature department store market with 285 stores
operated by the chain stores (excl Marks & Spencer); over
France has a small but stable department store market that is 60% are operated by Debenhams. Verdict previously reported
luxury/premium positioned, tourist dependent and centered on Paris. that 36% of UK shoppers regularly used department stores.
The flagship stores of Galeries Lafayette, Printemps and Le Bon Market share is thought to be 9% - nearly twice the USA level.
Marché in Paris are thought to represent more than half the total
revenues. Market share is thought to be about 2% of total retail Italy’s fragmented and regionalised retail market has two
sales. survivor store groups; Coin (1916) with 77 stores and La
Rinascente (1865) with 11 stores. La Rinascente has been
By contrast, Germany is dominated by Kauhof and Karstadt with 161 fairing better with its larger stores and premium positioning.
‘free standing’ midmarket stores (average 193,000 ft²) – down a third
since 2006. Of these, only 28% are considered to be prime (Stadt + Rinascente was bought by Thailand’s CRC in 2011 who then
Handel 2015). Market share is thought to be 3.5%. Unusually, their e went on to acquire Copenhagen’s Illum in 2013 and Germany’s
commerce development has been slow at 2-3% of total revenue KaDaWe in 2015.
unlike Nordstroms 30% or John Lewis at 42%.
European purchasing power 2016 (GfK)
7
NEW DEPARTMENT STORES
John Lewis added 1.185 M ft² of new store floorspace in the last five
years with last year’s opening of their 50th store at Oxford Westgate.
The expansion included the 10 smaller ‘At Home’ formats of circa
40,000 ft². This year’s opening of Westfield White City will give the
company 5 major London stores.
“We have stopped purchasing space for new shops due to the large
capital expenditure this requires and taken the decision to reduce
debt and invest in our core business for our current customers” (John
Lewis Annual Report April 2018).
Debenhams have continued infill expansion with stores like the new
Stevenage fashion store; a cheaper and more flexible ‘fashion, home
& beauty’ format.
“the experience is often as important as the product, with
Galerie Lafayette continued with international franchise expansion for people wanting to treasure memorable moments spent
its concession formats. La Rinascente opened their 2nd store in
Rome – an extraordinary offer that took 10 years to deliver.
with friends and families in their busy lives. To
accommodate this growing thirst for new experiences,
In the States, there will be two more flagship stores in New York our shops are now destinations for inspiration and
including the first Neiman Marcus on the top levels of Hudsons Yard. enjoyment, as well as shopping”
Overall, New York will see an extra 650,000 ft² in five new stores by (John Lewis Annual Report 2017)
2018.
Nordstrom opened the last of their six full line Canadian stores in
NEW OPENINGS 2017 - 2019
Toronto last year; an expansion secured over 2014-2016.
OXFORD Westgate - John Lewis 2017 -120,000 ft²
WOLVERHAMPTON Manders - Debenhams 2017 - 93,000 ft²
STEVENAGE Roaring Meg - Debenhams 2017 - 80,000 ft²
CHELTENHAM Beechwood - John Lewis 2018 -115,000 ft²
LONDON White City - John Lewis 2018 -230,000 ft²
BRACKNELL Lexicon - Fenwicks 2017 - 80,000 ft²
WATFORD Charter – Debenhams 2018 - 113,000 ft²
ISTANBUL Emaar Square - Galeries Lafayette 2017 - 100,000 ft²
ABU DHABI Al Maryah – Macy’s 2018 - 205,000 ft²
ABU DHABI Al Maryah – Bloomingdales 2018 - 230,000 ft²
LUXEMBOURG Hamilius - Galeries Lafayette 2019 - 86,000 ft²
ROME Tritone - La Rinascente 2017 - 151,000 ft²
NEW YORK Hudsons Yards – Neiman Marcus 2019 - 190,000 ft² (levels 5,6&7)
NEW YORK West 57th – Nordstrom 2019 -367,000 ft²
8 TORONTO Sherway Gds – Nordstrom 2017 - 140,000 ft²
PERFORMANCE
Harrods – at 1,578,000 ft² (gross) - is Europe’s largest store. Europe’s other stores over 645,000
ft² include KaDeWe Berlin, Galerie Lafayette Paris and John Lewis Oxford St. New York alone
has 4 stores over 645,000 ft² including Macy’s Herald Square with 1.1 m ft² of retail. Macy’s spent
$400 M refurbishing the store in 2015. Its 650 store real estate is reputedly worth 2.5 times the
company valuation.
Harrods reported 2017 sales at £2.16 billion, reflecting a 23% sales growth. Selfridges reported
sales of £1.6 billion, a 16% sales increase, for their London, Manchester (2No) and Birmingham
stores. Nordstrom and John Lewis reported 2017 sales growth at 2.6%.
Selfridges is part of the Whittington group which also holds Fortnum & Mason, Dublin’s Brown
Thomas and Arnotts, the Canadian Holt Renfrew luxury chain, the premium de Bijenkorf chain in
the Netherlands, Heals and Primark. Selfridges was a leader in using curated lifestyle collections
rather than traditional categories of product offers. It remains innovative in offering a boxing gym,
fragrance bar, art installations, indoor skate, film shows, silence room, etc.
The clear emerging pattern is that the iconic, large and city centre flagship stores with a premium
/ luxury offer serving major catchments with high tourist spends are the ones prospering.
CRG La Rinascente’s growth strategy is to only look at department stores that have a dominant
position in cities popular with tourists; a focus on cities with 1.5-2 million inhabitants and with 5-6
million visitors per year.
Harrods & Selfridges have grown market share by 40% and will take 20% of this
channel despite having only 5% of the floor space (ONS 2017)
99
NEW FORMATS
There are increasingly stores that represent destinations for shoppers – principally those at the
premium/luxury end of the market. Those with fewer stores serving larger markets who have
invested in giving customers an exceptional experience, personalised service, specialist services
and bespoke or unique products. Those who offer consumers something they cannot get online and
turn a large physical presence into a towering competitive advantage.
“Inspirational products will play a greater role across Waitrose and John Lewis. It supports our
ambition for 50 per cent of our products to be own-brand or exclusive to John Lewis”
[Annual Report April 2018]
The new 230,000 ft² John Lewis store that anchors the Westfield White City expansion exemplifies
these trends. It has a 50,000 ft² two level Home with a Sofa Studio where customers can design
their own; an Apple Smart Home with Europe’s first fully immersive smart home experience; a Demo
Kitchen used for food demonstrations and cooking masterclasses; a Style Studio for personal
styling, a beauty spa, two eateries (230 covers), a bespoke personal fashion styling service and a
concierge ‘Experience Desk’ for booking events, craft classes or services.
With 500 staff, the store is expected to serve 7 million customers a year.
John Lewis are difficult to categorise with their ‘never knowingly undersold’, authentic, customer
centric and employee ownership brand but their long standing focus on knowledgeable personal
service is now playing well to Generation X and the aging Baby Boomers.
The Partnership was an early digital leader but it does also operate the Waitrose food store chain.
Over half of John Lewis’ online orders are collected in stores, but more than three-quarters of these
are collected in Waitrose outlets, rather than its department stores.
10
10DOWN SIZING
Saks 5th (NYC) ‘Wellery’ – ‘Sweat with Saks’
With some rare exceptions and new stores in emerging markets like Galeria
Lafayette’s Beijing Xi’dan 506,000 ft² store (2013), operators commonly operate full line
stores at 150-250,000 ft². With many legacy stores over 300,000 ft², finding viable
alternative uses has become important; ideally to alternative uses, operated in house
or licenced/let to 3rd parties, bringing both additional revenue and supplementary
attractions to drive further footfall.
Many started with reviving the eateries they once had. Selfridges now have 16 different
offers within the London store. Liberty's (80,000 ft² - 1875) recently opened the 100
cover ‘Arthurs’ restaurant; an Art Deco homage to its founder.
A number have, where it’s feasible, carved out frontage units for subletting to other
retailers. Kohl's (1962), with 1,158 stores across America, recently announced it would
bring discount grocer Aldi into as many as 10 of its stores in a pilot test. Karstadt has
been leasing surplus space to grocery chains Edeka and Aldi, drugstore chain dm and
the optician Apollo.
Others have extended internal concession grants for travel agencies, coffee shops,
opticians and the like. Several operators have sought to sublet basements to food
stores or gyms and sought office users for the top floors.
Department store Lord & Taylor (HBC) recently has sold its 5th Avenue store to
WeWork/Rhone Capital and will reduce to about 150,000 ft², less than a quarter of the
676,000 ft² building. And at Lord & Taylor stores in Vancouver, Toronto, and Frankfurt,
WeWork will take over the top two floors of those stores and pay rent. Recent reports
suggest Debenhams are exploring the same with WeWork.
Liberty's new ‘Arthurs’ Space ‘urban lifestyle’ supermarket in Rainbow store (30,000 ft²/2nd flr), Shennan
11
113.
FOOD HALLS
The revival of Food Halls was also an early response. The famed Harrods Food Halls have been
trading since 1902 and are listed. The 27,000 ft² Selfridges Food Hall was revived under Sears in the
1970s and renewed in 1989. Shortly after, Harvey Nichols introduced their food hall. John Lewis Oxford
St opened their 17,000 ft² Waitrose Food Hall in 2007.
The Paris stores have long offered food with Bon Marche’s Le Grande Epicerie first established in
1923. The 37,000 ft² gourmet food hall was comprehensively refurbished in 2013 with a new 125 seat
restaurant overlooking the shoppers. Galerie Lafayette opened their 39,000 ft² Gourmet in 2014
combining ‘food pavilions’ and a food hall. They also plan, as part of their BHV store in Marais, a three
level 37,500 ft² Eataly with 7 restaurants.
KaDeWe opened in Berlin in 1907and remains one of the largest department stores in Europe with
645,834 ft² of sales floor. The post war period saw the1956 reinstatement of its famed 75,000 ft² Food
Hall arranged on the top two floors with eateries in the wintergarten.
Gourmet supermarket Løgismose has recently opened a new three-in-one offer situated on top of
Copenhagen department store, ILLUM, combining a gourmet grocery store, wine shop and eatery.
Eateries increasingly blur the line between events and experiences.
In Japan, every department store of status has a ‘depachika’, a basement food hall offering an array of
high-quality food products. These famed shrines to fresh consumption offer a cultural, eating and
shopping experience all in one. Most offer ‘food to go’; ideal for the busy salaryman to take home late
on the train.
Printemps Du Gout 19,000 ft² new gourmet food hall (Jan 2018/ top 2 floors) , Printemps Paris Le Grande Epicerie 37,000 ft² gourmet food hall
1212RESULTS 2017
After more than a decade of losses, Karstadt is back in the black. The
German department store chain recently announced its first profit in 12
years. “We have a portfolio of interesting locations and it’s not a
question of whether, but when and where to build new department
stores“.
(Stephan Fanderl, Karstadt CEO March 2018)
“Our customer strategy is centered on three strategic pillars: providing
a differentiated product offering, delivering exceptional services and
experiences, and leveraging the strength of our brand … Turning to
our performance in 2017, we had record sales of approximately $15
billion. This represented annualized growth of 5 percent over the last
five years, reflecting the investments we've made to expand our reach
and improve the customer experience”.
(Blake Nordstrom Co-President, Q4 2017 report)
“We are announcing today the closure of two stores, in Eltham and
Farnborough, in line with our store review, which identified 10 stores at
risk of becoming unprofitable over time. We have exited four franchise
markets and plan to continue to exit low-profit, low growth franchise
locations, whilst concentrating on those with scale opportunity and
strong strategic partners” (Sergio Bucher, Debenhams CEO Oct 2017 “Our department stores are great theme parks, places where
results). you will find extraordinary quality, inspiration, pleasure,
styling, entertainment and outstanding service”.
“Retail Week understands that, of House of Fraser’s 60 stores, around André Maeder, CEO KaDeWe
20 turn a healthy profit” (RW May 2018)
MILLENNIALS
• are twice as likely to have a beauty treatment whilst shopping as more
mature customers
• three times as likely to do another leisure activity such as bowling
when out shopping
• twice as likely to use their mobile phones to compare prices
[JLP ‘How we shop’ Oct 2017]
133.
INTERNATIONAL EXPANSION
Department stores are challenging concepts to translate internationally. Their formats
need to be customised to meet national preferences, compete with local retailers and
address expectations that vary hugely from country to country.
Galerie Lafayette has opened the 102,000 ft² three level store in the mixed use ‘urban
lifestyle’ scheme by UAE’s Emaar Properties Turkey on the Asian side of Istanbul.
Emaar acquired the 17 acre site in 2008 and announced, in 2011, the start of
construction, the scheme financing and the prelet with Galerie Lafayette franchisee,
Demsa Group. Demsa also operate the Harvey Nichols, Gucci, Longchamp and Karen
Miller brands.
The 9 M ft² development incorporates 1,068 residential units (74% reported sold),
430,000 ft² of offices, a 183 bed 4* hotel and the retail offer; Emaar Square. The
shopping centre includes a multiplex cinema, aquarium and 1.6 M ft² of retail, served by
6,500 car spaces arranged on 5 basement levels under the three retail levels.
The design, apparently “taking its inspiration from Dubai Mall”, is largely a conventional
approach to a high density scheme.
Emaar’s Dubai Mall is a 3.72 M ft² retail offer with an 80 million pa footfall, anchored by
Bloomingdales, Galerie Lafayette and Debenhams franchises, served by 14,000 car
spaces.
Istanbul Emaar Square (2017) – 102,000 ft² Galerie Lafayette store
Emerging markets have provided a key expansion area for some department stores.
Galeries Lafayette’s first China store was a 506,000 ft² store in Beijing Xi’dan in 2013. Its
second will be a 247,000 ft² store in Shanghai Lujiazui in 2018. Galerie Lafayette also
opened a 129,000 ft² store in Jakarta’s Pacific Place in 2013.
Debenhams has 63 stores in 18 countries outside the UK and Ireland through regional
franchises as well as the six Magasins du Nord stores it acquired in 2009. It added a 7th
store in 2016 to the Danish business. With overseas revenues up by 9.5%, the
international side contributed over a third to Debenhams operating profit (y/e Sept
2017).
Macy’s will be opening their first international offer this year: a 205,000 ft² store in Abu
Dhabi’s 2.3 M ft² Al Maryah centre– joined by a 230,000 ft² Bloomingdales, their 2nd
store in the Gulf.
The Middle East has been a key growth market. Lebanon’s Admic have operated the
BHV/ Galerie Lafayette since 1998 with stores in Dubai and Beirut.
Unlike the UAE, there is a cultural context to large department store offers in Beirut; a
historical legacy of the French influence. The same is also true of Cairo. Before
nationalisation in July 1961, down town Cairo had a number of large
department stores such as the Tiring, Les Grands Magasins, Cicurel, Shemel and
Challons.
143.
ROME La Rinascente
It is probably the only department store in the world that can boast, within its
structure, an archaeological site exposing the 2,000 year old Aqua Virgo – which was
discovered during works and is still working to supply the main fountains of Rome.
The aqueduct is now part of the basement exhibition and events space for La
Rinascente’s new 151,000 ft² Via de Tritone store – its 2nd in the city.
The building was acquired in 2012 and the renewal reputedly cost €160 M by the
2017 opening.
Arranged on 8 levels, the building is lit by a new atria highlighting the five floors of
luxury Italian products. The sixth and seventh floors are occupied by a gourmet food
hall, lounge bar, open air terraces and a number of restaurants. Their CEO said of
their customers:
“We want to fascinate them thanks to places that promote culture, art, the
cities. Incentives that are able to attract both local visitors, who … represent
30% of the total, as well as non-resident Italians, who account for 20%, and
even tourists and foreign business travellers who account for half”. Albert
Baldan
La Rinascente’s flagship is their 570,000 ft² store in Duomo, Milan; voted the World’s
Best Department Store in 2016 and achieving €2,137 psf sale densities in 2015. The
group aim at opening similar stores to the Via de Tritone store in Florence and Venice
- subject to regulatory approvals.
153.
BRACKNELL Fenwicks
As part of the long awaited redevelopment of Bracknell’s town centre, the old store
was demolished and the new three level 80,000 ft² Fenwick store opened in 2017
with a £20 million fit out.
The old store was originally a Bentalls, acquired by Fenwick in 2001. The new
Fenwick was said to be the first new store opened by the family since Canterbury –
similarly an old department store (Ricemans) acquired in 1986 and replaced by a
new store in 2003 as part of the Whitefriars development.
Fenwick had opened its renewed and extended 88,000 ft² Colchester store in 2016:
a former William & Griffin acquired in 2008.
At Bracknell, Fenwick has created a high-end shopping experience with fashion,
beauty and accessory brands. Brands include international designers such as
Coach, Kate Spade New York and Max Mara, luxury beauty brands La Mer, Nars
and Jo Malone London and premium high street names including All Saints, Ted
Baker and Jigsaw.
The top floor has Bed & Bath and a Cookshop together with the Mediterranean-
inspired restaurant, Fuego, complete with private roof garden/terraces. Overall, a
contemporary setting for a premium offer although at a smaller scale.
The company is now focussing resource on its on-line offer and refreshing its
flagship Newcastle store.
163.
VENICE Fondaco dei Tedeschi
2016 saw the opening of the first European ‘T Galleria’ store; run by the Duty Free Shopping
(DFS) company owned by LVMH Group. The extraordinary new 86,400 ft² store is leased by
DFS from the Benetton family who purchased Venice’s historic Fondaco dei Tedeschi building
in 2008. Venice only has a core population of 55,000, but it does ‘enjoy’ 20 million visitors a
year.
This ‘unconventional, multi-functional luxury store’ encompasses 300 brands, Italian gourmet
food hall, authentic Venetian crafts and, in a glass pavilion on the fourth floor, a large
exhibition and public events space. Arranged around the covered courtyard with stone
colonnades, cardinal red escalators, terracotta partitions and gold metal finishes, the store
“celebrates authentic Venetian culture and its richness, vastness, and dedication to luxury and
commerce”.
“It’s hard to pigeonhole T Fondaco dei Tedeschi, a new retail destination in Venice. It’s
certainly not your run of the mill department store, nor is it a boutique shopping
experience. It’s more a combination of extraordinary architecture and cutting edge
design, mixed up with a heavily curated edit of some of the world’s most desirable
luxury goods, covetable Venetian souvenirs, a grocery store (more Fortnum’s than the
Co-op), and a chic Philipe Starck-designed restaurant. Essentially, it has to be seen to
be believed”
(Liberty London Girl July 2017).
Luxury brands face the well highlighted issues of changing consumer drivers, growing
digitisation, product personalisation, offer re-curation as well as planning how to delight local
customers as well as tourists and travellers in mature markets.
Ostensibly, one in four Millennials would rather pay money for an experience rather than a
product. They look for a tailored experience with live events and more experience based
spending. And in doing so, they expect a frictionless consumer journey from getting the
experience to sharing their pictures on social media. But in the spatial urban geography that
real estate folk inhabit, there is more to this than just personalisation, digitalisation and
socialisation.
At the heart of the ‘bricks & mortar’ offer in the omni-channel partnership is the quality and
delight of the urban fabric; the authentic experience of the ‘real thing’. The strong spatial
presence is the symbolic and authoritative presence of the flagship brand pavilion, acting as
the material expression of the brand, showcasing the entire brand story under one physical
roof.
The building and the texture of its urban environment provides the physical stage for the
immersive experiential retail theatre; with its cast of actors, story, staging and direction.
17TRADING FORMATS
It’s still common to find department stores offering more discounts on “In our full-price business, we have a high-quality portfolio of around
more of the same merchandise, with uninspired product presentation 120 full-line stores in roughly 50 markets across the U.S. In these
in the same old, tired and big boxes. The mix is dominated by markets, the profit per customer is more than double that of markets
clothes, handbags and shoes making up 75-80% of sales as without a Nordstrom store presence. This market-focused approach
opposed to the 50% common a few decades earlier. informs how we allocate capital” (Anne Bramman, CFO “As part of our plans to differentiate
Nordstroms).
Looking around the untidy piles crowded together on tired shop
the John Lewis brand and to reinvent
furniture under the neon glare, there’s little to delight the eye, excite What also appears important is the strong spatial identity of the the department store for the 21st
interest or awake the mind. store. In the late 1990s, several store operators began to demand century, our shops continue to be a
individual building identities for their stores which were part of retail place where customers come and
The years of mergers and consolidation did create enterprises with developments. John Lewis commissioned separate architects for experience our brand – the physical
organisational efficiencies, lower operating costs and greater their new Cambridge (2007), Leicester (2008), Liverpool (2009)and manifestation of what we stand for”.
purchasing power. Yet what was gained in scale was frequently lost Oxford (2017) stores.
in entrepreneurial agility and tailored local responses to specific
Paula Nickolds, MD John Lewis.
communities. Scale often led to ‘spreadsheet management’ as power Recent financial reports suggest that the most successful
transferred from the buying merchants curating distinctive product department stores are generally located in iconic downtown
offerings to company leaders more concerned with pleasing stock locations: Harrods in London, Galeries Lafayette in Paris, Isetan in
exchange annual expectations. Tokyo, Sogo in Hong Kong. Each major city has its landmark stores
where the brand has been built over decades.
The centralised buying structures and the disappearance of brands
proudly reflecting localities led to ubiquitous offers in studied beige. Part of that is being an integral part of the urban character and
Management could now only look to compete on price against a identity. There isn’t the need to stage entertainment to attract
nimbler and specialised competition. customers out to an off centre location;
Even if change has been thrust upon them, most the surviving “for us the performance is already there, around us: a stroll down
operators are now investing in beauty and wellness, lifestyle Corso Vittorio Emanuele, a visit to the Cathedral rooftop, a trip to
boutiques, themed eateries, distinct products, gourmet food halls, Prada’s store in the Galleria. The same is true of Rome,
unique assortments and ‘pop up’ experiences and events. Copenhagen and our other stores. In these European cities, you are
surrounded by living art and history” (Alberto Baldan, CEO La
The common focus is now improving the quality of the customer Rinascente)
experience and service proposition, extending the use of technology
to intimately engage customers across all channels and building To benefit from city vitality, the department store needs to be a
personalised consumer confidence in the brand, products and recognisable and integral part of the urban fabric; ideally part of the
services. collective memory of the city.
In the competition against pure online and value discounting, the For investors, department stores let on long-term leases in prime
authoritive major store can control the experience, assortment and locations are particularly interesting since they offer a stable rental
presentation in highly edited, constantly refreshed and curated yield and a high probability of capital preservation. Opportunistic
fashion. However, it is also clear that demand for this format has investors and developers, on the other hand, are equally interested
shrunk in provincial markets and retreated back to the metropolitan in large city blocks with short occupier lease terms and uncertain
centres. Quite a few stores now lie marooned in sparse catchments. futures since this creates opportunities for re-positioning and the
associated value-add potential.
Large historic buildings in metropolitan cities also offer the key
opportunity to address creative occupiers looking for unique,
accessible and characterful places.
183.
FUTURE Mexico City Insurgentes (2010) – Extension to Liverpool store
The demise of the department store industry has been predicted practically every decade of the last
century. Yet today, the flagship city centre department stores with luxury positioning and ever changing
offers increasingly appear, in many ways, to still be the retail trail blazers that they originally were. Their
innovations are closely studied and frequently copied. Their physical stature and presence grows in
significance and the quality of their evolving internal environments ever more important, albeit at
substantial periodic capital cost.
Smaller stores in major cities seem to be prospering with even more eclectic and specialised offers,
particularly orientated to experience seeking city visitors. And the new or refreshed smaller stores in 2nd
rank cities and major town centres look to have a future: offering key concession brands that would
otherwise not be available, incorporating a substantial beauty offer and providing a premium experience
in a contemporary environment.
However, the market remains challenging. Stores that pick, pack, charge and deliver on-line orders for
the same instore ticket price have a challenge – but when commonly a third of deliveries are being
returned, that challenge is enormous. For standard stores in the UK, revenues have been falling but
property taxes are increasing alongside staff and import costs.
It’s clear that many middle market stores in unfavourable places need to close. And productive
alternative uses secured for some over sized stores. Yet still, across Europe, North America and the
Middle East, the market continues investing in existing and future stores.
Department stores are reimagining their spaces into the ‘beyond shopping’ experience. And there is
such to suggest that this is likely to be the future place for most retailers.
Leicester Highcross (2008) – 140,000 ft² John Lewis store Cologne Schildergasse (2006) – 247,500 ft² Peek & Cloppenburg store
19KEY ATTRIBUTES
• LARGE CITY CENTRE MARKETS
• TOURIST DESTINATIONS
• LEISURE, EDUCATION & CULTURAL EXPERIENCE
• AUTHENTIC & UNIQUE RETAIL OFFERS
• HERITAGE & ICONIC BUILDINGS
• CONVENIENT & ACCESSIBLE PLACES
• CURATED & PERSONALISED URBAN OFFER
• BLURRED PHYSICAL & DIGITAL ENVIRONMENTS
“Online is for displaying a full assortment, mobile is for providing contextual
information and retail is for creating shareable experiences.”
Sebastian Kemmler, Kemmler Kemmler
“People don’t need anything from Neiman Marcus,’ right? It’s all about wants
and desires and emotional resonance”.
Karen Katz CEO Neiman Marcus Grp
20ALISTAIR PARKER Development & Place 43 Portman Square. London W1A 020 7152 5203 | 07764 398 203
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