Department Store 2.0: Three Key Trends


The majority of consumers shop both in-person and virtually. According to PYMNTS data, 88% of consumers make an in-store purchase daily, weekly or monthly. Sixty-three percent say they do so via an online marketplace like Amazon. Additionally, more than half of consumers – 52% – choose to get goods delivered to their homes via online orders.

See also: The Connected Consumer in the Digital Economy

Enter department stores, which are now rethinking how their long-standing, traditional business models will withstand consumer disruption sparked by a global pandemic. In short, consumer expectations are shifting. Recent announcements from luxury retailers, eCommerce companies and the like represent a springboard for change, and three urgent key focal points may be emerging.

1. Brick-and-mortar stores are meeting their virtual counterparts.

Popular department stores tend to now be playing catch-up compared to their solely digital competitors. In the meantime, consider how Amazon, for instance, who’s known for being digital-first, arguably plans to disrput the industry by opening retail stores that mirror department stores. The benefits of doing so include giving consumers the ability to look at hard-to-return items — like furniture — before they decide to buy. It also will make consumer returns and pickup fulfillment processes more seamless.

Other disruptive models are taking hold. Saks Fifth Avenue recently broke their brick-and-mortar and eCommerce sides apart into two pieces. This new business strategy makes the customer the biggest winner, as Saks Fifth Avenue CEO Marc Metrick told CNBC. “Instead of spending capital investing in your physical plants, you’re spending on marketing, investing in the future of your customers,” he explained.

Other department stores, including Macy’s and Kohl’s, are similarly reviewing what their business structure would look like if they separated their faster-growing eCommerce businesses from their core legacy stores. While these spin-offs are aimed at creating shareholder value, when it comes to serving the customer’s needs, most retail executives have shown a preference for keeping their budding omnichannel operations intact and maintaining a “better together” view of the two sides of the business. For example, Macy’s intends to launch a curated digital marketplace for third-party sellers – similar to the Amazons and Targets of the world – in mid-to-late 2022. According to the Macy’s chairman and CEO, this decision aims to fuel ongoing customer acquisition and drive growth.

More details: Macy’s Follows Amazon, Walmart in Development of Digital Marketplace

2. Retailers get creative to address the labor shortage.

Amidst a global pandemic that doesn’t seem to want to end, staffing problems have emerged across numerous industries, some including department stores. As of last November, Macy’s had over one million job openings ready to be filled. It also recently bumped up hourly pay to start at $15 and offers free tuition in hopes of attracting more workers – especially during the busy holiday season, which accounted for nearly 40% of its 2020 sales.

On that note, Macy’s has now started a “Holiday All Hands-On Deck” strategy. Here, Macy’s is asking its corporate team members to work – unpaid – in department stores on heavy-traffic shopping days like Black Friday. Volunteers would fold clothes, help prepare dressing rooms and the like. Benefits of this model, said a Macy’s spokesperson, include allowing members of corporate to get a firsthand perspective of the consumer experience, interact with shoppers and hear customer feedback straight from the source.

3. Retailers seek to stay lean amid continued supply chain issues

The supply chain aftermath is impacting the bottom line of many big-name department stores. At Nordstrom, for instance, shares have fallen 55% in the past nine months. The retailer has closed stores, managed global supply chain snafus, and was the victim of coordinated raids and thefts in Los Angeles. In the meantime, this means the clothing and shoes consumers wish to purchase may not be stocked as usual in stores.

"We have not responded as quickly and as aggressively as we needed to, with Rack in particular ... we've been significantly under inventory plans all year," Nordstrom told analysts on a phone call last month following its earnings report.

Similar to Macy’s, Nordstrom is also offering hiring perks like $650 incentive pay for new employees.

Catalyst for Change

To be sure, these new problems can also inspire new visions. “We're reimagining our supply chain to better enable this shopping experience, while also making the entire process seamless and operationally simple for our employees,” said a Nordstrom press statement. This includes working to update how products are stored and sorted, and getting goods to consumers with less lag time.

Other companies have acted early on in the pandemic to battle supply chain woes by adjusting inventory needs. For instance, Calvin Klein and the Tommy Hilfiger owner PVH both pulled inventory, saving it for future seasons so they could sell items at a higher price. Gap and Urban Outfitters also had similar strategies.

As Urban Outfitters COO Frank Conforti noted earlier this month, the supply chain is now four to six weeks longer than two years back. The retailer is therefore looking to keep its inventory situation on the thinner side to adapt to the changing times.

Greater Implications

Taken together, these three trends point to a new direction for beleaguered department stores — one where consumers have choice, busy seasons are able to rapidly staff up to adequately meet demand, and inventory is better aligned with supply chain needs.

In short, the future of retail is all about speed and adaptation — and finding ways to give customers what they want, where and when they want it.

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