What is the Future of the Luxury Department Store?


Natalie Yiasoumi | May 07, 2019

In an age of instant gratification where e-commerce and Instagram shopping have been increasingly gaining market share, physical retailers and big department stores have struggled to keep customers engaged.

In the last year, household U.S. names, including Henri Bendel and Saks Fifth Avenue, announced consecutive closures - the former shuttered all 23 locations including its famous Fifth Avenue flagship, while the latter closed its women’s store in lower Manhattan after just two years in operation. According to Morgan Stanley, department stores will only account for 8 percent of the apparel market by 2022, down from 24 percent in 2016. 

This doesn't mean that the department store is dead, but that it needs to be reinvented with new categories and services that are designed to serve a modern, digital-savvy consumer. 

The bravest of department store retailers have been embracing the changing landscape and embarking on ambitious renovation projects, giving drastic facelifts to their brick-and-mortar spaces, but also re-evaluating their purpose and relationships with their clientele. 

The key to this renewed vision of the department store? Convenience, trendy and exclusive products, new categories and service-driven experiences - the retail industry's new favorite buzzword. 

Plans Into Action

That's why the Galeries Lafayette Group, whose revenues have been flat over the past year, has introduced a new store concept on the Champs Elysées filled with buzzy young labels, artsy installations, personal shoppers hired via social media and Instagrammable moments, including a restaurant designed by designer Simon Porte Jacquemus and Caviar Kaspia. 

Nicolas Houzé, the company's chief executive, said that this was an opportunity to answer to the challenges in the retail sector by innovating and diversifying the group's business beyond its flagship on Boulevard Haussmann. 

“It was a chance for us to rethink the model of the department store," added Houzé, pointing to a shift from a brand-centric to a customer-centric approach. 

Competitor Le Bon Marché has also been following suit with its "3.0 shopping" strategy which integrates curated exhibitions within its stylish Left Bank store, while in the U.S., Neiman Marcus has recently debuted a brand new concept at the Hudson Yards development in New York which brings together luxury fashion retailers, with art galleries, hotels and wellness centers. 

Neiman's approached the new space as a "testing ground for experiences and services" that it hasn't provided before, including a 1,000-square-foot pavilion used to host events, a demo kitchen used for tastings and mixology classes and an array of beauty services, such as cell rejuvenating LED beds and blow dry bars. 

The unveiling of all these new spaces point to the importance of diversifying into new categories and complementing a traditional luxury apparel and accessories offer within a department store, with more service-driven or cultural experiences, ranging from art to beauty, wellness, food, and beverage.

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From Retail to Hospitality 

According to the Future Laboratory, in the next 20 years up to 70 percent of retail will be dedicated to food and beverage, so in order to survive department stores need to place greater focus on hospitality. 

“It’s the idea that the social and the hospitality experience is more important than the transaction,” said Tom Savigar, senior partner at The Future Laboratory, a London-based trend forecast and consumer insight agency. “We are rewiring the way we have been socialized,” added Savigar, pointing to an ongoing craving for human experiences, for tactility and belonging, while at the same time expecting convenience more than ever before.

These values have also been at the heart of Harvey Nichols' renovation project in London, which has seen its flagship store transform one floor at a time: The ground floor, for instance, has moved away from luxury accessories and towards a renewed focus on beauty, including a dedicated services area, an exclusive offer of Rihanna's Fenty beauty line, as well as a new offer of contemporary-priced accessories by brands which are highly visible on Instagram like Staud. The store's designer ready-to-wear space on the first floor has also been redesigned to inspire a more intimate, boutique feeling with shop-in-shops from the likes of Loewe, Stella McCartney and Jil Sander. 

The revamp is paying off - according to the retailer sales have increased by 40 percent on its women's wear floor in the last year and it's looking to continue to renovate its remaining fashion floors by integrating contemporary fashion with beauty and athleisure, as well as work with brands to create one-off pop-ups that will lure customers through its doors with the promise of newness. 

Seamless Omni-Channel 

But apart from rethinking the shop floor, Harvey Nichols has also recognized the importance of e-commerce to sustain any retail business and forged a partnership with Farfetch to help accelerate its digital strategy and reach a more international audience.

As part of the deal, Harvey Nichols will integrate its inventory on the Farfetch platform, while Farfetch will, in turn, help the department store introduce new services such as in-store returns and next day delivery. 

It's a move that most other competing department stores, which have been more focused on delivering retail theater within their physical spaces, have been shying away from so far, with online sales only accounting for a small fraction of their revenues. 

The few exceptions would include Neiman Marcus, whose online sales in the Greater New York area reached $200 million last year and Le Bon Marché, which has debuted 24 Sevres in 2017 to bring its offer online and has managed to stand out with exclusive product from the likes of Louis Vuitton and Céline which do not normally sell on the web. 

But as the retail landscape evolves, e-commerce will be crucial in ensuring the livelihood of all physical department stores: "Customers still crave human interaction and enjoy the store experience, but they'll make the final transaction on their phones. So department stores need to go out of their way to create a seamless experience both on and offline, otherwise, the customer might come in a store to have a coffee but they will shop online from their competitor," added Savigar. 

Cover image credit: Pixabay.