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How high-end department stores are winning back customers

How high-end department stores are winning back customers

How high-end department stores are winning back customers
October 10
00:03 2017


If you’ve ever ordered a book, a must-have handbag or a desperately needed workout kit online and had it arrive the very next day, you’ll have no trouble understanding why these are troubling times for department stores. And nowhere are they more troubling than in Manhattan, where the intense competition from internet shopping is merely one of the challenges facing the grand old stores, such as Barneys, Saks Fifth Avenue, Bergdorf Goodman and Bloomingdale’s. In their heyday they and their global counterparts encapsulated the spirit of their age, but that age is no more. What is left are vast edifices, which, if they are to survive, have to reinvent themselves for the new times we’re living in and then keep on their toes as their customers’ tastes and habits continue to evolve.

As Trevor Hardy, CEO of trend-forecasting agency The Future Laboratory, puts it, “The department-store concept was invented for an era when consumption was aspired to – it had cultural currency. Today, the mere act of consumption isn’t much aspired to; the new breed of entrepreneurs notably spends very differently from the way earlier wealthy individuals used to spend, but that doesn’t mean there isn’t still a lot of spending going on.” If the raison d’être of a department store is to sell, then it must sell those things that today’s consumers want to buy. It must also reimagine the way it uses its spaces.

This summer Selfridges hosted aspiring musicians for free at its Ultralounge space, as part of its Music Matters campaign

Mortimer Singer, president and CEO of business development and strategic consultancy firm Marvin Traub Associates, identifies several “headwinds” that the US stores are struggling with. Firstly, there is what he calls the “New Davids” – lesser-known brands, well over 200 of them, that were born online and in many cases may only be doing about $10m of business a year each, but collectively “are taking some $4.2bn out of the more established retail market”.

Then there’s the clothing and accessories rental business, which, he says, is booming in New York. “My wife has effectively stopped shopping for clothes and accessories. For $1,800 a year she can borrow three garments or handbags, pairs of shoes or pieces of jewellery at a time. She has already worn $50,000 worth of clothing this year – to weddings, to receptions, to dinners – and by the end of the year will probably have rented about $70,000 worth, saving her tens of thousands of dollars.”

Thirdly, what Singer calls the “aftermarket” is also affecting the department stores, with more and more women buying second-hand or “pre-loved” clothing and accessories from luxury websites such as Therealreal.com. Finally, Singer points to the mega-growth of the health and wellness industry, which is also taking huge sums of money that might in the past have been spent in traditional department stores. “The arrival of SoulCycle in the city in the mid-2000s really set this trend alight,” he says, “and today you can choose from boxing and yoga to Ballet Beautiful and Equinox. But given that a class costs $30 upwards and somebody might be doing classes three times a week, it isn’t long before they’ve spent the equivalent of a Michael Kors handbag or a Kate Spade wallet. The same person is probably also spending on hotels, restaurants and airfares… It all adds up to a lot of money.”

In addition to all that there’s Amazon, which is expected to overtake Bloomingdale’s owner Macy’s this year as the largest seller of what in the US is known as “apparel”. It’s hardly surprising then that net sales at Macy’s Inc (which also owns luxury beauty and spa retail chain Bluemercury and fashion outlet stores Macy’s Backstage and Bloomingdale’s The Outlet) dropped 4.8 per cent in 2016, with further decline predicted this year.

The Breathe Salt Rooms feature in Saks Fifth Avenue’s six-month fitness and beauty pop-up, The Wellery, which runs until the end of October
The Breathe Salt Rooms feature in Saks Fifth Avenue’s six-month fitness and beauty pop-up, The Wellery, which runs until the end of October

Adding to the pressure in Manhattan is the fact that Nordstrom and Neiman Marcus are due to open branches in the city for the first time in 2018 and 2019 respectively, while Bergdorf Goodman (which is owned by Neiman Marcus and serves Manhattan’s elite 10021 zip code) is being given a very modern makeover ready to help it face these new challenges. All of this is leaving many doubting whether there are enough shoppers to keep them all afloat. Neiman Marcus (which also owns the luxury womenswear website Mytheresa.com, fashion retailer Cusp, online homeware and furniture store Horchow and outlet store Neiman Marcus Last Call) has seen group-wide sales slide year-on-year for the past seven quarters, after nearly six years of consecutive rises. They dipped 2.9 per cent in the year to the end of July 2016, from $5.1bn to $4.95bn, and it sees a more imaginative use of technology as one way to help tackle this. It has, for instance, added features to its app that mean a friend could photograph a pair of shoes and ask Neiman Marcus whether it stocks them or a similar design. On top of that, its stores now have “Memory Mirrors”, which offer customers 360º views of exactly how they look in the chosen garment.

There is also a feeling that the mood now is for more intimate, more neighbourhood-style stores. In 2016, both Barneys and Saks Fifth Avenue (whose sales dropped by about 2.8 per cent in the year to the end of January 2017, after falling one per cent the year before) opened smaller, downtown stores in Manhattan with a more local, edgier focus. It’s given them a chance to refresh the retail model, and key to their thinking is that customers want these stores to reflect the area’s character (downtown being hipper than elegant uptown) and behave more like indie boutiques. Both are also making bigger forays into food, while there’s a recognition that their stores hadn’t kept pace with all technology has to offer. Seamless omnichannel service is now mandatory. Barneys’ sales teams have iPads synced up with a database detailing shoppers’ spending habits, and customers can use Apple Pay to check out on the spot.

Saks’ The Wellery also offers intensive exercise classes
Saks’ The Wellery also offers intensive exercise classes

Marigay McKee, former chief merchant at Harrods and former president of Saks Fifth Avenue, who now runs strategic business development company MM Luxe Consulting, believes, “We have to bring the love and the humanity back into the experience of shopping. Stores need to concentrate on what I call ‘the three Es’ – emotion, environment and experience – if they are to appeal to today’s customers.” This means doing things like ringing up customers when an item comes in that the assistant feels the customer would like, letting people buy a dress in Chicago and change it in New York, or allowing them to buy online and return to a store (or vice versa). Some Saks stores have a hotline for customers to ring if they have an emergency like a broken zip or a ripped hem.

Hardy, of The Future Laboratory, identifies one of the key problems for modern-day department stores as the dramatic decline in the time customers spend in stores. “Managers need to work out how to get shoppers to stay longer,” he says. “They need to bring popular culture back into the stores.” One area with significant growth potential is wellness, health and beauty, and what Hardy calls “self-transformation”. The Saks Fifth Avenue flagship (it got in early with experiential shopping when it offered skiing lessons on an indoor slope way back in the 1930s) currently has a whole floor given over to The Wellery (pictured above, on previous page and overleaf), a six-month fitness and beauty pop-up running until the end of October. There are boot-camp-style exercise classes and therapy treatments, from the natural (sessions in the Breathe Salt Rooms aim to aid the respiratory system and counter skin conditions) to the high-tech (non-invasive body contouring and laser treatments at Skinney Medspa). Customers can also buy a Peloton exercise bicycle and follow spinning classes from home on a screen attached to the handlebars (sessions can be watched live or on demand). There are also golf swing analysers from Drive 495 and experts who advise customers to ensure they choose the best clubs for their size and stance, as well as personalisable dietary supplements from Care/of that can be tailored to each shoppers’ health aims.

Selfridges’ Project Ocean, which has been running since 2011, is dedicated to marine conservation
Selfridges’ Project Ocean, which has been running since 2011, is dedicated to marine conservation

As Saks, Barneys and Bergdorf Goodman reinvent themselves for the challenges ahead, Manhattan’s ambitious $25bn+ Hudson Yards project looms on the horizon. When it is finished, there will be even more competition for customers’ wallets, as besides apartments, the development will feature restaurants with chefs from around the world, gyms, play spaces, a huge Thomas Heatherwick sculpture and that first Manhattan Neiman Marcus store. “It’s a place,” says McKee, “where customers will be able to play, live, work, dine, exercise and have fun.” Likewise, Nordstrom is coming to town as the anchor of a luxury residential development near Central Park South (with a separate menswear store across the street), and it’s quite clear both will be doing their utmost to nab as large a slice of the US retail pie as they can. McKee also sees another challenge in the arrival of smaller contemporary stores such as fashion retailer The Webster, which has had great success in its home town of Miami and is going to bring its very individual point of view to Manhattan.

Across the pond, sales figures paint a cheerier picture. Those at Harrods, for example, were up by four per cent to £1.4bn and operating profit up 40 per cent to £178m for the year ending January 2016. Its managing director, Michael Ward, thinks, “Much of the pain the Manhattan stores are experiencing is self-inflicted. They don’t always get their product choice right and they discourage their customers from having to pay full retail price by having far too many sales. We, for instance, have just two sales a year and that’s it.” Indeed, several of the US groups have more outlet locations than full stores, in particular Saks and Nordstrom.

Liberty provides sewing lessons to customers and local students
Liberty provides sewing lessons to customers and local students

Harrods, which is noted for its glossy international customers, has always had a finely focused strategy under Ward: “We create a category – whether it be beauty, jewellery or food – which we then invest with real authority. For instance, we expanded our childrenswear department to include all the top brands – Loro Piana, Gucci, Dior, Dolce & Gabbana, Fendi – and people fly in from Paris and Berlin to shop there because there isn’t a selection like it anywhere else in the world.”

Similarly, when expenditure on beauty and wellness began to rise dramatically several years ago, Ward opened a vast Wellness Clinic on Harrods’ fourth floor. “If you want wellness,” he says, “you want it to be serious, and ours is. It’s a holistic approach and patients see a highly qualified doctor before most courses of aesthetic treatment are prescribed. We have the best specialists – dietitians, dermatologists, chiropractors and so on, offering the very latest treatments all under one roof.”

Light therapies are available at Harvey Nichols’ Beauty Lounge, which opened last year
Light therapies are available at Harvey Nichols’ Beauty Lounge, which opened last year

Like Harrods, Harvey Nichols knows department stores can’t just go on selling products in the same way they used to – enticing customers into the store and keeping them there longer is what it’s all about – and it too has invested a great deal in beauty and wellness, opening a new Beauty Lounge (pictured overleaf) at its Knightsbridge store in July 2016 (revenues rose one per cent to £194m in the 12 months to April 2016, with profits roughly halving to £3m as a result of its investments). As well as offering treatments such as LED facials, cryotherapy and vitamin and nutrient injections, the Lounge hosts several events a week – make-up masterclasses with known names such as Trish McEvoy and Laura Mercier; one-to-ones with beauty experts such as Charlotte Tilbury; or fragrance inspiration evenings with expert noses such as Cire Trudon’s Lyn Harris (which takes place this November). It also makes a point of always having something exceptional to offer connected with these events: for instance, Cire Trudon’s first perfume collection and a special Balmain x L’Oréal lipstick line. “Customers are encouraged to come into the store to play with as many products as they like, so they can be sure they are buying the right thing,” says group commercial director Daniela Rinaldi. “Our Knightsbridge store also has a Beauty Concierge to help with anything from picking the right shade of foundation to offering tips on how to create the perfect smoky eye. We’ve focused on ensuring our staff make a customer feel as special as at the best five-star hotel. This isn’t just about sales, but about building a relationship with customers, which is why we’ve also launched a loyalty app, Rewards by Harvey Nichols, that offers customers personalised rewards every quarter, including exclusive in-store experiences.”

Selfridges has a much broader customer base than Harrods, and offers several high-street brands that the Knightsbridge store would not consider stocking. It too has gone heavily down the experiential route, offering customers what it calls “beyond-shopping” experiences through themed campaigns such as its ongoing Project Ocean, which have made it into a kind of retail activist. Project Ocean began in spring 2011 with the aim of drawing attention to the dire state of our oceans. Its initiative included removing endangered fish species from its food department, banning cosmetics that contain squalene, which derives from shark liver oil, and stopping the sale of single-use plastic water bottles. The store’s latest beyond-shopping project, which ran during this summer, was its Music Matters campaign, when it offered its Ultralounge space (pictured on third page) as a free venue to aspiring musicians in response to the fact that London has lost about 40 per cent of small live venues where budding artists could get a hearing. It has also hosted the first cinema in a department store, run gym pop-ups, staged exhibitions by artists including Banksy and Yayoi Kusama, and opened a Silence Room where customers can leave their electronic devices at the door and go inside for a dose of zero-noise tranquillity. Selfridges’ four stores saw revenues rise by five per cent to £1.4bn for the year ending January 2016, but operating profit fell by 1.9 per cent due to an ongoing £300m investment programme in its physical stores and online business.

Saks’ golf swing analysers from Drive 495 help clients to buy the most appropriate clubs
Saks’ golf swing analysers from Drive 495 help clients to buy the most appropriate clubs

Meanwhile, Liberty, which struggled for many years but is now trading profitably, with both sales and profits in 2016 up double digits year on year, the demographic is different yet again. “We are proud of the fact,” says buying director Gina Ritchie, “that some 70 per cent of our customers are British. We do have foreign customers who love the store’s Britishness, but we don’t buy for them – we buy for our British customers.”

She believes firmly that department stores are here to stay, but says they have to offer a compelling reason for customers to visit. “I try to enhance all the things that you can’t get online – this means we offer advice and in-depth knowledge about our products. It’s all about eccentricity and the story behind a product. I never buy, for instance, a beauty brand that doesn’t have a real ‘face’ behind it. We love brands such as Surratt founded by Troy Surratt, a make-up artist who used to work with Kevyn Aucoin. At Liberty I can’t sell diamonds for love nor money, but my customers love colour and they love craftsmanship, so jewellery brands such as Larkspur & Hawk, which uses old Georgian techniques to make its pieces, are a perfect Liberty fit.

“I also see us as a neighbourhood store, and our new haberdashery department aims to engage with the fashion colleges near us, encouraging students and customers to come along and improve their sewing skills (sewing room pictured on previous page). I’m bringing back more vintage things, as well as more furniture – all the things that Liberty is traditionally renowned for.”

McKee, with her experience of managing retailers on both sides of the Atlantic, is a believer in the future of department stores, but says they need to remember that they “have to become the host or hostess, while the customer becomes the guest”. What is indisputable is that, whichever side of the pond they are on, no stores can expect to survive if, as The Future Laboratory’s Hardy puts it, “all they do is try to sell us more stuff”.



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