Skip to main content

The new rules of department store reinvention


By Robin Lewis, [email protected] and Michael Dart, [email protected]

Since specialty retailing accelerated during the 1960’s, the department store retail model has been severely challenged, as evidenced by steady share erosion during that time. The defining characteristic and advantage of specialty retailing is specializing in one product category, while department stores carry an untold number of categories. The specialists (most of them selling only the brand on their nameplates, like Gap or A&F) have a much simpler operational model in terms of sourcing, presentation and selling than the enormous complexity of the department store model.

However, complexity and breadth of offerings are not the only reasons the department store sector is challenged. It’s been competitively dominant and perfect for consumers’ shopping and buying preferences from its creation all the way through the 1950’s, but beginning in the 60’s and 70’s, consumers’ behaviors began to shift, giving rise to specialty retailers whose models responded to those changing expectations. Why the shift in consumer expectations, and to what? And, why are the specialists better positioned than department stores?

The fundamental reason consumers have evolved their expectations and behaviors is simply because they can. As we discovered doing our research for The New Rules of Retail, the overstuffed U.S. economy provides an unprecedented number of choices for consumers. For example, we estimated that in 1980 there were six major blue jeans brands; today, there are over 800 and the number is growing. The ever-increasing number of choices has caused the consumer to become commensurately more savvy and demanding about what’s presented to her. We also identified a major consumer shift that describes this phenomenon: from conformity to customization. Consumers today, instead of buying the cool denim brand all their friends were wearing in the 60’s and 70’s, pursue the one special, just-for-them brand out of the 800-plus available.

Today’s consumer is responding to smaller, boutique-style stores and websites with the “best” options smartly aggregated for her. Retailers need to become stage set designers, curators, gallerists, magicians – and not just at holiday time, but all the time and across all channels. Specialists, with their simpler models, are strategically better positioned to provide this environment. The specialty model is also better suited to providing convenience, ease of shopping and an experience commensurate with its brand image.

Conversely, the one-size-fits-all department store shopping experience is no longer the draw it used to be. Selling to the customer’s needs is about conferring a lifestyle, telling a story – a story of the life that the customer would like to live. And the department store, with a few notable exceptions and some upstarts, is missing the boat on that boutique shopping experience. The sheer enormity of product and brand choices hobbles department stores’ ability to provide ease of shopping, much less a meaningful experience.

The more enlightened department stores have begun to respond to the shifts in consumer demands by experimenting with what we defined in The New Rules of Retail as an enclosed “mini-mall” model, wherein outside brands set up their own boutiques within the store. This model turns a huge, undifferentiated space into a collective of bazaar stalls, each with its unique wares, colors and lighting. In the new rules of department store reinvention, we believe the mini-mall concept is a winning strategy.

Department stores need to make it small, make it unique, and build a narrative that consumers can connect with. What story does the store’s brand need to tell in order to lure the consumer to its special flavor of lifestyle, and what stories will connect the branded boutiques within the department store?

What can a store like Macy’s or J.C. Penney do to make the shopping experience more intimate and unique for the customer? J.C. Penney juiced up its image by partnering with Mango and Sephora, and Macy’s shares some of its bazaar stalls with Sunglass Hut and LVMH. There’s an evident synergy: both the host and joined brands are powerful, go-to brands for their core customers. This compels new traffic for both. The joined brand also gains preemptive distribution (another of the three new rules defined in our book) to new customers for a low capital investment.

As far back as the 1980’s, Ralph Lauren boutiques could be found in Bloomingdale’s. Ralph Lauren was possibly the first to successfully and skillfully render an entire lifestyle narrative in a brick-and-mortar setting. These master narrators bring new customer traffic to the store, but branding partners still need to be carefully chosen, amassed, and integrated to paint the whole lifestyle story the department store is trying to tell. Each partner is an integral component of the whole.

So what’s missing, and what department stores should be seeking, is an overarching brand, or message, that unites these partners, and in fact is predicated on other brands and products joining in. With carefully chosen brand partners and a compelling, engaging, proactive environment, we go from department store to department story, from a great big, difficult-to-shop store with a lot of stuff in it, to a go-to, curated “mini-mall marketplace” with an array of storied boutiques, restaurants, events, theatre and services, all so compelling to consumers that it becomes an experience that goes way beyond just connecting emotionally to becoming an addictive experience.

Robin Lewis is CEO of The Robin Report, a retail strategy report. He can be reached at [email protected]. Michael Dart is head of Kurt Salmon’s private equity and strategy practice and can be reached at [email protected]. Robin and Michael are co-authors of “The New Rules of Retail” (Palgrave Macmillan), a book about the consumer transformation affecting the retail world, and what retailers need to do to survive it.

More Web Exclusives/Guest Commentaries

This ad will auto-close in 10 seconds