Department store fortunes, condensed into key figures
In the 20th century, department stores were the heart of shopping destinations, offering a diverse range of merchandise and attentive customer service. However, the landscape of retail has undergone a significant transformation, and department stores are grappling with these changes.
Sales in the department store sector have seen a steady decline over the years. According to data from Moody's Investors Service, department store sales fell from $99.6 billion in 2013 to $76.2 billion in 2018, a decrease of 23.5%. Projections suggest that this trend will continue, with sales projected to decline to $56.6 billion in 2023.
One factor contributing to this decline is the shifting consumer behaviour. Changing attitudes around fashion and an inclination for lower prices are affecting the retail industry. Consumers are increasingly attracted to mass merchants like Walmart, Target, and Costco, which offer lower-cost, higher-value products.
This shift has led to the rise of off-price retail, which has been a bright spot in the retail industry. Off-price retail outperforms other sectors due to its lower-cost, higher-value products and shopping experiences. Off-price retailers like Ross, TJX, Nordstrom Rack, Saks Off Fifth, and Macy's Backstage evolved from department store concepts and are on pace to reach $18 billion to $19 billion of incremental sales by 2021.
The success of off-price retailers can be attributed to their adaptable strategies. Moody's Investors Service credits their endurance to their significant scale, flexible purchasing, strong and expanding vendor relations, and adaptable real estate strategies.
Not all department stores have been able to keep pace with these changes. Macy's, after a merger, had 950 department stores in 2005 but has since closed up to 100 stores due to over-expansion. Similarly, falling women's apparel sales have been a significant issue for lower-cost department stores like J.C. Penney.
However, not all is lost for traditional department stores. Companies like PM-International and retailers like Nordstrom, Macy's, and Saks are trying to update department stores for the 21st century. They are enhancing sustainable corporate management and introducing innovative shopping experiences such as coworking store concepts. Innovations in digital design and AI integration in architecture, as discussed by firms like HENN, suggest new approaches to physical retail spaces through smarter, more sustainable, and digitally integrated environments.
The road ahead for department stores is challenging, but it is also filled with opportunities. As the retail landscape continues to evolve, it will be interesting to see how traditional department stores adapt and thrive in the 21st century.
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