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Are Department Stores Dead?

Executives and retail disrupters weigh in.
Photo: Spencer Platt/Getty Images

Photo: Spencer Platt/Getty Images

The first quarter of 2016, like many quarters before it, was not a good one for department stores: Macy's, Nordstrom, Kohl's and J.C. Penney all reported declines in comparable sales, though headlines predicting the death of the department store have been popping up pretty consistently for the past couple of years. It's a natural result of a number of factors, like better online alternatives, millennials' increasing inclinations to spend on experiences instead of products and the recession-era discounting that has trained shoppers to look for deals (hence the success of off-price chains). 

Unsurprisingly, the topic of department stores and whether or not they're viable came up quite a bit during the Financial Times Luxury Summit in San Francisco this week. While many were quick to throw the retail concept some shade, others stressed its importance.

On a panel about the "women changing the way we look at fashion," Glossier and Into the Gloss founder Emily Weiss pointed out that the way in which  people now discover beauty products might have lessened their need to buy them in department stores, including YouTube tutorials and friends' Instagrams. "Women don't need to drive to department stores to meet strangers [to learn about products]," she explained. Weiss added that, customer service-wise, department stores leave something to be desired compared to retail concepts that have come up in the modern age, hers included: "The bar is set so low... I don't thing we've scratched the surface of customer experience, yet she’s already thrilled compared to department stores." She noted that at a recent brick-and-mortar pop up for Glossier, most shoppers came in already knowing what they wanted and there was a 40 percent conversion rate.

On the same panel, Moda Operandi Co-Founder Lauren Santo Domingo said she felt that e-commerce has trained consumers to shop in a way that department stores don't cater to. "[Shoppers] become editors," she said. "Whether you're online or in a store, it's scan, reject, grab. The idea of a department store or boutique where a women would go through the floor and find things that appeal to her and have a conversation on the store floor, she doesn't shop like that anymore." Her suggestion: a retail experience informed by how people shop online, like the invite-only showroom she has in London, and that will soon open in Dubai and China.

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While it doesn't technically consider itself a department store, Barneys has seemingly managed to retain a solid customer base, having just opened an additional location in New York. Part of the reason could be Fred's. "[People are] very interested in our restaurant," said Daniella Vitale, Barneys' COO and senior executive vice president, on a panel about "retail architects." "There will be a restaurant in every store as we continue to innovate." Indeed, retailers are increasingly adding food and other experiences to their locations: Urban Outfitters recently bought a chain of restaurants and has gradually been adding food concepts to many of its locations.

Brands themselves have varying feelings about wholesale. While many, like Burberry, have shifted much of their focus to growing direct-to-consumer retail as wholesale sales have dropped off, the CEOs of Coach and Saint Laurent feel it's still important to be in multi-brand stores. "The most important thing for organic growth is focusing on local clients [as opposed to tourists], and you need to accept that the local client wants to shop wherever they like," said Francesca Bellettini of Saint Laurent. "I'm not obsessed with a concession model where we are responsible for everything, because at the end of the day you just need to pick the right partnership and trust and make sure the message is delivered in the right way to the client."

For Victor Luis of Coach, being in a department store is almost like advertising. "Irrespective of what we hear about the demise of the department store, it's true that consumers do go to specialty stores and department stores to be educated on brands and so it's very important for us to continue to partner — yes, in a selective way — with those players." We've heard other brand echo this sentiment, too — of having wholesale accounts to spread brand awareness.

It's worth noting that while department store sales were down across the board in the U.S. last year, they fared much better in other countries like the UK. But stateside, people are spending their money on everything but clothes and accessories: sales of plane tickets, hotels and food were all up according to a presentation made by Sarah Quinlan, SVP and group head of market insights at MasterCard advisors. Department stores may not be dead, but they will have to think outside the fashion box if they want to keep up.

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