As global retailers continue their rapid expansion into Asia, and across the world, the big question is how the traditional department store, once the bedrock of shopping destinations, will survive in the face of changing competition. Will the large department store retailers in Asia face the same challenges as their Western counterparts, or does Asia’s unique consumer base offer a bounty of opportunities for department store growth?
Department stores in the West have undergone what is best described as an identity crisis. Forced to merge, close altogether, or completely re-invent themselves, it has become increasingly clear that consumer expectations are changing as online buyers keep clicking and shoppers are presented with more choice than ever before, especially in the fast fashion and cosmetics sectors.
Despite the department store’s challenges in the West, Adam Cook, Asia Pacific retail lead for JLL argues that, in Asia, this type of retailer remains a go-to anchor tenant even in developed markets like Tokyo and Singapore despite declining revenues in the department store category. However, it will be interesting to see how Australian department stores, in particular, respond to the massive influx of foreign fast-fashion brands that have entered the country this past year.
Australia’s two major department stores, Myer and David Jones, are certainly feeling the pinch following an influx of foreign retailers such as H&M, Zara and Sephora. Struggling against competition from online retail outlets, David Jones’ shareholders approved a multi-million dollar takeover bid from South Africa's Woolworths Holdings earlier this year. However, elsewhere in the region, it’s a different story says Singapore-based Cook
A recent report from JLL showed that Asia’s middle class population is expected to double to 1.32 billion by 2020, highlighting the region’s rapidly changing consumer base.
“Consumer spending in Vietnam alone is up 12% annually. The growing expendable wealth in these emerging markets is a real opportunity for both international and domestic retailers,” says Cook.
However, the region is yet to see the expansion of street-front shopping, or speciality retailer-anchored shopping centres that have gained popularity in the West. While some well-known retailers like Marks & Spencer feature their own private labels, traditional department stores are able to house a mix of globally recognized brands. More specifically, they deliver to the consumer a mix of private and independent labels, and can offer a great podium for new retailers to enter emerging markets through shop in shop programs.
“The Isetan Japanese department stores are able to bring in some reasonably high-end designers from time to time, which seems to work well. Specialty shops like the Vivienne Westwood boutique in Isetan’s Orchard Road store in Singapore offers shoppers exclusive access to top avant-garde couture design,” notes Cook.
Although the stock prices of most publicly traded department stores in the region have recently seen a slight decline, the department store remains an important element of the tenant mix in the growing numbers of new shopping centres under development in the region.
Middle and upper class shoppers in many Asian markets still favour the department store format, and tourism continues to drive sales.
“Japan-based retailer Isetan is expanding throughout Asia, as is Central, a Thai-based retailer, which supplements its core department store business with franchise brands like Muji and Nike... there's still money to be made and the formula is still working,” says Cook.
“Central department stores is undergoing strong growth and is bravely blazing trails with the development of new department stores in emerging markets such as Indonesia and franchise forays into Vietnam. Central’s robust business is not only due to its department store offerings; it also diversifies its income by owning franchise and licensed partner agreements for many leading global brands.”
With a rapidly increasing GDP and exponential population growth, China has become a magnet for international retailers but has it been a case of too much too soon?
As a speciality retailer, British-owned Marks & Spencers, sits in the middle ground between department stores and independent brands, and its growth trajectory in China offers a good indicator of the overall retail landscape.
And they’re not alone. GAP is undergoing an aggressive rollout of the Old Navy brand in China while Abercrombie ad Fitch committed to opening 100 new stores across the country. While both retailers are making strides towards these new store goals, there remains an overall sense of caution.
A key aspect of the department store evolution is negotiating the omni-channel pathway; with the explosion of online services and shopping, consumers want an “experience”, and a holistic one at that.
“Retailers must unite the platform, so that there's a similar experience and brand voice, no matter what channel the consumer is shopping in,” Cook says.
He believes Asia will take the US’ lead and innovate its department stores by creating signature offerings, citing US department store Macy’s as a prime example of successful online, mobile, and brick and mortar platform.
“They are regularly heralded for pioneering integration of store operations and omni-channels,” he says.
Last year, JLL facilitated a 700 store-in-store partnership for Macy’s with high-end athletic shoe and apparel retailer, Finish Line.
The deal saw Finish Line become the exclusive athletic footwear partner of the department store chain—a move that executives think could increase annual revenue by as much as 30 percent. Macy’s benefits with the buying, inventory and supply chain expertise of Finish Line staff while the partnership allows Finish Line to grow sales and access a new demographic of shoppers without opening new stores.
Similarly Nordstrom made the bold move in the last year to re-organize both the in-store and ecommerce channels to report to single individual in charge of all sales functions.
Summing up, Cook argues that, while the formula is working at the moment, Asian department store operators lack the ecommerce and mobile platforms that exist in the West and will need to adapt to maintain growth.
“Developing these platforms and learning to partner with online retail giants like Alibaba Group in China are the critical next steps for department stores to maintain and grow customers across the Asian marketplace. Department stores may have some challenges ahead, and will need to beg, borrow and steal survival strategies, but they aren’t dead yet”