Over the last two years the once-loved institution of the British department store has been well and truly shaken.
The tumultuous collapse of BHS in 2015 marked just the beginning of a grim episode, during which Debenhams’ market value has crashed to just £218m and House of Fraser has been forced to call time on half its stores.
BHS had a litany of its own issues, including mismanagement, a gaping pension deficit and neglected store estate.
Nonetheless, the sudden collapse of the 88-year-old chain sounded warning bells of a retail model that was rapidly falling out of favour.
BHS collapsed into administration shortly after it was sold by Sir Philip Green for a nominal £1
Since then, far from rising victorious out of its ashes, BHS’ main department store rivals Debenhams and House of Fraser have emerged frailer than ever.
Debenhams is haemorrhaging profits – pre-tax profits plunged 85 per cent to £13.5m in its half year to March 2018.
The 176-store chain has issued three profits warnings in 2018 alone and now expects to generate earnings between £35m and £40m for the full year – a far cry from the £150m it reported five years ago.
House of Fraser is walking wounded too, most recently claiming its future is not viable without closing 31 of its 59 shops, including its Oxford Street flagship, through a company voluntary arrangement (CVA) – an a la mode form of restructuring used to release ailing firms from its lease obligations.
Even ‘High Street sweetheart’ John Lewis is struggling.
The retailer, which also owns Waitrose, warned this week that earnings this year would be ‘substantially lower’ than last, when profits across the partnership fell 77 per cent to £104m.
For now, these large mid-market department store chains are making every effort to cling on while the rapidly-evolving retail industry shakes itself out.
Debenhams boss Sergio Bucher has promised to ‘redesign’ the chain’s fortunes, John Lewis is rebranding to John Lewis & partners and House of Fraser is confident a leaner portfolio will give it a new lease of life.
But, are their efforts in vein?
As consumer demands change and the audience for these sort of chains continues to fall away, can mid-market department stores turn over a fresh leaf, or have they finally reached the end of the line?
Is the department store model dead?
The death of the department store is a much-vaunted topic, but according to industry experts, 2018 could be the year that finally brings the concept to its knees.
Andrew Busby, founder of consultancy firm Retail Reflections, says ‘the whole concept of the department store has had its day’.
‘Unless you’re in the luxury end or have just a few stores, your days are numbered.’
His sentiments are echoed by another This Is Money source who claims ‘the department store business model is already dead’.
For Debenhams and House of Fraser in particular, being over-spaced is a major issue, both in terms square footage and store numbers.
House of Fraser’s CVA plan were voted through earlier this month but did not go down well with landlords
Not only is store space costly, but as shoppers use the internet to browse products online, huge shops packed to the rafters – the cornerstone upon which retailers like Toys R Us were built – become less relevant.
Even furniture retailers like DFS, which traditionally sell from big box units, are moving towards a smaller store model, using technology to display additional stock and the store space as more of a showroom.
Time strapped consumers are turned off by mammoth department stores – daunted by the prospect of trekking through a 300,000 sq ft maze of escalators and mirrors to find what they need, particularly where items are ‘curated’ by brand.
‘How many places are you prepared to walk around for hours?’ one source asks, surmising that House of Fraser would fare better if its stores were ‘a fifth of the size’.
The chains with too many stores also struggle with the upkeep and therefore creating an attractive in-store experience.
‘A department store is like a bridge; as soon as you finish painting it, you’ve got to start again,’ Busby says.
But, as sales fall, these firms don’t have sufficient capital turn stores into ‘destinations’ – the holy grail of bricks-and-mortar retail.
Debenhams is assessing whether to close stores, and analysts have warned it could breach its debt covenants if trading worsens this Christmas
‘Debenhams has got one or two nice shops, but 90 per cent of the estate is very unpleasant, belonging to 20 years ago,’ Busby adds.
Luxury department stores like Harrods and Selfridges are the exception to the rule as they clearly hold great appeal, particularly among tourists.
Debenhams and House of Fraser are ‘drab and uninspiring’ by comparison, says Sofie Willmott, senior retail analyst at Global Data.
‘If they want to survive, the mid-market players need to try and emulate that luxury. But currently their portfolios are unmanageable,’ she says.
They also need to take the fight to all the other retailers currently turning the heads of fashion-conscious shoppers with spending power – Asos, Boohoo, Primark and Zara to name just a few.
‘Shoppers didn’t have the same choice before, Busby says, ‘but now the likes of Debenhams won’t even feature in their thinking.
One of the reasons for this is a distinct lack of identity.
What do you stand for?
As brands become ever more important to shoppers, is it essential that retail chains carve out a unique identity for themselves.
This point was underlined this week when the John Lewis Partnership lifted the lid on a rebrand aimed at emphasising one of its key differentiators – its partner-owned status.
Chairman Sir Charlie Mayfield said the ‘relentless pursuit of greater scale is not the right course’ for the business, which will instead focus on ‘differentiation, innovation and Partner led service’.
John Lewis will become John Lewis & Partners in a rebrand to emphasise its partner-owned status
It seems a sensible move because, while Selfridges, Harrods and John Lewis know what they stand for, Debenhams and House of Fraser still suffer from being a ‘jack of all trades but master of none’, Busby says.
‘What do Debenhams or House of Fraser stand for? House of Fraser has a nice beauty department, but so does Boots,’ one source says.
A lack of identity also leaves them vulnerable to the growing direct-to-consumer brand, with the likes of Mac and Dyson opening standalone stores where shoppers can immerse themselves in the brand and receive expert advice.
Debenhams needs to redefine what it is in business for,’ Busby says, ‘not by putting in more concessions, or just having everything under one roof because clearly that’s not working.’
They also need to be careful not to confuse shoppers further with initiatives – such as trialling gyms in-store – that ‘don’t really fit’, Willmott adds.
Survival of the fittest
As retail veteran Mayfield thundered again this week, retail is going through a period of ‘profound change’ in which only the fittest will survive.
Nostalgia is not enough to keep a well-known High Street brand afloat, as the demise of Toys R Us and Maplin taught us earlier this year.
Nor is it enough to support a sprawling portfolio of department stores as their appeal wanes, and weak consumer confidence and rising costs threaten to break the camel’s back.
‘Department stores can only survive in small doses’, Busby gloomily concludes, a reality that begs the question, what will fill the holes on the High Streets they leave behind?
But ‘its not game over yet’ one retail expert chimes.
If House of Fraser can successfully deliver its CVA and shrink back to a handful of premium-focused stores, perhaps it stands a chance.
‘Debenhams probably need to shrink faster too,’ adds independent retail analyst Nick Bubb.
To quote Mayfield, ‘this is not a blip’, but the industry isn’t ready for another collapse on the scale of BHS quite yet.