It is no secret that the fortunes of department stores have been dwindling, amid changing consumer preferences and the rise of e-commerce. As the Covid-19 pandemic forces retailers worldwide to shut their doors, the department store model of sprawling stores and large inventories that span every imaginable category has been put under additional strain.
Is this the final blow for the format? Already, in the United States, giants like Neiman Marcus and JC Penney have filed for bankruptcy. Nordstrom announced the closure of 16 stores, while Macy’s is seeking financing amid a projected first-quarter operating loss of around US$1 billion (S$1.4 billion).
Retail sales in March, before the start of the circuit breaker, saw sales at department stores drop by 39 per cent year-on-year – one of the largest declines among retail categories tracked by the Singapore Department of Statistics.
In Singapore, department stores such as Tangs and Metro are mostly keeping mum about whether the impact of the outbreak, which is expected to reshape the retail sector, will lead to closures. But the outlook is bleak.
Retail sales in March, before the start of the circuit breaker that forced most retail stores to shut for the duration, registered the sharpest drop in almost 22 years. They fell 13 per cent from the same period last year.
Department stores, once a hub for the latest fashion and household needs, have fallen behind the times. Fast-fashion chains have lured shoppers with trendy items at low prices, while home furnishings and appliances can often be found at a discount online, where vendors save on rental and manpower costs.
In Singapore, the rise of suburban malls that house international brands has also dampened the allure of Orchard Road, where many department stores are concentrated. As a result, some have been shrinking their footprint or disappearing entirely.
Isetan shuttered its outlet at Westgate mall in March, while Robinsons said it will be closing its 85,000 sq ft store in Jem in August, leaving it with just The Heeren and Raffles City stores here. Both closures were initiated before the coronavirus outbreak. Metro shut its flagship store at The Centrepoint last year, a move it said was part of efforts to rationalise its retail business in response to changing market conditions.
The company, which shifted its focus to property investment and development in the 1990s, maintains two stores in Singapore, down from five at its peak. Last December, it divested its stake in a joint venture that operates 11 Metro outlets in Indonesia.
For its 2019 financial year, parent company Metro Holdings posted $113.4 million in pre-tax profits for its property business, while its retail unit recorded a loss before tax of $6.4 million. It said last month that it would be pushing back to July the announcement of its results for the financial year ended March 31 – a two-month delay.
Robinsons told The Business Times last month that competition from the rapid increase in the number of suburban malls had made maintaining multiple large-scale department stores in Singapore unsustainable well before the pandemic.
Then there is the spectre of John Little, which was Singapore’s oldest department store, and which closed its last store in 2016 – despite having been in business for a whopping 174 years. It was managed by Robinsons Group, which is owned by the Dubai-based Al-Futtaim Group.
Robinsons told The Business Times last month that competition from the rapid increase in the number of suburban malls had made maintaining multiple large-scale department stores in Singapore unsustainable well before the pandemic. It added that while the challenges it is facing during the pandemic are “extremely difficult”, it is committed to ensuring viable and successful operations in Singapore.
Takashimaya, Tangs and Metro declined to comment on how operations have been affected by the circuit breaker and whether there are plans to change their business models or reduce their physical footprint. Robinsons said brick-and-mortar stores allow it to provide customer service in a way that its digital store cannot. Still, it is ramping up its e-commerce capabilities, “especially in the light of Covid-19”.
“The department store format as a whole has lost relevance, and stores have not done enough to engage the younger consumer demographic.” – Dr Seshan Ramaswami, associate professor of marketing education at Singapore Management University
Isetan (Singapore) said in a regulatory filing last month that it expects to make a loss for the first half of the year, due in part to business disruption from the coronavirus outbreak and the limited extent to which it can reduce expenses to offset the drop in revenue. To mitigate this, it has been working to boost sales contributions from its online store as well as its supermarket at Shaw House.
Dr Seshan Ramaswami, associate professor of marketing education at Singapore Management University, noted that department stores have been struggling for more than a decade, with stores regularly closing and few new ones opening.
Observers pointed to Tangs and Robinsons as the two that have made the most visible effort to modernise, with Tangs, for example, completing a $45 million revamp of its Orchard Road store in 2015 that added a new kitchen studio and beauty services, among other amenities.
Overnight queues have become a common sight at Robinsons’ flagship store at The Heeren during its annual Black Friday sale, which includes giveaways of items such as iPhones for shoppers who meet a minimum spend.
Both also have decent e-commerce sites and membership programmes, experts said. But the department store format as a whole has lost relevance, and stores have not done enough to engage the younger consumer demographic, said Dr Ramaswami.
“This, combined with the high rents required to maintain large spaces in good locations and the difficulties in maintaining a motivated retail sales force, has accelerated the gradual collapse of this format even before the Covid crisis,” he said.
New-Age Department Stores
Retailers with an eye on the future are shifting their focus to the digital space, as they prepare for lower footfall when shops reopen as well as online shopping habits formed during the circuit breaker.
Observers noted that some department stores have been slow to go online, in part because they cater to an older crowd. But they also pointed out that an online pivot may not be the best strategy for department stores, which generally curate products but do not produce their own.
Retail expert Amos Tan, a senior lecturer at Singapore Polytechnic’s School of Business, said the competition online does not come from other department stores, but from platforms like Lazada, AliExpress and Shopee. “They’re the new-age department store; you can find anything on these e-marketplaces, whereas a department store online is only as big as its stock.”
Both Robinsons and Metro joined Lazada’s LazMall platform in recent months, allowing them to benefit from its wider audience. Instead of fighting for dollars online, department stores should use these platforms to build brand awareness and relationships with customers, said Mr Tan.
Retailers must be laser-focused on providing an engaging experience for their target customers, as shopping is no longer just transactional, he added.
If there is hope yet for department stores, success, it seems, will be determined by the experience their brick-and-mortar outlets provide. For now, observers agree that there is room for improvement when it comes to product assortment, prices, ambience and customer service.
Sink or Swim
With the pandemic accelerating the demise of businesses on shaky ground, will department stores survive? And if they do, what form will they take?
One possibility is to have smaller “experience stores” that consumers can visit to touch products and ask questions, said Mr Tan. “Then you give them an additional 5 to 10 per cent off as motivation to stick with you online, and they can buy it at home at 3 a.m.”
It is clear that the traditional department store model is outdated, and like all retailers, these brands will have to innovate to survive the current crisis.
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