Why Crazy Rich Asians and locals are avoiding select department stores
Tuesday, August 28, 2018/
Next month I will be visiting European retailers, so this week I spoke to a couple of European retail executives in preparation. It appears that European retailers are yet to find a way to stabilise profits in their department stores. And this is in spite of the huge sales of luxury items to cashed-up mainland Chinese travellers — both crazy rich and just quite rich.
While in Europe, I’ll take in famous department stores, including Harrods, Illum, KaDeWe, Magasin, Galleries Lafayette, Galeria Kaufhof, CK Tangs and Selfridges.
Currently, my gut feeling is this: the shopper experience in every one of these original city department stores will be outstanding and full of crazy rich Asians.
Harrods and the original Selfridges stores in central London all trade wonderfully well. CK Tangs’ store on Orchard Road in Singapore and Magasin in Nyhavn Copenhagen do too. All these city department stores will be full of cashed-up crazy rich Asians and locals alike, enjoying an amazing shopping experience.
The issue with department stores isn’t sales and costs in the big capital city stores — it’s the low sales and high costs in the ‘burbs.
Across the world, in the days before the rollout of huge out-of-town malls and way before the internet, you had to travel to the big city to experience the wonder of a department store. But cheap land and the expansion of larger shopping malls, firstly across the US and then across Europe and Asia, allowed grandiose capital city department stores to open department stores in smaller cities and ‘burbs, taking the experience to the people.
Those who didn’t live in the big city wouldn’t need to travel to New York’s 5th Avenue. No, ‘we’ll bring a piece of New York to a large oblong concrete shopping mall near you.’ Think of a little of London being brought to Birmingham, or some of Melbourne imported to Geelong, or Seattle featured in Frisco.
However, these new malls were pale imitations of their original stores’ beautiful buildings, creative merchandising, breadth and depth of stock and amazing service. Only the prices were the same.
Fast forward to the internet age, where The Iconic can deliver low-price fast-fashion items to your office reception in a matter of hours, and the role of the out-of-capital-city department store is not clear in shoppers’ minds.
When I walk Saks, Macy’s, DJs, Myers and Nordstrom in modern out-of-town shopping malls, I find many are soulless. But when I walk their capital city stores, it is undeniable they are still great places to shop that ooze a style and history that no website (not even one rendering on an Apple 27 inch Thunderbolt monitor screen) can replicate.
So what’s the answer to department store profitability?
Unless you want to go the way of Toys ‘R’ Us and run out of money before you’ve been able to shift sales online, you need to make a change. If you want to prevent the declining sales at your loss-making store network from bleeding out your capital, you need to shut the out-of-town stores.
Ask the board to ask the shareholders for money to get out of leases in all low or unprofitable stores.
Ask them for money to buy a really good online clothing retailer.
And then ask your suppliers for money to allow you to market and retail your great brands nationally online to the smaller cities and the ‘burbs.
You’ll then be competitively omnichannel.
Plus, invest in the staff and stores in your truly amazing capital city stores to deliver excellent shopper experience. This will ensure the crazy rich Asians and crazy rich locals will continue to flock to your original stores — and also entice more slightly less crazy rich locals make the effort to drive or fly to these city stores once or twice a year to shop big.
Or, you can carry on trading the way you are, and an online retailer may end up negotiating with your receivers to buy your brand’s heritage and cherry pick your best stores. Then the online retailer will be truly omnichannel at your shareholders’ expense.