Friday Forecast: Anchors Away - What is the Future of Department Stores?

by Colleen Ferrier and Rick Petry on Feb 3, 2017 12:00:00 PM e-Commerce, Retail

Welcome to the Friday Forecast

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The so-called anchor store, which has been a mainstay of shopping malls across America since the centers first made their appearance in the mid-1950s, is in serious jeopardy. Although brick and mortar retails sales still eclipse ecommerce by a wide margin, the lion’s share of growth in retail sales is occurring online:

  • According to eMarketer, domestic sales for 2016 are forecasted at nearly $5 trillion. However, retail ecommerce accounted for just 8.7% of total retail spending.

  • However, while year-to-year retail growth was pegged at 3.3%, year-to-year ecommerce growth was 14% according to a forecast from Kiplinger.

While ecommerce continues its inexorable march to a bigger bite of the overall retail pie, department stores have been taking it on the chin. While Macy’s is currently the fifth largest ecommerce retailer with $4.8 billion in online sales, the department store chain recently announced the closure of 68 stores by mid-year with plans to close 30 more over the next few years. Those closures represent a loss of approximately 10,000 jobs.

Meanwhile, JCPenney recently announced plans to feature Nike shops – a kind of store-within-a-store -- at over 600 of its retail locations. This move mirrors the chain’s relationship with beauty retailer Sephora where they have opened up Sephora-branded mini-shops within the JCPenney footprint since 2006. Sears, once the department store stalwart, has revealed their plans to sell their venerable Craftsman line of tools to Stanley Black & Decker in a deal that could top $1 billion. Pundits have blamed the sale on pressure to deliver near-term results to shareholders, but one can’t help but wonder if such a move – akin to ripping out the heart of the brand – is the beginning of the end. At the same time, e-tailers such as Amazon are moving with increasing velocity into the brick and mortar retail space in categories ranging from groceries to books. Meanwhile, the online retail giant is projected to become the largest seller of apparel – surpassing Macy’s – sometime this year.


So what does all of this portend for the future of the department store? Here are a few observations and crystal ball predictions about where all of this square footage may be headed:

  • Big box category killers will likely replace many of the apparel-focused anchor stores.

    This is already happening as evidenced by the local mall in Portland, Oregon – Washington Square Mall – where what was once Mervyn’s is now a two-story massive DICK’S Sporting Goods. Might the Sears footprint of the future be a Lowe’s or a Best Buy? We wouldn’t bet against it.

  • Might the ‘department store’ of the future be a giant Amazon marketplace?

    With Amazon’s foray into physical retail stores – not to mention lockers and other forms of destination-based distribution centers, it’s not too much of a stretch to imagine an Amazon superstore with departments showcasing their most popular product categories. Such a footprint could also serve as the ultimate Amazon ‘locker’ where you order online and pick up the same day. In a way, embedding a Sephora or Nike in the likes of JCPenney mirrors this idea in the sense that the store-within-a-store is built around a category, albeit with a specific brand sensibility.

  • Is there a bazaar in our futures?

    Will down-in-the-mouth malls be forced to convert their empty department stores into bazaars filled with one-off kiosks and smaller chains, outlet stores, or even forced to resort to a flea market-like model? With tens of thousands of square feet to fill, both new and old models will likely emerge in an effort to breathe new life into these spaces.

Perhaps the greatest trend playing a factor in the demise of the department store is that their traditional bread-and-butter -- soft goods with high margins such as apparel -- is no longer invulnerable. While consumers might have once lusted after a clothing treasure hunt by visiting the nearest mall, they can now avail themselves of virtually unlimited choice and inventory online, at a time and place of their convenience. With disrupters like Zappos offering no hassle return policies, lighting fast fulfillment, and free shipping both ways, all objections are neutralized. When you add it all up, the future prospects for the old-school department store model may be summarized best by one word evocative of those garments: threadbare. 

 


Ricky Petry and Colleen Ferrier.jpg

Colleen Ferrier is a seasoned direct marketing expert who specializes in guiding integrated direct-to-consumer campaigns with an acute focus on ROI. Her broad experience has included management oversight of marketing, operations, media, and international distribution. The campaigns she has been instrumental in helping lead to success across her 15+ year career include Pillow Pets, Little Giant Ladder, Dream Lites, and Stompeez. Ferrier has a Bachelor of Arts in Communications from Augusta University, Georgia.

Rick Petry is a direct marketing veteran of over 25 years who has been involved with campaigns that have generated over $1 billion in sales. He provides creative services to both B2C and B2B marketing campaigns and recent projects have included Actegy/Revitive, Education Connection, GOLO, Joybird, and OYO/DoubleFlex. The author of over 200 articles on direct marketing best practices, Petry has a Bachelor of Arts in Cinema/Television from the University of Southern California and an MBA with an Emphasis in Sales and Marketing from Marylhurst University.

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The statements, opinions, and advertisements expressed on the ERA Blog and other online entities owned by the Electronic Retailing Association are those of individual authors and companies and do not necessarily reflect the views of the Electronic Retailing Association.